On the flat lava plain of Reykjanesbaer, Iceland, near the Arctic Circle, you can find the mines of Bitcoin.
To
get there, you pass through a fortified gate and enter a featureless
yellow building. After checking in with a guard behind bulletproof
glass, you face four more security checkpoints, including a so-called
man trap that allows passage only after the door behind you has shut.
This brings you to the center of the operation, a fluorescent-lit room
with more than 100 whirring silver computers, each in a locked cabinet
and each cooled by blasts of Arctic air shot up from vents in the
floor.
These computers are the laborers of the virtual mines
where Bitcoinsare unearthed. Instead of swinging pickaxes, these
custom-built machines, which are running an open-source Bitcoin program,
perform complex algorithms 24 hours a day. If they come up with the
right answers before competitors around the world do, they win a block
of 25 new Bitcoins from the virtual currency's decentralized network.
The
network is programmed to release 21 million coins eventually. A little
more than half are already out in the world, but because the system will
release Bitcoins at a progressively slower rate, the work of mining
could take more than 100 years.
The scarcity — along with a
speculative mania that has grown up around digital money — has made each
new Bitcoin worth as much as $1,100 in recent weeks.
Bitcoins
are invisible money, backed by no government, useful only as a
speculative investment or online currency, but creating them commands a
surprisingly hefty real-world infrastructure.
"What we have here
are money-printing machines," said Emmanuel Abiodun, 31, founder of the
company that built the Iceland installation, shouting above the din of
the computers. "We cannot risk that anyone will get to them."
Mr
Abiodun is one of a number of entrepreneurs who have rushed, gold-fever
style, into large-scale Bitcoin mining operations in just the last few
months. All of these people are making enormous bets that Bitcoin will
not collapse, as it has threatened to do several times.
Just
last week, moves by Chinese authorities caused the price of a Bitcoin to
drop briefly below $500. If the system did crash, the new computers
would be essentially useless because they are custom-built for Bitcoin
mining.
Miners, though, are among the virtual-currency faithful,
believing that Bitcoin will turn into a new, cheaper way of sending
money around the world, leaving behind its current status as a largely
speculative commodity.
Most of the new operations popping up
guard their secrecy closely, but Mr Abiodun agreed to show his
installation for the first time. An earnest young Briton, with the
casual fashion taste of the tech cognoscenti, he was a computer
programmer at HSBC in London when he decided to invest in specialized
computers that would carry out constant Bitcoin mining.
The
computers that do the work eat up so much energy that electricity costs
can be the deciding factor in profitability. There are Bitcoin mining
installations in Hong Kong and Washington State, among other places, but
Mr Abiodun chose Iceland, where geothermal and hydroelectric energy are
plentiful and cheap. And the arctic air is free and piped in to cool
the machines, which often overheat when they are pushed to the outer
limits of their computing capacity.
The energy required to run
these computers is huge, and has led to criticism that Bitcoin mining is
wasteful, not to mention socially useless. The operation can baffle
even those entrusted with its care. Helgi Helgason, a burly, bald
Icelandic man who oversees the data center that houses the machines,
said that when he first heard that a Bitcoin mining operation was moving
in he expected something very different. "I thought we'd bring in
machines and put bags behind them and the coins would fall into them,"
said Mr. Helgason, with a laugh.
Since then, the education he has received about Bitcoins has been enlightening, but only to a point.
"It's a strange business," he said, "and I can't say that I understand it."
Until
just a few months ago, most Bitcoin mining was done on the home
computers of digital-money fanatics. But as the value of a single
Bitcoin skyrocketed over the last few months, the competition for new
coins set off a race that quickly turned mining into an industrial
enterprise.
"Even if you had hardware earlier this year, that is
becoming obsolete," said Greg Schvey, a co-founder of Genesis Block, a
virtual-currency research firm. "You are talking about
order-of-magnitude jumps."
The work the computers do is akin to
guessing at a lottery number. The faster the computers run, the better
chance of guessing that right number and winning valuable coins. So
mining entrepreneurs are buying chips and computers designed
specifically — and only — for this work. The machines in Iceland are
worth about $20,000 each on the open market.
The energy required
to run these computers is huge, and has led to criticism that Bitcoin
mining is wasteful, not to mention socially useless. But Mr Abiodun
prides himself on using renewable power, at least in Iceland.
When
Mr Abiodun first heard about Bitcoin mining in 2010, he thought it was a
scam. Begun in 2009 as the imaginative creation of an anonymous
programmer (or group of programmers) known as Satoshi Nakamoto, it was
initially little more than a tech world curiosity. As early users
connected their computers into the network, they became a part of the
decentralized infrastructure that hosts Bitcoin's open-source program.
The computers joining the network immediately began capturing virtual
coins. The network's protocol was designed to release a new block of
Bitcoins every 10 minutes until all 21 million were released, with the
blocks getting smaller as time goes on.
If the miners in the
network take more than 10 minutes to guess the correct code, the Bitcoin
program adapts to make the puzzle easier. If they solve the problems in
less than 10 minutes, the code becomes harder.
Mr Abiodun's
opinion of Bitcoin changed in January, when he saw the price rising. He
installed a free application on his home computer that linked him into
the Bitcoin network and set it to mining, harnessing the power of his
graphics card, which is the part of a normal computer best suited to
doing the code work.
Mr Abiodun's computer was in the guest room
of his house in southeast London. Working at HSBC during the day and
tinkering with his Bitcoin system at night, he realized if he wanted to
make any money, his computer would have to run around the clock.
The
constant computing, however, overheated the graphics card and pushed
the computer's exhaust fans into overdrive. When he added another
graphics card, then a new computer, the room became too noisy for guests
to sleep, and the windows had to be kept open to release the heat. That
did not make his wife, Gloria, who was pregnant at the time, very
happy.
"It just created a scenario where there was no way our
parents would come over to stay," he said. "I did offer to put her
parents in a hotel, but that didn't go down well."
Mr Abiodun's
wife finally gave him an ultimatum — either the computers had to go, or
he did. At the same time, he was making money, and friends were asking
if they could invest in his mining operation.
In February, Mr
Abiodun used the investors' money to buy machines from a startup
dedicated solely to manufacturing specialized mining computers. The
competition for those computers is so intense that he had to pay for
them and wait for delivery.
When the delays became lengthy,
however, he went on eBay and paid $130,000 for two high-powered
machines, which he set up in June in a data center in Kansas City,
Kansas.
This was the beginning of Mr Abiodun's company, Cloud
Hashing, which rents out computing power to people who want to mine
without buying computers themselves. The term hashing refers to the
repetitive code guessing that miners do.
Today, all of the
machines dedicated to mining Bitcoin have a computing power about 4,500
times the capacity of the United States government's mightiest
supercomputer, the IBM Sequoia, according to calculations done by
Michael B Taylor, a professor at the University of California, San
Diego. The computing capacity of the Bitcoin network has grown by around
30,000% since the beginning of the year.
"This whole new kind
of machine has come into existence in the last 12 months," said
Professor Taylor, who is studying mining hardware. In the chase for the
lucky code that will unlock new Bitcoins, mining computers are also
verifying and assigning unique identifying tags to each Bitcoin
transaction, acting as accountants for the virtual currency world.
"The
network is providing the infrastructure for making sure the currency is
being transferred between people according to the rules," Professor
Taylor said, "and making sure people aren't creating currency
illegally."
Even before Mr Abiodun's machines in Kansas City
were up and running, it was clear that they wouldn't be enough. So he
ordered about 100 machines from a start-up in Sweden and, in October,
had them moved to the facility in Iceland.
In just a few months,
that installation has generated more than $4 million worth of Bitcoins,
at the current value, according to the company's account on the public
Bitcoin network.
At the end of each day, the spoils are divided
up and sent to Cloud Hashing's customers. Last Wednesday, for example,
the entire operation unlocked 225 Bitcoins, valued at around $160,000 at
recent prices. Cloud Hashing keeps about 20% of the capacity for its
own mining.
The unregulated Bitcoin-mining industry is ripe for
abuse, and ventures that sound similar to Cloud Hashing have turned out
to be scams. Mr Abiodun's company has proved itself real, but it is
still unclear if it is a good deal for customers. Cloud Hashing charges
$999 to rent a tiny portion of the company's computing power for one
year.
That's an expensive price for the computing capacity they
are getting, but Mr Abiodun argues that it's a good value because
individual miners would not be able to buy his modern machines outright.
It's a little like buying a fractional ownership in a private jet; you
might not want responsibility for the jet itself, and it's out of your
price range anyway. He also says he provides the maintenance and keeps
away thieves and hackers.
Some Cloud Hashing customers have also
complained on internet forums that it can be hard to get a response
from the company when something goes wrong. But this has not stopped new
contracts from pouring in. Cloud Hashing now has 4,500 customers, up
from 1,000 in September.
Mr Abiodun acknowledges that the
company has not been prepared to deal with its rapid growth. He said he
had used $4 million raised from two angel investors to add customer
service representatives to offices in Austin, Texas, and London. Cloud
Hashing is now preparing to open a mining facility in a data center near
Dallas, which will hold more than $3 million worth of new machines
being produced by CoinTerra, a Texas start-up run by a
former Samsung chip designer.
The higher energy costs — and
required air-conditioning — in Texas are worth it for Mr Abiodun. He
wants his operation to be widely distributed in case of power shortages
or regulatory issues in one location. But he is also expanding his
Icelandic operation, shipping in about 66 machines that have been
running for the last few months near their manufacturer in Ukraine.
Mr
Abiodun said that by February, he hopes to have about 15% of the entire
computing power of the Bitcoin network, significantly more than any
other operation.
Inside the Iceland data center, which also
hosts servers for large companies like BMW and is guarded and maintained
by a company called Verne Global, strapping Icelandic men in black
outfits were at work recently setting up the racks for the machines
coming from Ukraine. Gazing over his creation, Mr Abiodun had a look
that was somewhere between pride and anxiety, and spoke about the
virtues of this Icelandic facility where the power has not gone down
once.
"We don't want downtime — ever, never," he said. "Not with what we paid. Not with Bitcoin."
As
increasing number of firms house critical systems with data centres,
security will be their top concern during 2014, according to global
IT anti-virus software maker McAfee.
