“There’s gold in them there hills!”
The mostly mythical Gold Rush proclamation also could apply to the recent frenzy over bitcoin mining.
Locally, there has been some controversy over bitcoin mining at the old Stimson Lumber mill site in Bonner. There, nearby residents are unhappy about the noise of fans used in the “mining” operation.
So what is bitcoin mining, and why is it noisy?
Bitcoin mining is paid work to make sure new transactions put on something called a bitcoin blockchain are valid.
A bitcoin blockchain is a continuously growing list of records, called blocks, kept digitally on a bunch of accessible-to-everyone servers.
Much as we have all agreed since back in 1933 to use printed paper notes to represent dollars not backed by gold, these digital bitcoins on the blockchain are being accepted as payment for goods and services.
When someone buys something with a bitcoin and sends their bitcoin to the seller, bitcoin miners make sure the transaction is legitimate. From this perspective, they add real value, as they allow people to use bitcoin to pay for things and receive money for things.
You could call these bitcoin miners the equivalent of being the gold standard (although no one does). The “gold” they are providing in this case, though, is the solving of a mathematical puzzle.
The tech-geeks call it solving a cryptographic hash. It is reasonably complex to describe how you get to solve the mathematical puzzle, although to be a bitcoin miner you don’t have to know this at all.
What is perhaps most interesting is that the puzzle is not solved by knowing something, but can only be found by discovery, hence the term “mining.”
It is this fact – that you can get paid to just discover the answer to a mathematical puzzle – that is the beauty, and the beast, of bitcoin mining.
The beauty is that anyone with a computer and an internet connection can become a bitcoin miner. Anywhere in the world. How very egalitarian.
The beast is that anyone with a computer and an internet connection anywhere in the world can become a bitcoin miner, which means there has been a gold rush around providing this service.
Since the issue here is about discovering the answer to a problem, not solving the answer to a problem, that means if you can do this with more scale and less expense than anyone else, then you win – over the long run.
Throw enough computing power at the problem and you are more likely than someone who has less computing power to discover the answer to the “is this a valid transaction” problem, and that means you are more likely to get paid for finding the answer.
With a global economy, purchasing computing power is pretty much the same whether you live in Missoula or Shanghai or Greenland. What is different is the cost to run those computers, and the cost to keep them cool.
Plus, you need a super-fast internet connection so you know when there is a new transaction needing to be validated, and you can submit the correct answer you’ve found before anyone else does if you have found a correct answer.
Cheap power and a fast internet connection is why Bonner is home to one of the U.S.’s largest bitcoin mining operations.
Cheap Montana electricity is used to run the computers, and most importantly to power the fans to keep those computers cool, as running computers full tilt all the time so you can try to be the winner of the “I’ve found the answer” problem is critical.
You have probably experienced this with your own laptop – have it work hard on a problem, such as playing a DVD for 2 hours, and it gets really hot and its fan has to work full time to keep it cool. You’ve probably noticed that the fan in your laptop is noisy. The fans at the bitcoin mining operation in Bonner, Montana are noisy, too.
According to Digiconomist (https://powercompare.co.uk/bitcoin/), the global electricity cost of mining bitcoins is more than the electricity consumed by 159 countries. If bitcoin were a country, it would be 61ston the list of energy consumption.
Whether or not that is a useful use of electricity is up for debate: According to Forbes, every year U.S. data centers like Facebook, Google and Apple use the electricity from roughly 34 coal-powered plants, which is nearly 40 percent more than the entire United Kingdom.
That is a tremendous cost for providing minute-by-minute updates of what you’re doing or being able to listen to music on the go.
David Firth is a professor of management information systems in the College of Business at the University of Montana and a faculty fellow with Advanced Technology Group in Missoula.