By Junseok Seo
Wang and Seo have been best friends for a long time. Wang always needs money because he has three children. Wang bought Microsoft stock last week, but he lost thousands of dollars because the stock price went down significantly. However, his friend Seo, who has eight kids, bought a two million dollar house yesterday. Wang was curious how Seo earned tons of money because Seo does not have a job or own a business. Wang asked Seo how he earned money while drinking beers. Seo whispered “Mining Bitcoin”. Wang asked Seo “what is Bitcoin?” Before going into Bitcoin, first let’s consider a crucial question: What is money? Money is a legally acknowledged central government medium to exchange products. Money has developed and been utilized as many different types of currency for thousands of years. Examples of early money include crops, silver, or oyster shells. These were used both as money and a record for exchanging. However, the movement of changing money had occurred earliest in Europe. They changed money’s form into silver and gold coins because people thought these coins were more utilizable, portable, and more durable than the old form of money. These days, paper money is used and traded worldwide. Therefore, paper money is considered the ultimate form of money. Nevertheless, another currency has been established and traded in the twenty first century: Bitcoin. |
What is Bitcoin?
Bitcoin is cyber-currency constructed by Shatoshi Nakamoto in 2009. Since 2009, its price has increased twenty thousand times. One Bitcoin was worth 2.5 cents four years ago, but the price has increased to about $500 USD as of press time. Bitcoin is based on a peer-to-peer (P2P) system. It is traded directly between users, using person-to-person networking, so there is no central system to control the currency’s value fluctuation. In other words, it is only traded by Bitcoin users. The Bitcoin system is based on public key cryptography, which is similar to open source programing. |
Developing Background
Bitcoin has a unique background. Nakamoto believes Bitcoin can solve problems in currency markets. He said trust between citizens and government should be the fundamental source when the government builds a currency. However, many do not trust their government because their behaviors have not been trustworthy, and many countries inject large amounts of un-backed currency when they want to cover their deficits. By example, a few African countries created too large of a money supply. this caused huge inflation, requiring tons of money to buy commodities like a small piece of bread. In other words, the price of bread is one dollar today, but its price will be increased to one thousand dollars tomorrow because of rampant inflation caused by the government. This is a disastrous happening that can be easily caused by governments, and we would expect this would not occur if there is no central government. Therefore, Nakamoto explains that Bitcoin would be a great currency because it is not regulated by a central system. How can Bitcoin be used as cash?
Many might have at one time purchased Facebook credits or other cyber currencies. However, the cyber cash can be used only on a specific website. This means that the cash does not have any purchasing power outside of the particular websites. For example, Facebook credits and Hayday coins are published by certain companies. However, we can purchase various goods and services through Bitcoin. The reason why Bitcoin has identical bargaining power to real cash is because it is based on a P2P system, meaning the money is traded by different users and does not have any relationship with the central government; it is owned by everyone who mines Bitcoin. Consequently, Bitcoin has great bargaining power because people can easily exchange Bitcoin for goods. |
Unique Bitcoin Characteristics
As Bitcoin has been established using a P2P system, it has distinctive characteristics.
Problems with Bitcoin
Bitcoin has many positive aspects, however Bitcoin has the following weaknesses.
|
How to mine Bitcoin
How do you prepare to mine Bitcoin? First you should install the Bitcoin mining program from Bitcoin official websites. It will help you to set up your account and provide a mining environment on your laptop. When you start the program, your laptop will start to solve the highly encrypted mathematical problems. When your device solves the problem, 25 Bitcoin will be saved in your account automatically. As times goes on, the credited amount will decrease because the program is limited to the 2.1 billion Bitcoin in circulation. Mining Preparation For mining Bitcoin you need a high performance central processing unit (CPU), and graphic processing unit (GPU). Over the last four years many laptops and computers have been able to solve Bitcoin algorithms easily. Users have been able to solve the mathematical problems and mine Bitcoin within five minutes. However, the level of algorithm complexity was recently increased. Nowadays, it is hard to mine Bitcoin individually, so people use two different ways to mine the coins: pool mining and high performance computers. |
As it stands, mining solo is becoming less popular as the total portion of solo miners is diminishing. Pool mining is a group in which several miners are cooperating to solve a problem. They can mine Bitcoin faster than a solo miner, but they need to divide their profit using the following equation,
(25 BTC + block fees – 2% fee) * (Shares found by user’s workers) / (total shares in current round) Thus, they can mine faster than the solo miner but they will get little profit if they have several members in the group. To avoid sharing profit, use the following method. Use a high performance computer. This may be cost prohibitive because they are ten times more expensive than normal computers. Alternatively, there is an amazing computer component that can reduce computer cost: the application-specific integrated circuit (ASIC) processor chip. The ASIC chip is designed to perform certain processes, allowing the computer to solve math problems faster than regular CPUs, at processing speeds of up to 60 GHz. This speed is fifteen times faster than normal CPUs. By comparison, the fourth generation Haswell CPU chip can operate only up to 3.9 GHz. The other option is using high performing graphic cards. Usually we think that graphic cards function only to provide monitor displays. However, graphic cards are more specialized at calculating massive math problems. Thus, many graphic cards provides tons of calculating capacity when mining Bitcoin. |
Buy real money
In the absence of a currency controlling system, no one can determine the value of Bitcoin in the market. However, Bitcoin can be traded for real money. Mt. Gox is the biggest Bitcoin exchange and can exchange your Bitcoin for hard currency. Remember to use a reputable Bitcoin exchange, which you can find at http://bitcoincharts.com/markets/. |
Future currency
We investigated a new type of currency. Bitcoin broke our traditional money system. Although it has faced many challenges, Bitcoin shows future possibility. These innovations maximize the money’s characteristics, utilizable and portable, and influence many countries and businesses to invent new systems of using the money. Additionally, it will help to bring ubiquitous computing system to our lives. |