The State of Bitcoin

-Taylan Unal- 7/19/14

Since its birth just five short years ago, Bitcoin has grown to be the fastest growing payment processor and financial asset class to date. Bitcoin was created by a man who goes by Satoshi Nakamoto when he wrote the Bitcoin Whitepaper, and to date, has still kept his identity a secret. With an anonymous creator and a peer to peer anonymous block chain payment system with no middlemen or chargebacks, Bitcoin is perfect for both the consumer and the merchant. Bitcoin is upwards of ten times more efficient than standard payment processors such as credit card companies and major banks, with 0.3-% fees compared to the 3% that credit card companies charge merchants. Merchants both in brick and mortar stores and online have begun to pick up on the idea that accepting this “magic internet money” isn’t such a bad thing after all. Though widespread adoption of this cryptocurrency is yet to come, nations around the world have heard our call to change finance as we know it.

Bitcoin has changed the way people transact money by bringing about the idea of a block chain, a public ledger of all transactions made through the Bitcoin network. Anyone in the world can make a Bitcoin transaction without ever having to give up their identity or go through a 3rd party. These transactions are confirmed through the constant solving of hash functions by computers all around the world; these computers are called miners.

Mining is an extremely important part of the coin’s survival because each and every miner works to ensure the security of the network by checking for the ownership and validity of the fund being transferred from one peer to another. These miners are paid for this work through transaction fees and newly generated bitcoins. During Satoshi’s time, only CPU’s were used to mine bitcoins, but as time went on, miners realized that they could utilize their GPU’s as well to save power and get faster hashrates (speed at which hashes are found while mining). But even GPU’s weren’t enough as people began to program their own boards specifically designed to mine bitcoins quickly and efficiently; these were called ASICs. The production of ASICs carried with it a GIANT impact on network hashrates and the price of Bitcoin. As with any technological improvement, miners gravitated towards these shiny new ASICs and thus the difficulty of mining Bitcoins skyrocketed until CPU and GPU miners became obsolete and could no longer mine anywhere near the amount Bitcoins that they could before. Bitcoin difficulty has been consistently shooting up 15-20% approximately every two weeks, causing consumer grade hardware never to bring back “return on investment.” Until last week, where the difficulty only rose about 3%. This precedent brings promise for small-scale miners to continue to mine and purchase new hardware.

Upon the first introduction of mining ASICs, there were only a few manufacturers available being Butterfly Labs and ASICMiner. Both companies produced* consumer grade products around the $200-$300 and industrial grade hardware for $1000’s. These two were pioneers of the ASIC world and lit up the path for many more companies to emerge and create competition. From CoinTerra, to KnCMiner, to HashFast; companies have scammed, lied, and downright stolen from the consumer. Slowly, though, companies began to gain back the trust of the community such as ASICMiner and KnCMiner and they both continue to ship today. New companies have also grown from the failures of its ancestors such as RockMiner (ASICMINER based chips), Gridseed, and Antminer. But of course, because about 90% of these companies carry products produced in Eastern Asia, it simply doesn’t make sense for the consumer to pay to ship their miner from there and wait over a week for delivery. So, to simplify this process, resellers began to spring up offering cheaper shipping and cheaper bulk prices.

*I say produced lightly as they only really sent out their Jalapenos —to be cointinued—

Written by Taylan Unal (Last Saved 2014-07-19)