Monday 9 April 2012

How is Bitcoin Produced

Bitcoin are not minted by any governments, it is a virtual coin meaning that you are not going to see any physical coin.  So how is it produced and how do you know it is of value?   Bitcoin is "mined" by solving complicated algorithms so that "work" is done to produce the Bitcoins.   The mining is done initially by normal computer with CPUs.   But as the popularity of Bitcoins increase, there are more and more miners and hence the difficulties of producing the Bitcoins increased.

Bitcoins are so difficult to produce that normal computer CPU would take far too long to solve the algorithms and to produce the Bitcoins.   Instead it was found that GPUs especially ATI GPUs having a lot of processor units inside each GPU is extremely suitable for the solving of such algorithms.   Mining Rigs with multiple GPUs in each rig are constructed for the "mining" of Bitcoins instead.

GPUs consumed a huge amount of power and produce a tremendous amount of heat.  Mining Bitcoins aren't cheap considering the amount of power needed to power the GPUs and to cool the GPUs.   There is an interest towards producing FPGA specializing in the solving of the Bitcoin algorithms.   As the FPGAs get more powerful, it is hopeful that some Bitcoin mining be taken over by the FPGA which is more expensive but cost less to run due to the much lesser power required.

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