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Introduction to Bitcoin (Part 2)

Tech Talker continues his series on the world’s largest digital currency, Bitcoin.

By
Eric Escobar
January 16, 2013
Episode #061

In Part 1 of this series on Bitcoins, I explained that Bitcoin is a digital currency used on the internet.  In this week’s episode, I'm going to teach you ways to mine Bitcoins and how to get started using your Bitcoin wallet.

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How to Get a Bitcoin Wallet?

First let's start by getting you your very own Bitcoin wallet for free at WeUseCoins.com. From here, you can download a free piece of software that will get your wallet started. Basically this software will sync with the network and will give you an address where you can receive Bitcoins. The set-up takes less than a minute, and it works on any operating system. What's awesome about this is that after the quick set-up, your wallet is your actual Bitcoin account that you control. This means that you are in charge – there is no other entity, such as a bank or a governmental institution, that can touch it.

How to Mine Bitcoins?

Now that you have a wallet, let’s get into the fun part of ways to get Bitcoins. The first way is to convert money to Bitcoins at a Bitcoin exchange. There are many such exchanges that will convert your currency of choice to Bitcoin. This is probably the easiest way to get Bitcoins, and right now the exchange rate between the dollar and the Bitcoin is about $13.40 to 1BTC. Like with any currency, this can fluctuate.

The benefit of exchanging cash for coins is that some products are cheaper to buy with Bitcoins because businesses that accept Bitcoins are trying to promote their use. This can be a great way to get something such as VPN service for half the price!

You can exchange Bitcoins back to cash also! So if you were to have your computer mine Bitcoins for you, these exchanges could convert your Bitcoins back to dollars for use in the physical world.

Mining Option #1: Your Computer’s Processor

With that let’s look at probably the most popular aspect of Bitcoin, and that is mining. I explained in last week’s episode that you can use your computer to solve a complicated problem in exchange for Bitcoins. This can be done in a number of ways, some ways being much more efficient than others.

The first way you can mine Bitcoins is with your computer’s processor. However, this is pretty impractical because of the way processors are designed. Without getting too complicated, processors can mine Bitcoins, but are not designed to solve the complicated problems well. If you used your processor to mine Bitcoins, it would probably cost more in electricity than you could make up for in Bitcoins.

Mining Option #2: Graphics Card

The more popular, and more efficient, way to mine Bitcoins is to use a Radeon graphics card. These graphics cards are very efficient at solving the specific problem that earns you Bitcoins. The speed at which you earn Bitcoins depends on how many hashes per second your device can calculate. If you were to use your computer’s processor, you’d be able to calculate maybe 50 hashes per second (each hash is one complete problem your computer must solve). This may sound fast, but even a generic graphics card can calculate upwards of 6,000 hashes per second.

This is why people choose to mine Bitcoins with graphics cards. We are talking almost 100 times the efficiency. Then there are high end graphics cards that can boost your hashes from 6,000 to 500,000 hashes per second. This hashing power is what will earn you the most Bitcoins! As an example, I purchased a $200 graphics card (Radeon 5970) that I use to play video games. When I’m using this graphics card for Bitcoin mining, I can generate around $3/day. This may not sound like a whole lot but that means that the cost of my video card will break even in about two months. Many people have taken this to the extreme and packed their computers full of high end graphics cards, the only problem with this is that if the price of Bitcoin drops dramatically then they would have shelled out a ton of money for no return.

The way I look at it, is that I already needed a graphics card, so why not find one for my purposes that is also good at mining Bitcoins? If you want to know more about which graphics cards work best, check out this comprehensive list.

Mining Option #3: Graphics Card + FPGA

The next option for mining Bitcoins with your graphics card is to mine them with something called an FPGA which stands for “field-programmable gate array.” This is a circuit board connected to your computer via USB that you can configure strictly for Bitcoin mining. The great thing about FPGAs is that they are small and can easily be attached to a computer with a simple USB cord.

See also: How to Remove Your Flash Drive?

Then there is also a new technology that is supposed to hit the market soon called ASIC or application-specific integrated circuit. This technology is specifically designed to mine Bitcoins. Up until this point, processors, graphics cards, and even FPGAs were not designed specifically for Bitcoin. They were designed for another use and then repurposed by active miners. ASICs on the other hand, were strictly designed for Bitcoin mining which makes them ultra-efficient. Although these devices have not hit the market yet (as of January 2012) manufacturers are claiming that they will have speeds of 3 million hashes a second for just $150. If this proves to be true it will be a new age in the Bitcoin world!

With that, here are your Quick and Dirty Tips about Bitcoin:

  1. You can get a free Bitcoin wallet at WeUseCoins.com.

  2. Bitcoins can be exchanged for almost any currency and vice versa.

  3. Bitcoins can be mined with processors, graphics cards, and FPGA’s.

  4. The next technology in the Bitcoin world will be the ultra-efficient ASIC boards.

Resources

http://www.weusecoins.com/

http://www.youtube.com/watch?v=mrlgw5KpkXM

Well, that’s it for today! Be sure to check out all my earlier episodes at techtalker.quickanddirtytips.com. And if you have further questions about this podcast or want to make a suggestion for a future episode, post your comments on the Tech Talker Facebook page.

Until next time, I’m the Tech Talker, keeping technology simple!

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