Powerful mining machines are changing the nature of the popular cryptocurrency

Bitcoin, the cryptocurrency powered by a decentralized peer-to-peer network of computers, has been hot this season. With the exchange rate bobbling around US $100, those involved in creating new bitcoins—and upholding the network that makes them valuable—have become locked in an arms race of sorts, seeking new, powerful machines that will enrich them but could also destabilize the nascent virtual money.

Bitcoins exist only as records on a virtual ledger that’s shared over a global peer-to-peer network, each node of which must agree to changes in the accounting—payments or receipt of payments. Arriving at this consensus takes massive amounts of computing power.

You can use your bitcoins even if you’re not plugged into the network that runs the operation, but there is a strong incentive to help out. At an average of once every 10 minutes, the software spits out a handful of newly minted bitcoins to one computer, as a kind of lottery payment to the people (referred to as “miners”) who run it. The way you enter this lottery is by solving “hashes,” trivial functions that reformulate meaningful data sets into unique strings of letters and numbers. Each time a computer completes a hash, it’s as if it has filled out another lottery ticket, choosing the numbers and hoping they match up. Only a specific hash will be accepted, and the first computer to find the right one gets the prize.

However, there’s one more feature in Bitcoin that controls the profitability of mining. “It has everything to do with difficulty,” says Jeff Garzik, one of the core developers of Bitcoin. As the hashing power of all the combined computers increases, it becomes less likely that a particular machine will compute the right answer. In the lottery example, this would be like making people choose more numbers on a ticket. And if the hashing power goes back down, so too does the difficulty.

As the price of a bitcoin has gone up, more people have been building and buying dedicated machines they call “mining rigs” and driven the hash rate higher. Back in January, when miners were getting less than $20 for their bitcoins at the online exchanges, the hash rate was around 25 000 billion hashes per second. At the rate of participation on 2 May, the network computed 69 123 billion hashes per second. - Read more here: http://www.asicbitcoinmining.info/2013/05/powerful-mining-machines-are-changing.html