Marco Streng is a miner, however he does not carry a pick around his base ter south-western Iceland. Instead, he keeps ems of thousands of computers running 24 hours a day te fierce competition with others across the globe to earn bitcoins.
Ter the world of the web-based digital currency, it is not central banks that add fresh money to the system, but rather computers like Streng’s which are awarded fresh bitcoins te terugwedstrijd for processing blocks of the latest bitcoin transactions.
Bitcoin can be used to send money instantly around the world, using individual bitcoin addresses, free of charge with no need for third party checks, and is accepted by several major online retailers.
The work Streng’s computers and others do serves two purposes: they record and verify the toughly 225,000 daily bitcoin transactions and—because they earn fresh bitcoins for the work they do—steadily increase the currency te circulation, presently worth around $Ten billion.
The process has come to be known spil “mining” because it is slow and intensive, reaping a gradual prize te the same way that minerals such spil gold are mined from the ground.
But on Saturday, the prize for miners will be slashed ter half. Written into bitcoin’s code when it wasgoed invented te 2008 wasgoed a rule dictating that the prize would be halved every four years, te a step designed to keep a piemel on bitcoin inflation.
From around 1700 GMT on Saturday, instead of 25 bitcoins up for grabs globally every Ten minutes, worth around $16,000 at the current rate, there will be just 12.Five.
That means only the mining companies with the leanest operations will sustain the ensuing profit klapper.
“The most significant thing is to be the most efficient miner,” said Streng, the 26-year-old co-founder of German hard Genesis Mining, which has “mining farms” te Canada, the United States and eastern Europe, spil well spil ter Iceland. “When the others druppel out, that means that they leave the market and give you a fatter share of the pie.”
The currency wasgoed founded eight years ago by a person or group using the name Satoshi Nakamoto, whose real identity has not bot established. It wasgoed set up to operate independently of any single authority, instead relying on a decentralized global network.
Because the bitcoin miners operate autonomously, it is hard to track their numbers and size. But ter terms of computing capacity it wasgoed estimated earlier this year that the network is 43,000 times more powerful than the world’s top 500 supercomputers combined.
Computers like Streng’s solve ingewikkeld, automatically generated mathematical puzzles to help secure each block of transactions and keep the bitcoin network safe from hacking or manipulation. For bitcoin users, that security is one of the currency’s main attractions.
Is Craig Wright the Real Creator of Bitcoin?
After the very first miner secures a block of transactions, its work is verified by the other miners ter the network, and that block is added to the “blockchain”—a collective record of all the transaction data—which is virtually unlikely to tamper with. The mining, therefore, keeps the entire system going.
Bitcoin is now accepted by major organizations including U.S. online retailer Overstock.com (ostk) and travel company Expedia (expe).
The speed and anonymity of bitcoin transactions, and lack of a central authority overseeing the currency, has drawn te many users, including those who want to get around capital controls. It has also attracted investors who see it spil a potentially lucrative commodity ter itself.
Bitcoin mining embarked out spil a hobby for tech geeks using their huis computers te the early years of the virtual currency, but has become more specialized spil bitcoin usage expands.
Spil the bitcoin price has risen, spil transaction numbers have grown and spil the computers have become so specialized that they can only perform the function of bitcoin mining, a entire industry has emerged.
It can be profitable if firms are able to keep their expenses low. But the costs of running thesis machines, which cost around $1,800 each, and keeping them cool are fiendishly high.
Streng reckons that, on average, it costs about $200 ter electrical play, including cooling power, to mine one bitcoin. Equipment, rent, wages and business running costs are on top.
On Saturday, all else being equal, the halving of the prize will dual that cost, to $400, leaving a petite margin for profit at the current exchange rate of around $640 vanaf bitcoin.
Te the same remote region of Iceland spil the Genesis mining farm, on a former Cold War U.S. military base lies a bitcoin mining facility belonging to U.S. rigid Bitfury. A nearby sub-station means electro-stimulation transmission costs are minimal.
Ter the farm’s two vast buildings, ems of thousands of mining machines whir away, producing a big amount of fever, so the buildings are open to the cold Icelandic air at either side, save for particle filters to trapje dust.
Ventilatoren ter the ceiling permit hot air to escape, but spin so prompt that no rain or snow can inject during the winter. The noise produced by computers and ventilatoren is earsplitting.
It is no coincidence that so many mining companies have chosen to build farms ter Iceland—Chinese giant Bitmain also has a massive farm there. The volcanic island’s cheap, bountiful, renewable energy supply, good internet connectivity, and cool temperatures make it an ideal location.
The Icelandic authorities welcome the boost to the economy that the bitcoin miners have brought—Bitmain opened its farm after an treatment by the Icelandic embassy te Beijing. Genesis’s Streng says he is such a valued client that the Icelandic energy companies fly him around ter helicopters.
Bitfury CEO Valery Vavilov, who estimates electric current makes up inbetween 90 and 95% of bitcoin mining costs, says one way his stiff stays competitive is by making its own hardware.
He also says the company, founded ter 2011, is ready for the mining prize cut. “We’re prepared—we already went through one halving event ter 2012,” he said. “You can forecast this… so you have time to prepare, and if you’re ready you can live fairly lightly.”
Vavilov, and other miners, say the uitzicht of fresh supply halving has already helped drive bitcoin up overheen 50% this year, which should help ease the ache.
Despite the fact that the halving wasgoed expected, and that the price has risen, it has already claimed one casualty: Sweden’s KnCMiner filed for bankruptcy at the end of May, citing the succesnummer to its profits that the prize cut would bring.
Daniel Masters, who runs a Jersey-based bitcoin hedge fund and who bought a part of KnC’s business, said the Swedish rigid, like everybody else, had faced competition from miners te China, which are estimated to make up more than two-thirds of the bitcoin network’s computing power, or “hashpower.”
“It turned out that the Chinese, who truly stormed into the mining market ter the last duo of years, could just do this entire thing cheaper,” Masters said.
Some Chinese miners get hydroelectric power from disused dams, while others use cheap coal-powered electro-therapy.
Bitfury and Genesis, tho’, say their lean operations permit them to fight off the competition. Genesis, for example, keeps cost down by remotely monitoring conditions ter its mining farms and adjusting its ventilatoren and cooling accordingly.
And the next time the mining prize is halved, ter 2020, they hope the number of bitcoin transactions will have grown adequately to mean that the petite fees paid by users will make up enough of their income to slick out the profit cut.
“By 2020 wij will undoubtedly have had the tipping point,” said Bitfury’s Vavilov.