A new kind of mining

Do you get miner-envy every year when the geoscience forum rolls around? Do you sit in your office wondering why you don't get to have all that fun flying around in helicopters, finding billion-dollar gold deposits and selling shares on the stock market?

Do you get miner-envy every year when the geoscience forum rolls around? Do you sit in your office wondering why you don’t get to have all that fun flying around in helicopters, finding billion-dollar gold deposits and selling shares on the stock market?

Well, now’s your chance. There’s a new kind of mining in town, and you don’t have to know anything about intrusive rocks or cataclastic metamorphism. In fact, you don’t even need to leave your cubicle.

I’m talking about bitcoin mining.

Bitcoins, in case you haven’t heard, are a kind of crypto-currency that is all the rage on the interweb. It is a peer-to-peer distributed online currency with no central bank (more on what that actually means later). It was invented in 2008 by a math whiz named Satoshi Nakamoto who is so reclusive we don’t even know if he or she is a real person.

Bitcoins don’t physically exist. Each one is essentially a very elaborate number with special cryptological characteristics. Only 21 million such numbers exist in the universe. Nerds have already found 12 million of them, which, despite the improbable nature of this whole scheme, are worth over $8 billion at Monday’s prices.

Here’s where it gets interesting. The remaining 9 million are still out there, just like the gold in the bottom of Yukon creeks. If you can find them, you get to keep them. And you don’t have to get a water licence or apply to YESAB.

Lee Hutchinson, a writer for the magazine Ars Technica, described how he tested a Butterfly Labs bitcoin mining machine. It’s about the size of a toaster and is filled with math chips that can do five billion “hashes” per second. It just sits there doing math equations all day until – bingo! – it finds one of those special numbers. That’s a bitcoin to put in your virtual wallet.

Hutchinson claims the machine did math so fast it got hot enough to serve as a coffee warmer as it sat in his office. The device sells for $274 and he spent $3.68 on electricity during his trial, during which he found six bitcoins. Since the price of bitcoins has risen from less than $2 in late 2011 to around $750 as of Monday night, that’s worth about $4,500.

For those familiar with Klondike history, this is the kind of story that starts gold rushes.

It gets even better. According to the Sydney Morning Herald, an employee at the Australian Broadcasting Corporation thought spending a few hundred bucks on a bit coin miner was too expensive. Instead, he reprogrammed ABC’s computers to mine bitcoins for him when they weren’t working on their real job.

Has your work computer’s solitaire program been a bit slow lately? Maybe your machine is already mining bitcoins for the guy down the hall.

You may be wondering what you would do if you struck bitcoins. They have become famous as black currency used on the infamous Silk Road site to buy guns and drugs. When the FBI shut down Silk Road, apparently they ended up seizing 1.5 per cent of all the bitcoins found so far.

However, bitcoins are creeping into more normal spheres. I was in a bar recently that accepted bitcoins. My pint would have been 0.03 bitcoins, if my Blackberry wasn’t so old that the bitcoin wallet app wouldn’t work. The bartender told me they charged GST and reported the income on their taxes just as if I had paid with some foreign currency.

It is not likely that all bitcoin merchants are this law-abiding. The Canada Revenue Agency recently released a reminder that bitcoin transactions are to be treated as barter, which means you have to pay tax on the market value (in dollars) of the transaction.

You can also get bitcoins in the world’s first bitcoin ATM, located in Waves Coffee House on Howe Street in Vancouver.

For readers who haven’t already thrown down the paper to go buy bitcoin mining boxes or reprogram the system at work, there are of course a few catches to this get-rich-quick scheme.

Firstly, like in the Klondike Gold Rush, if you’re reading about it in the newspaper you are already too late. The first million or two bitcoins were relatively easy to find. If you started now, competing with every hacker and math whiz on the planet, you might not find very many at all.

Secondly, remember that this is a peer-to-peer distributed online currency with no central bank, invented by a person who may not exist. This means that there is no trusted agency controlling the whole scheme. Rather, it is run by a shadowy network of bitcoin miners and exchanges. There is a risk that you might read in the paper tomorrow that the whole scheme had been hacked, or was a giant fraud in the first place. And if that happened, your bitcoins wouldn’t be worth the electricity that kept your bitcoin wallet going on your smartphone.

Bitcoin enthusiasts would retort that the record of “real” banks isn’t very reassuring either. For them, the fact that no government has the power to print billions of bitcoins to get itself out of an economic jam is a major advantage.

Gold bugs, of course, laugh at both bitcoiners and holders of paper currency. If civilization does melt down, neither bitcoins nor rectangular bits of paper will be of much use.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith

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