Feature Article

January 14, 2016

A New Bitcoin Rush? Bitcoin Mining Makes a Comeback

Bitcoin mining – the process by which bitcoin is disseminated and issued – only gets more difficult as the bitcoin grows more successful. While early bitcoins were comparatively easy to find, later bitcoins were increasingly tougher to generate. This led to a lot of users getting out of generation, until recently, when a bump in bitcoin value made people reconsider bitcoin mining again.

The rationale is that, thanks to an increasing number of websites willing to take the digital currency in payment for goods and services, bitcoin is getting more acceptance as not only a currency, but also a currency that could grow in value. While still well under its 2013 peak of over $1,100 per bitcoin, the currency is also recovering from its recent lows of $183 per bitcoin. Now, in the mid-$400 range, bitcoin is beginning to look more attractive to speculators.

As BTCC—a bitcoin exchange—CEO Bobby Lee described, the increasing value is enough to get the mining equipment makers interested in the field once more, bringing out faster and better processors and software to help break through the increasingly complex material required to yield a valuable bitcoin. Since BTCC runs the second largest mining pool around, it has a good idea from where it speaks, and as Lee further noted “Everyone in our pool is making money, because people who aren't making money would not have their machines turned on.”

The best comparison is probably oil extraction; we saw when oil was up around $105 a barrel and higher, it gave rise to the “fracking” concept and expansion of such operations throughout North America. When oil began its race to the bottom—it recently broke the $30 a barrel mark briefly—the value of the oil extracted began to lag the costs associated with extraction, and so fracking operations shut down. The same basic concept holds with bitcoin; the machines required to extract bitcoin require some fairly substantial amounts of electricity, and if the bitcoin extracted isn't enough to cover costs of machines and power, then no one's running. The rise of bitcoin value, in turn, is enough to cover costs and generate profit, so for now, the mining operations are getting back up and running. With even Netflix recently making suggestions that bitcoin could potentially, one day, be a part of its operations thanks to its increasingly global nature, that's enough to make anyone think twice about bitcoin's validity.

While bitcoin is a notoriously volatile product, there's no doubt it's made some fortunes since its inception. It may well yet make more, even as the processes to derive bitcoin get more complex and thus more difficult—and expensive—to perform. With bitcoin at its current values, however, it could indeed start something of a new bitcoin rush.

Edited by Kyle Piscioniere

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