It’s really hard to make money off Bitcoin.
How hard is it?
The makers of the most powerful miner in the world can’t even satisfy the insatiable demand for their product, because they would probably ruin Bitcoin if they did.
Here’s the problem: Bitcoins are mined by computers solving maths problems. More technically, they unlock blocks of encrypted hashes, or numbers. As more of these blocks are unlocked, it requires exponentially more power — literally, electricity — to mine one single Bitcoin, because you need to run your machine continuously to do so.
But Bitcoins were designed so that as more Bitcoin was mined and created, the encryptions would get more difficult. In other words, it would require more time and power to mine a single coin.
If you were “crazy” enough to get in on Bitcoin in its infancy, say around 2009, you got a great deal, because you could mine a lot of Bitcoin in a matter of hours just by using your desktop CPU. But if you only started reading about Bitcoin in the last couple of weeks, it would now take you three days to mine a single Bitcoin just on the Jupiter (on a more average miner it could take up to two months), since the number of miners has now proliferated.
And the advent of the Jupiter by KnCMiner, which runs on a 28 nanometer chip that requires 40% less electricity than the previous generation of chips, have made it impossible for older mining units to compete.
It’s a great deal if you own one, not so much if you don’t.
“We’re both the cause and the cure,” KnC technical communications director Alex Lawn told us when he stopped by our offices this week. “We’re busy delivering the product, and making it more difficult at the same time. But we’re anxiously aware of that which is why we’re not delivering any units at least January.”
The situation is complicated by what you might call the mega-miner problem. When a Bitcoin is mined, other users must confirm that a block was successfully unlocked. But in theory, a dedicated army of miners could take control of the entire Bitcoin network and only tell themselves about new successful decryptions.
It would be extremely difficult to do this, as it would require an incredible amount of computing power. But KnC is dedicated to spreading the Bitcoin gospel and has refrained from attempting such a cornering even if they could. They don’t even mine their own coins.
“We made a promise,” Lawn said. “In the summer, there seemed to be a lot more people going to this [28 nanometer] technology — it looked like the hash rate was going to get completely mutilated. So we just said as long as everyone is trying to respect the hash rate we will do the same.”
In the event, Lawn said some of Bitcoin’s competitors ended up failing to reach the 28 nanometer rate in time, but KnC still fulfilled their pledge anyway, to avert the cartelization scenario. Even now that others appear to be within reach, Lawn says KnC doesn’t mind — Lawn said KnC’s engineers are uber-geeks who live for the thrill of making stuff, and are already
at work building the next most powerful machine.
“We need competition — the whole point of Bitcoin’s protocol is that it’s distributed through many people around the world.”
Just another paradox in this strange, fascinating world.