The easiest way to get a Bitcoin is to buy one. You can join drug dealers, speculators, and the curious by hopping onto an online exchange and purchasing one unit of the digital currency for, as of Nov. 11, about $340. But you can get Bitcoins for free by mining them, and a new breed of chips will soon make doing that a lot faster. “You would need 70,000 Intel chips to equal what one of ours can do,” says Eduardo de Castro, co-founder of Bitcoin chipmaker HashFast Technologies.
Each Bitcoin has to be verified on a virtual ledger of all the Bitcoins ever circulated. Anyone can download some software and get a copy of this ledger, but to add to it, you must become a Bitcoin miner. That means you set your computer to work performing cryptographic calculations to decode elements of the currency system and confirm the validity of transactions, which then get added to the main record. The reward for this work is about 25 Bitcoins. The catch: Only one person every 10 minutes earns this prize, by solving the calculations before anyone else.
Mining Bitcoins is already a specialist’s game. Butterfly Labs and KnCMiner build special Bitcoin-mining hardware that they sell to individuals and groups of people who pool their money to amass lots of computers. Then there’s the Bitcoin discussion forum user known as BitFury, believed to be a self-taught chip designer from Ukraine, who “designed a chip at his kitchen table,” de Castro says. “He’s made a huge pile of cash” by selling machines using the chips on his website.
BitFury and other first-wave Bitcoin hardware makers will face competition in 2014 from a second wave of designers, who aim to speed the mining process with special chips known as application-specific integrated circuits, or ASICs. The circuits’ creators include HashFast, which has used cutting-edge chip design techniques to produce computers that sell for $11,700 each. CoinTerra has raised $1.5 million; its chief executive officer, Ravi Iyengar, used to design chips at Samsung Electronics (005930:KS) and Nvidia (NVDA). Secretive startup 21E6, another mining-machine seller, is believed to be backed by some of the wealthiest people in Silicon Valley; its co-founder is Balaji Srinivasan, a former Stanford University professor and data-mining expert.
The latest and greatest equipment from these companies should begin arriving in December, kicking off what the startups hope will be a massive spending spree by Bitcoin miners. “It really is an arms race,” says David Kanter, a chip analyst and consultant. “If you’re one of the first people to get one of these, then boom, you will make some real money. But once everyone has one, it’s back to square one.” Individual miners who get outspent by larger groups will end up with basically worthless hardware unless they can pool it into something larger, he says. As he says about BitFury, “I am sure he made more money from the hardware than the morons who bought.”
