How Bitcoin Mining Is Like Going Back to the California Gold Rush

B3A3AB05-7BCA-4410-8E70-D0EE6F273BACYou may be aware of the Bitcoin fad that has been sweeping the digital and worldwide landscape. This current interest has occured as a result of what happened last year during the amazing run the Bitcoin has had with incrdible high oayouts for some who invested early in the cryptocurrency. Ever since people won big and cryptocurrencies, such as Bitcoin, proved to be incredible investments, the topic of Bitcoin mining started to be examined more thoroughtly.

How do Bitcoins come into existence? How are they formed or put into circulation? These are the questions that Bitcoin mining deals with. This is because Bitcoins by themselves are based on computing systems and the Blockhain working across nodes or servers synchroously and without a centralized server or master controllling the Blockchain. This is, in essence, what makes the Bitcoin a free currency — free from restrictions of a centralized bank of government with imposed rules.

I already covered Bitcoins and other cryptocurrencies a bit in a previous blog post. I want to reiterate that Bitcoins are limited and mining for them is a huge deal right now. It is a painstaking endeavor, with potentially huge rewards. In fact, it is such a big deal that in Russia, scientists have been caught and apprehended for using government supercomputers for the task.

According to The Independent, several engineers were detained and arrested at a secretive Federal Nuclear Centre that is located in Sarov, western Russia for attempting to use a supercomputer to moin Bitcoins. The supercomouter was available since 2011 and has some pretty incredible capabilities that sure would come in handy in a mining operation.

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“In 2011, the centre launched its new supercomputer with a capacity of 1 petaflop, which can undertake one thousand trillion operations per second,” according to the report. “The computer was not intended to be connected to the internet and when scientists attempted to do so, the centre’s security department were alerted.”

So what did them in and alerted th higher ups of the facility was simply online connectivity. This may seem strange that something that is so ubiquitous in today’s digital and always-connected world, and something Bitcoin mining relies on, would prove to be the thinking minds’ downfall in a top secret research facility. However, the Internet is not something supercomputers from their inception ever relied upon, as they existed for decades before the concept of a Bitcoin came into existence. Thus, it seems in that faculty they were not designed to be connected online — nor now nor ever.

Huge Rewards, High Stakes in Mining

The reward for mining for Bitcoins is that a single Bitcoin mined will mean a single Bitcoin acquired free of charge. With the large purchasing price right now (or really since 2017 when they boomed) of a single Bitcoin being more than $7,000, according to Coindesk, it is no wonder so many people or companies are trying to mine a coin.B26C390A-2986-4301-B15D-03E6081DAE02

Keep in mind that the whole Bitcoin phenomenon has been a bit of a fad and overmarketed endeavor thus far this year — or really ever since the end of last yewr when it started foing down heavily (crashing) and only really fluctuating since. Last year was when people won big, but it seems right now the market has so many uncertainties and so many cryptocurrencies are competing for market share that what the future will hold is still uncertain. I personally invested early this year, and so far have reslly lost money rather than gained any, due to the prices fluctuating back and forth. Investors and the market capitalization shifts everytime there is some news of a further attack on the cryptocurrency market or some overseas commission manuevers unfavory toward the cryptos.

Despite this, the fact is Bitcoins and many cryptos are priced incredibly high for a commodity-and-currency hybrid, not long existing (since 2009) and not backed by anything in the physical sense (gold or even government guarantees). Again, keep in mind that a single Bitcoin is worth more than $7000 today despite all the uncertainties of what the duture holds for cryptos in general. Mining such a coin could be a very nice investment. Mining is also needed for the Bitcoin phenomenon to continue functioning because, as I previously mentioned, Bitcoins are limited in terms of their potential circulation and it is only through further mining that new coins will enter the market and be circulated.

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How Today’s Bitcoin Shares Similarities to California’s Gold Rush of the 19th Century

You may recall, if you are from California or studied history at all, the Gold Rush was a time of upheaval during the Wild Wild West of the mid 1800s, which was a very turbulent history of the United States. This was a time when prospectors and investors, who were not even miners yet officially, would give up their careers, livelihoods and sacrifice themselves for the potential at fortune through the search of gold across rivers and mountainsides.

These people would travel across long and dangerous territory west to California without any assurance of success or failure. In fact, many gave their lives in the painful process of obtaining such fortune while others, literally, struck gold. Potential miners and enterpreneurs would travel with caravans or wagons with their families while wars were taking place, such as the ones with Native Americans, and very poor communications as well as route conditions existed.

However, such was their resolve. And Bitcoins today resemble a modern version of that resolve, with mining them being a painstaking, often very tech-intensive process. It takes a lot of computing power, time, resources and luck to mine the next coin into circulation. The same could be said for the human factor’s toil of gold mining in California during the 1880s.

Investopedia describes the mining process pretty thoroughtly and also compared it to the Gold Rush in California during the mid 1800s:

”entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1848… Every single one of those Bitcoin came into being because of miners. In the absence of miners, Bitcoin would still exist and be usable, but there would never be any additional Bitcoin. There will come a time when Bitcoin mining ends; per the Bitcoin Protocol, the number of Bitcoin will be capped at 21 million.“

Obviously there are many differences between the two mining operations and we are living in a completely different time. However, the main comparison arises at the enterpreneual spirit and driving force to mine that next coin.

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The rewards can be huge, there is no doubt about it. Investopedia describes the process as more than winning one Bitcoin at a time. In fact, the lucky miner will win a block of these Bitcoins at a time.

“Bitcoin are mined in units called “blocks.” As of the time of writing, the reward for completing a block is 12.5 Bitcoin. At today’s price of about $10,000 per Bitcoin, this means you’d earn (12.5 x 10,000)=$125,000.”

Mining has also changed over time starting from the Bitcoin’s 2009 inception when a mined block would generate 50 BTC to 25 BTC in 2012 and to the current mined block offering 12.5 BTC. So although the reward of mining has gone down in terms of quantity or coins someon can mine, the value has actually gone up due to the price or market capitalziation being so much higher today than it ever was for a single BTC.

Bitcoins are that modern craving for success and for getting lucky simultaneously. They represent chasing that dream through effort and through perserverence. This is not unlike the effort of the California Gold Rush, where nuggets of gold were gained through blood, sweat and sheer luck.

Bitcoins are also an example of where we are heading in the future. They represent a digital, global, and ubiquitous currency free of central banks, governments and other institutions controlling it. The control is in the hands of the computing nodes mining it and the market price that is determined by the free market.

However, as Bitcoins and other cryptos continue to grow, become more recognized by investors, the market and traditional industries such as Wallstreet, regulations and government peddling is unavoidable. It is already occuruing in many countries.

According to another Investopdia article, Titled Why IS South Korea So Important to Bitcoin Prices?, a country like South Korea can have a huge impact on Bitcoin’s market cap and trading price. If a government, such as South Korea’s, cracks down or discourages (if not outright outlaws) trading, it will have ramifications for the global market and prices will fluctuate — hence what has been happening much of esrly 2018. Even a non-action, like mews of potential government meddling, can have impact on the market cap or investor response.

“The bitcoin world’s collective sigh of relief at South Korea’s recent announcement may have cause the uptick in Bitcoin’s price in recent days, just as the precipitous January 2018 downturn was thought to have been partly brought on by the previous anti-Bitcoin statements by the South Korean government.”

As you see, mining for Bitcoins is a very complex, computing-power (hardware)  intensive endeacor that takes lots of resources, time and sheer luck to be able to win big and mine a block of these very highly-valued digital coins. This is not unlike in many ways mining for gold was during California’s Gold Rush. What the future holds for Bitcoins is a bit uncertain — although as I said, I think they represent the future of currency that will be global, always accessible and digital in nature— but the digital currncy and commodity known as the Bitcoin is not slowing down anytime soon. Nor will the demand to mine that next block of coins stop the next crazy idea from occuring —  as using a supercomouter from a nuclear facility in Russia showed.

All artwork included in this article was created by me (Maciej Duraj/Mike Lata) and is copyrighted @ Mike-Lata.com. If you want to use it, contact me for commissions.

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