A brief history of the Bitcoin “gold rush”

Mining or panning for gold, the search for wealth in the land, has inspired the most frenetic migrations and endeavors in history, attracting millions of explorers, enslaved people, and even opera houses in remote dusty mountain towns. When the resources are exhausted and the glory is gone, only the miners are left with a dilemma. They unearth the most primitive natural materials and then carve them from stones into valuable potential treasures. And few people become rich overnight and can keep their wealth for a long time. However, there is something different about Bitcoin mining.

New York Bitcoin Center: From Wall Street to Ghost Town

Bitcoin Center NYC, known as the "center of the Bitcoin revolution," operates a retail store on Broad Street in Manhattan, across the street from the New York Stock Exchange. Next to its store is an Asian-style steakhouse, where employees occasionally come out to drive away Bitcoin miners who hang out in front of the door, indifferent to their so-called "revolution." Inside the Bitcoin Center, two small tables are placed on one side of the room, and a pile of Internet-era extraction equipment is placed on it, which is the Bitcoin mining machine. It looks like a square desktop computer, but a little bigger, but without a monitor and keyboard. When the author of this article went to check it out last November, he found that among the many devices in the Bitcoin Center, only a TerraMiner IV Bitcoin mining machine produced by CoinTerra was operating, and it emitted a humming white noise from time to time. But in fact, the situation of Bitcoin is much more serious.

The TerraMiner IV Bitcoin miner sits quietly on a tabletop, wrapped in black metal, with stainless steel grilles on either end of the rack-mounted server that look like the eye sockets of a deep-sea diver. Under the grilles are fans that cool its array of application-specific integrated circuits (ASICs), a combination of advanced chips that perform complex cryptographic mathematical calculations to continuously mine and process transactions for Bitcoin, the world's most famous virtual currency system. The reward for this calculation is that miners receive new Bitcoins from the network and also earn fees from users who trade Bitcoin. Mining cryptocurrencies is profitable, as its non-virtualized name suggests, but the TerraMiner IV's returns are low.

In just one year, the bitcoin miner has become synonymous with a fast-fading, outdated bubble, waiting to be replaced by any new opportunity that emerges at this peak moment. Due to the high-speed and orderly competition from the Internet, the TerraMiner IV mining machine is "not making enough money to cover its expenses". The bitcoins it mines every day are not enough to pay for the electricity it consumes. Even the latest version of the mining machine, working day and night, is a loss-making business. Because the price of bitcoin continues to plunge, from a high of $1,100 at the end of 2013 to less than $250 now. 25 new bitcoins are added to the network every ten minutes, but it is still a small profit. CoinTerra, the manufacturer of the TerraMiner IV mining machine, also filed for bankruptcy on January 24. Like a exhausted gold mine, the roar of the mining machine turned the busy nights of the former Bitcoin Center into a ghost town.

Nick is a real estate agent in New York. He first came into contact with Bitcoin in 2013, when he accidentally discovered the Bitcoin Center on a winter night before the New Year. Nick had envisioned his company as a frontier for Bitcoin to seize the center of New York's financial district, but because he was waiting for government departments, such as the New York Financial Services Authority, to introduce regulations on virtual monetary policy, the store lost money in the early stages of operation. The plan to set up a Bitcoin exchange machine has not been implemented, and the Bitcoin ATM machines near the mining machines have always been offline transactions. The culprit for the delay in both is the unclear law. Currently, Nick is gradually selling his mining machines at low prices, mostly for teaching purposes. At the same time, during the long winter days, he will also turn on a few mining machines to serve as heating equipment for the store.

"I feel like a martyr, a martyr who sacrificed for Bitcoin, and for this, we all paid a heavy price," Nick said. But for investing in any commodity whose value depends on people's confidence, the pervasive pessimism is undoubtedly a fatal killer. Despite this, Nick has no hesitation and firmly believes that Bitcoin "is about to change the world."

The birth of Bitcoin: timely and earth-shaking

In all fairness, Bitcoin should lead to a new global economy, the gold rush of the Internet age, which is not controlled and managed by a central agency of a country, but circulated through the precise algorithms of computer users. At first, the first converts to Bitcoin were tech-savvy visionaries, and later the Bitcoin in their hands rose from a few cents to hundreds of dollars. Then, a large number of media industries joined the reporting team, and magazines and websites published various reports on Bitcoin, further promoting the popularity of this new currency. Then, a charity based on Bitcoin transactions appeared in Florida, which bought a nine-acre forest to provide shelter for the homeless. At this time, given its potential to transfer the circulation of financial services to ordinary people in the future, the American magazine "Wired" praised Bitcoin as "the great equalizer." At the same time, Bitcoin has attracted the interest of innovation-hungry investors, such as the Winklevoss brothers: Cameron Winklevoss and Tyler Winklevoss, who once boasted that the trading price of Bitcoin would rise to $40,000, and they are also Mark Zuckerberg's arch-enemies. Soon after, Bill Gates also spoke out, saying that Bitcoin is "better than currency." However, the Bitcoin revolution is increasingly similar to the system it is about to replace, except that it is more centralized, unequal, and even obstructed by some improper interest groups.

Mining, in particular, should be a democratic act. Satoshi Nakamoto, the anonymous founder of Bitcoin, once wrote on the online forum of the P2P Foundation: "The fundamental problem of traditional currency is trust." This passage appeared on February 11, 2009, when the world was shrouded in the shadow of the financial crisis. Just one month after the initial creation block of Bitcoin was launched, ordinary computer users could mine, although there were still great technical difficulties and it was basically unprofitable. These ordinary miners can choose the software version to run and then see the network operation status. It is more vivid to describe it as mining. Satoshi Nakamoto's original intention in designing Bitcoin was to seek more ways to dig for gold. By setting an upper limit on the total amount, relying on the scarcity of Bitcoin and the resources consumed in mining, he guaranteed its value.

There is no doubt that this is a huge breakthrough. For the first time in history, Bitcoin-based technology has created a viable secure, decentralized, open-source financial network. Users do not have to rely on any financial institution or government department, they just need to run the software. And transactions do not rely on the servers of a single institution, but all transactions on the Bitcoin data platform are assigned permissions, that is, the stacked structure of the blockchain, and the current transaction volume is as high as 50 million. Miners took the world by storm, like squeezing money out of thin air. Supporters even claim that traditional bank transactions will soon be replaced by Bitcoin's financial freedom, when people anywhere in the world can freely transfer money through the Internet, and the transaction fees are negligible. Satoshi Nakamoto also predicted that Bitcoin "takes advantage of the essential characteristics of information, and it is much easier to spread than to contain it." The traditional financial industry is running out of time, and those in the know know that the so-called "big change" is imminent.

The beginning of destruction: fatal flaws lead to high capital and low profits

As the price of Bitcoin rose against the dollar throughout 2013, a race for equipment to mine Bitcoin began. Miners realized that a computer’s graphics chip was better suited to Bitcoin’s mining algorithm than a standard CPU. Specialized mining machines emerged, loaded with graphics processors, which increased the odds of finding Bitcoin. It was also in the first month of 2013 that ASICs, application-specific integrated circuit boards designed for the sole purpose of mining Bitcoin, appeared. Before long, mining machines attached to ordinary computers became obsolete, unable to compete with the new mining conglomerates, or mining pools, consisting of multimillion-dollar data centers scattered around the world that have the most profitable combination of cold weather and cheap electricity. For example, a helicopter hangar in Sweden is home to 45,000 miners, and Georgia consumes 20 million watts of electricity. At the same time, the combined computing power of Bitcoin miners is hundreds of times greater than that of the world’s top 500 supercomputers combined. In addition, processing and protecting Bitcoin transactions worth more than $3 billion each year consumes more than $100 million in electricity and produces a large amount of carbon emissions.

Dave Hudson, an analyst for a website about bitcoin mining, said: "From a technological perspective, the bitcoin network is unprecedented. As far as I know, there has never been such a huge industry in the past." The computing power consumed by mining bitcoins could have been used to cure cancer or explore the universe, but it is locked up by mining machines and has no other use except for bitcoin transactions.

On the other hand, the prospects for democracy in the Bitcoin network system are becoming increasingly uncertain. As of the middle of last year, the largest mining pool accounted for 50% of the Bitcoin market, which means that they may endanger the entire system by tampering with transactions. The factor that prevents them from doing so is that tampering with the system will reduce the market's confidence in the value of Bitcoin, while mining Bitcoin consumes a lot of their manpower and material resources, which is not worth the loss. At the same time, they will also prevent changes in the Bitcoin software to prevent weakening their dominance. This has resulted in the current distributed network users having to trust the "oligarchy" composed of capital-intensive miners.

Edwin is a 26-year-old airbrush artist who runs a cheesecake shop in Queens, Manhattan, and is also an intern assistant to Nick at the Bitcoin Center. He witnessed that Bitcoin's democratic vision was the driving force that attracted the first batch of miners. "The place that needs Bitcoin the most is the traditional banking industry," Edwin said. What he hopes to see is that Bitcoin will spread not only on Wall Street, but also to the Bronx where he lives, and even to a wider range of space.

Edwin first learned about Bitcoin in late 2013, when the U.S. federal government was still shut down and a friend of his was using Bitcoin for personal reasons. Then, in January 2014, Edwin came to the Bitcoin Center to learn more about Bitcoin. On his first visit to the Bitcoin Center, Edwin bought a Butterfly Labs mining machine the size of an oven that can calculate 30 Gigahash per second for $350. A month later, he spent another $2,000 on a Titan mining machine. Edwin confessed that the Bitcoin he mined with these two mining machines was not enough to pay for the equipment, but at least it made his room warm. In addition, he stored all the Bitcoin he mined to use as education funds for his five-year-old daughter. In addition, Edwin also made extra money by spraying space war patterns on other people's mining machines.

A missionary-like piety prevails in the Bitcoin "space", and those involved in this emerging industry call it the Bitcoin Center. In fact, from the "wallet" that manages Bitcoin accounts to the "Bitcoin" in virtual circulation, a large part of the industry terminology of cryptocurrency is derived from metaphorical meanings. Optimism is believed by Bitcoin enthusiasts, but it is more of a blind optimism, ignoring the sharp depreciation of Bitcoin in the future.

Tim Swanson, author of The Anatomy of a Quasi-Currency Information Commodity: A Study of Bitcoin, believes that “some people in the New York Bitcoin Center are very religious” and has written two e-books on cryptocurrencies in the past year. Prior to this, Tim lived in China and built some of his own graphics card mining machines, but the industry repurposed some of his mining machines as gaming systems. As he learned more about Bitcoin, Tim became more and more skeptical about whether Bitcoin could solve existing financial problems. He said: “Bitcoin has the function of centralization, but it does not bring the benefits of centralization.” The beautiful vision of Bitcoin’s flawless finance was ultimately aborted due to the huge cost of mining, the human infrastructure and the concessions of the regulatory authorities.

Tim added: “Being your own bank sounds cool in theory, but it’s a painful reality.”

The road ahead is long: the battle between idealism and realism

But in any case, the emergence of Bitcoin is just the beginning. Last June at the Bitcoin Center, Vitalik Buterin, a 20-year-old Russian tech wizard who now lives in Canada, gave a keynote speech. In a corner of the room that night, Andrew Auernheimer, a famous American hacker known as "Weev," was typing away on a laptop. He had just been released from federal prison. When asked what he planned to do, he said, "Living on my Bitcoin!" While other attendees were having a great time eating pizza and drinking rum and coke nearby.

Ethereum, the Bitcoin 2.0 platform designed and developed by Buterin, won the 2014 World Technology Award in the IT Software category. Ethereum aims to create an operating system for cryptocurrency that not only facilitates more Bitcoin transactions, but also enables anyone to create contracts and decentralized applications. It may be a truly decentralized and secure platform that can currently replace the Internet, and it has created a new virtual citizenship through blockchain data, breaking the previous model of distinguishing citizens by geographical boundaries or government countries.

Ethereum raised more than $18 million in its second round of massive financing. Although the system is not yet online, it has attracted the attention of many parties. First, researchers at IBM are using Ethereum code to develop an Internet of Things platform for their new product line. Second, Eris Industries, named after the Greek goddess Chaos, is also an Ethereum-based project, mainly to fundamentally decentralize decision-making power and establish a new type of internal bank network. Third, Bitcoin startup Blockstream aims to expand the functions of the Bitcoin protocol layer, which has something in common with Ethereum and is favored by Silicon Valley investors. The founder of Blockstream also cleverly replaced Google's motto of "Don't be evil" with "It's impossible to be evil."

Even as the value of Bitcoin plummets, it still has the power to realize the ambitions of visionaries. For example, a derivative of Bitcoin, FairCoin, is turning into a cornerstone of global cooperation, and Israeli developers are trying to build a blockchain-based group operation model for the ride-hailing app Uber. For most people, big companies are catching up with Bitcoin's search engine and reshaping themselves. Today, at Bitcoin-related conferences, the traditional financial industry blends with the free Bitcoin survivors, and when Ethereum is mentioned, it is more like a successful killer application than a new world order. As Preston Byrne, founder of Eris Industries, said, "People have to live realistically instead of idealistically, because there will always be ideals that cannot be realized."

It is said that the next generation of mining machines is about to appear, which is faster and simpler than the previous ones. This is another great opportunity for integration for greater economies of scale. There are also rumors that Bitcoin has great potential to expand to poorer countries, because people here need cheaper ways to send money across borders. But starting in 2016, the Bitcoin network is expected to change the benefits of miners, and it is likely to charge higher transaction fees.

The founder of the P2P Foundation is Belgian Michel Bauwens, and it is also the place where Satoshi Nakamoto first published Bitcoin and realized his vision. Bauwens pointed out that the Bitcoin economy is more unfair than the traditional economy. According to current statistics, the top 100 Bitcoin users hold at least 20% of Bitcoin wealth.

It turns out that entrusting our money to algorithms doesn’t guarantee better returns than traditional banking, despite its flaws. Perhaps we should be developing tools that foster trust in one another, rather than pinning ourselves on the pursuit of digital gold. The technology used by Bitcoin can do this, reorganizing to promote cooperation rather than competition, real names rather than anonymity, and democracy rather than dictatorship. Among the hundreds of “altcoin” experiments, experiments along this line could completely abolish intensive mining. These altcoins are just copies of Bitcoin, and they are short-lived in terms of both financing and customer evangelism. The emergence of various mining machines has also made people forget the original intention of developing Bitcoin. What we need is not a newer, more flexible system, but a better society.

Not long ago, in the evening of the Bitcoin Center, a middle-aged lady in a windbreaker, wearing a pearl necklace, looked particularly dazzling against the background of the windbreaker. From her mouth, we learned that she was from Harlem (a black residential area in New York), and she only said that her name was "Miss E". She slowly walked towards the messy-haired staff standing next to the mining machine.

"What is Bitcoin?" she asked the staff, and the staff began a long explanation, saying that Bitcoin is a layer of Internet finance and that it is secure through various encryption mechanisms. The staff kept talking, and "Miss E" seemed to be ready to leave.

“I came here to find someone who could replace traditional banks,” she said, pointing out the window toward Broad Street. “We need to disperse wealth, you know what I mean? I think that’s what we ordinary people are looking for in Bitcoin.”