Cryptocurrency explained
Let’s just say that your 30-year-old Tandy TRS-80 computer would probably melt if you tried to use it to mine for Bitcoin.
Now imagine taking over a huge warehouse and replacing the Tandy’s with modern computers stacked 20-feet high and in rows 100-feet long.
That’s the kind of scale being contemplated by the new owners of the Ponderay Newsprint, who have officially requested enough power to begin what could be one of the largest cryptocurrency mining operations in the country just outside of Usk.
What is cryptocurrency mining?
Cryptocurrency takes many shapes and forms. More than 6,000 cryptocurrencies have been created, but about 90 percent of the total market is locked up in the top 20 or so of the most popular, and thus expensive, currencies.
They are led by the first and most expensive: Bitcoin.
Unlike the dollar, or any hard currency backed by a government, cryptocurrencies are born, live and are transferred only by computer.
They can be traded like any stock and their value fluctuates daily as investors set their value based on customers’ willingness to purchase or sell them. On Tuesday afternoon, they were trading for $47,200 each.
Bitcoin was created in 2008 and went live in January 2009 by Bitcoin creator Satoshi Nakamoto, who created a proof-of-work system.
It relies on “miners” who use banks of highly sophisticated computers to perform two essential tasks: Verify all Bitcoin transactions for which they are rewarded with a few of the finite-number of Bitcoins.
Only through mining are new Bitcoins created. And not unlike the California gold rush of 1849, miners spend vast sums of money on electricity and computers to be the ones to be rewarded with new Bitcoins.
How do miners earn coins?
When Nakamoto created Bitcoin, he designed the system to track all Bitcoin transactions in what’s called a block, which refers to one megabyte of storage of electronic data.
When each new block of data is created, it’s chained to the previous block of information with a specific time stamp. It then becomes a blockchain.
What these blockchains do is record the history of all the Bitcoin transactions from their inception. Those blocks of information, which are accessible to anyone who wants to view them, also gives security and validity to the system.
For instance, if someone with a certain Bitcoin tries to use that Bitcoin to buy a house and use the same Bitcoin to purchase a car, all the computers hooked into the system would recognize that the person tried to use the same Bitcoin twice.
Because each Bitcoin has its own electronic identification, anyone who tries to use it twice for double-spending or anyone who tries to create a counterfeit Bitcoin, will almost immediately be found out, thus giving the system legitimacy.
The role miners’ computers constantly play is that they track the Bitcoin transactions and are then given a reward if they do two things.
One is they have to verify one megabyte worth of transactions, thus creating a new block in the blockchain. That’s somewhat the easy part for larger operations.
Secondly, a miner’s computers have to be the first to come up with the closest answer to a complex 64-hexadecimal-numerical puzzle, called a hash.
The computer that solves the computation first gets a reward of 6.25 Bitcoins worth about $295,000 based on Tuesday afternoon’s trading price.
But as Bitcoins become more popular and valuable, the puzzles that miners must solve become more difficult. That requires ever more powerful computers and electricity to fuel them.
For example, when Bitcoin was launched in 2009, miners could use home computers to mine them because the difficultly level was one. As of late 2019, it was estimated that the difficulty level had grown to 13 trillion.
And, the Bitcoin’s value is also tied to its finite number. When he created the currency, Nakamoto capped the total number of Bitcoins at 21 million.
As of July, about 18.7 million Bitcoins were in circulation.