Bitcoin is a digital currency that uses P2P networking, cryptography and digital signatures to conduct transactions without relying on trust. It uses cryptography to generate a digital signature of each document to verify its authenticity and ensure it hasn’t been tampered with.
Bitcoin has been around for just over three years, with 2011 seeing both increased use and problems such as the arrival of Bitcoin mining Trojans that use idle PCs to generate currency for the Trojan operator, not the PC’s owner.
Bitcoins are actual currency that can be generated by anyone with a computer doing many computations on a difficult proof of work problem. This is called Bitcoin mining. As more Bitcoins are produced, the amount of work required to produce them increases. Right now the exchange rate is $4.80/Bitcoin, meaning amarket capitalization of over $40 million.
Although a Bitcoin look like 175tWpb8K1S7NmH4Zx6rewF9WQrcZv245W, there is a transaction history associated with each, held in a “digital wallet” that prevents it from being duplicated.
Some websites accept BitCoins, and there are even a few exchanges. But but the price — the fx rate between a Bitcoin and real currency — varies between exchanges. It’s fair to say that Bitcoin’s acceptance has been hindered by high price volatility. This is a measure of how quickly the exchange rate changes. Last year, a security breach on an exchange caused the price to drop to $0.01 in one day, then shoot up to $15 before stabilizing.
Now, a clever reuse of another technology has made Bitcoin mining much faster. The humble graphics card!
Graphic cards and GPUs
The last five years have seen the Graphic Processing Units (GPUs) on computer graphic cards being used to solve computing problems rapidly, much more quickly than the CPUs are capable of doing. These are called GPGPU (General Processing on Grahics Processing Units).
There are a number of libraries (mostly for C++) that can take advantage of this and let programmers develop software that is GPU-accelerated. This is becoming a sufficiently mainstream technology that Mac OS X 10.6 (Snow Leopard) and Android make use of it. There have been GPU accelerated 3D APIs for a couple of years, and some aspects of Adobe CS5 have used it. As does Bitcoin mining.
The limitation to Bitcoin mining is availability of hardware. Someone thought that there are millions of home PCs all being used to play browser games. If only there was some way to harness them while they were. Now there is.
Free To Play Games
The startup CoinLab has raised $500,000 in venture capital to help producers of free to play games monetize them with Bitcoins. It’s done by generating Bitcoins with the spare computing power on the players’ PCs — while they’re playing. CoinLab provides the software that generates Bitcoins. The Bitcoins are then sent to CoinLab, which in turn pays the game companies hard cash in exchange.
That’s the theory. Quite how many Bitcoins can be made depends on the game, how long it goes on, etc. The estimates seem to be between 50 cents and $2 per player revenue per day. That seems pretty high to me. It’s way more than advertising can bring in.
Of course money can’t be created from nothing. Players will notice a slight increase in their electricity bills as their PCs work harder. Think of it as a game tax!