Bitcoin mining: a huge waste of time?

I admit. I got sucked in.

I read the glowing article in last month’s Wired about bitcoin. Thus far, I’ve been pretty oblivious. Future of currency, blah blah blah, whatever. The way it’s been built on open source software is interesting, though, the value is, of course, appealing, and that there are more PayPal-like services to handle money transfers is a huge boon. So, okay, bitcoin. It’s legit (probably). How do I get some?

Well, I could buy a bitcoin or two, but jeez, as of the time of this writing, that’s $500 for one bitcoin. Five hundred dollars!!! Seriously? I’m not dropping five hundred bucks on a virtual coin with limited resources to use it. But being a digital currency, certainly there are other ways to acquire bitcoins besides begging people to give you some out of the goodness of their hearts or only accepting client payments in bitcoin.

Let’s take a step back. The way, say, the American dollar works is that, in theory, it’s backed by gold. You could — the theory goes — exchange your dollar bill for an actual chunk of gold, if you wanted (but good luck spending it). Gold is a precious metal that’s mined from the earth. It’s scarce — on a long enough timeline it will all disappear — and that gives it value. The value increases as the scarcity increases.

Bitcoin works on the same theory except that the scarcity is artificially induced. A new bitcoin is “mined” when a complex cryptographic puzzle is solved. The puzzles get increasingly complex as time goes on until 21 million bitcoins have been mined. Then that’s it, after 21 million bitcoins are in circulation, there will be no more new bitcoins. There’s the scarcity.

Mining bitcoins is a little like mining for gold. Except, rather than climbing down into a dirty mining cavern with a lamp and a pickaxe, you need to decrypt an algorithm. And by you, of course, I mean your computer. Or, a computer, at any rate. That got me thinking, well, surely that could be my computer. Because certainly nerds have been doing this for years already.

I went into research mode to figure out what bitcoin mining actually entailed. I was right, nerds have been doing this for years, enough to have developed fairly user-friendly tools for wallets (where you store your bitcoins) and mining programs. Only these days, no one mines for bitcoins anymore. Instead, you donate your CPU cycles (GPU, actually, as graphics processors have been found to be better able to crunch through the algorithms) to a mining pool, where your share is divvied up (generally) based on your contribution to the pool (exactly how this works depends on the mining pool). Effectively, it works similar to the way you can currently donate your processor power to SETI and help search for aliens.

First you need a wallet for your bitcoins. I downloaded Hive, which is listed on the bitcoin main page. I also set up an account on Coinbase — which Hive integrates with — so I can accept online payments in bitcoin. Coinbase is basically like a PayPal for bitcoins, making it extremely easy to send and receive bitcoins or integrate bitcoin payments into your online store. Then I needed to find a mining app. Asteroid is a bitcoin mining app for OSX and it’s pretty easy to set up, so I downloaded and installed that. Before I can mine for bitcoins, I need to connect to a pool. I had read some references to Slush’s Pool, so I figured that was as good a place as any. Create your account there and you get a worker. The worker identification goes into your mining program so it can connect to the pool and sync the progress it makes in helping the mining process with the pool’s system so the pool can manage your contribution and what that means in terms of payouts. I was all ready to go, now it was just time to start mining.

So I started mining. And mining. And mining. Most of last week, I was writing, so I didn’t really need my main computer — I was working off my laptop. I figured I could just let my desktop mine while I did other things, and anyway, the mining process didn’t seem to have any detrimental effect on overall performance (though, since I’m using an iMac, there are warnings when you set up Asteroid that you might cause damage — e.g. overheating — to the GPU, but I set up the mobile app that hooks into Asteroid on my iPod which can give me alerts if the system temperature is too high).

After a week of casual mining, all I’ve got left to show for my work is a fraction of a fraction of a bitcoin. In Slush’s Pool, you can define a threshold for payouts. I set mine to 0.05, roughly $20 at the time I set it. To date, I’ve earned exactly 0.00003003 bitcoins equal to — ready for this? — a whopping 1 cent

So here’s where my dilemma is:

On the one hand, that’s freaking ridiculous!!! One week and all I have to show for it is a penny? What is this? An allowance from 1840? And this is only going to get harder as more people — and big businesses — jump onto the bitcoin mining bandwagon. Hardcore miners build machines — possibly even multiple machines — dedicated to mining. And it terrifies me to think that, sure, I could do that, too…wait, am I even considering this?

On the other hand, there’s literally no work involved. I fire up a program and let it run. It doesn’t affect hardly anything I do (unless it fries my graphics card, which kind of freaks me out). Surely the complete lack of effort is worth something?

The problem is that I know that my current setup is not optimized for bitcoin mining. And I keep thinking about “well I wonder what the best GPU for bitcoin mining would be” — but then that leads into the whole why am I considering making a monetary investment into something that’s yielded a penny?  Bitcoins are prohibitively expensive and not widely exchanged outside of nerds and investment firms. For those people, they’re riding high, because the value of bitcoins is rising by the second. And it’s possible that, at some point, my 0.00003003 bitcoins will be worth a chunk of cash if I just sit on it long enough — like a government bond, it just needs to mature. But right now, I’m wondering if the time for mining for bitcoins — even in a pool — has passed.