A Trip Through The Bitcoin Mines

Tyler Durden's picture

Once upon a time, money - in the form of precious metals - used to be literally dug out of the earth. Limitations on the amount that could be mined, and on how much growth could be borrowed from the future (all debt is, is future consumption denied), is why eventually the world's central bankers moved from money backed by precious metals, to "money" backed by "faith and credit", in the process diluting both. It was the unprecedented explosion in credit money creation that resulted once money could be "printed" out of thin air that nearly destroyed the western financial system. Which brings us to Bitcoin, where currency "mining" takes place not in the earth's crust, or in the basement of the Federal Reserve, but inside supercomputers.

It is these supercomputers, that are the laborers of the virtual mines where Bitcoins are unearthed, that the NYT focuses on in a recent expose:

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.


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.

As the following chart shows, in addition to the surge in the price of Bitcoin, another explosion witnessed recently is in the processing power of the Bitcoin network: from non-existent a couple of years ago, the "mining" power dedicated to hashing, or the calculations used to extract new Bitcoins, has risen to nearly 10 quadrillion per second!

So what do these supercomputer-populated mines look like? Below we look at two examples of just that.

* * *

First, we look at Hong Kong, where one of the largest Bitcoin mines in the world is located.

In an industrial backwater near Hong Kong's massive port, one of Asia's largest Bitcoin mines is quietly turning raw computing power into digital currency.

Located about eight miles from the city's finance hub, the entire facility is no larger than a two-bedroom apartment. Aside from a small bathroom, the mine offers no creature comforts.

It is dominated by vertical racks that house hundreds of ASIC chips. Shorthand for application-specific integrated circuits, these chips are custom-built to mine bitcoins.

These racks house hundreds of ASIC chips used to mine bitcoins.

Chinese investors have been enthusiastic early adopters, a trend amplified by a lack of more traditional investment vehicles in the country

The Kwai Chung mining facility is extremely quiet -- except for the whirr of computers

Industrial bitcoin mines devote their massive amounts of computing power to working on the algorithm, and are rewarded with an equivalent share of bitcoins. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.

A closer look at the towers. Most of the facility is devoted to mining for an investor group in China.

Miners are lured to Hong Kong because of its proximity to chipmakers in China and the city's permissive regulatory environment.

A bubbling liquid produced by 3M cools the ASIC chips.

This mine was purpose-built by Allied Control for clients based in China.

Kar-Wing Lau, Allied Control's vice president of operations, said the mine is cheaper to run and more efficient than many others because it uses a technology called immersion cooling.

Heat sinks and fans are typically used to disperse the heat generated by massed ranks of computer chips, but this Hong Kong mine is liquid-cooled using a product developed by 3M.

The processors used in the mine were build specifically for mining. They have no other function. "These ASIC chips, they can mine bitcoins and do nothing else," Lau said. "Given the pace of advancement, we need them to be constantly upgraded."

These radiators, housed on a balcony outside the mine, help disperse heat produced by the chips.

Immersion cooling allows Allied Control to leave less space between the chips, which saves money that would otherwise be spent on rent.

The technology also cuts down on electricity use -- one of the other major costs associated with Bitcoin mining. Lau wouldn't reveal how much it cost to build the mine, but he said that electricity bills for a fully-operational mine of this size would typically exceed $50,000 per month.

"The real question from a business perspective is how efficiently you can run your mining operation," Lau said.


The inside of the racks used to house the mining chips.

Cooling, however, is only one of the key factors when determining Bitcoin "mine" placement. Another key one: access to cheap electricity, because those massive servers sure soak up a lot of electricity: electricity, whose costs can quickly add up once a parallel processing cluster gets big enough.

* * *

Which brings us to Bitcoin mega-mine #2 in Iceland.

It is here that the NYT goes searching for digital excavators used to procure the digital currency.

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.


“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.

Iceland's low electric bill and its effective infrastructure, may be a reason why the one country that rebelled against the banker syndicate and jailed some of its bankers, may become the place where the bulk of Bitcoin mining takes place:

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 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.

No coins, but the cash miners get in exchange for BTC, especially if each Bitcoin continues to trade close to $1000, the mining can be quite lucrative. The flipside, however, is that the business is just as if not more capital intensive than running a gold mine for the same profit.

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.



In February, Mr. Abiodun used the investors’ money to buy machines from a start-up 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, Kan.


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 percent since the beginning of the year.

What is the upside of mining?

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 percent of the capacity for its own mining.

To be sure, like any industry in its infancy, there are numerous glitches, and mining for Bitcoins is no different:

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, Tex., 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 percent of the entire computing power of the Bitcoin network, significantly more than any other operation.

Hopefully Bitcoin will still be around by then.

* * *

The future of Bitcoin mining is uncertain. There are a fixed number of bitcoins available -- and more than half have already been extracted. Kar-Wing Lau of the Hong Kong-based Allied Control, compared the explosion of professional mining operations to an arms race. For now, it appears to be a profitable endeavor. Lau said that Allied Control is currently exploring other mining platforms, including a mine built in a shipping container -- something that could prove useful if regulators crack down on the currency.

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Dear Infinity's picture

Much like the gold rush, the ones making all the profit are the shovel sellers.

Motorhead's picture

Free the Silver Bears, bitchez!

DoChenRollingBearing's picture

The Silver Bears (various?) series are produced independently, no?  I sure enjoyed them...

But, this BTC mining article was extremely intersting, thanks Tylers for posting it.  It will be a wonderful journey watching and participating in BTC.

Skateboarder's picture

Whichever god that made me or didn't, hear my humble cry and rid this planet of the plague that is virtual currency.


CH1's picture

Why do you care if you don't use it?

Stackers's picture

All that pictured hardware is oboslete paper weights within 6 to 9 months and uneconomical to operate in 4 months. The problem is not the cost of the hardware, but the rate at which the hardware becomes obsolete due to difficulty increases in the code. If you can go as big as the operations pictured and rotate into (and have first access to) the latest and fastest processors every 6 months then it can be profitable

Prisoners_dilemna's picture

True enough.

Some entrepreneurs will succeed, some will fail.


Not all gold miners struck gold. But I'm sure glad they tried. Because I like gold as money.


You don't have to mine bitcoin. But you can benefit from their use as money. Same with gold.

SafelyGraze's picture

bitcoins have been generated for thousands of years


the romans called it coinus bittus

the greeks awarded olympic medals with koinous wallets engraved on them

crazy stuff

these things really *have* stood the test of time

Prisoners_dilemna's picture

Exhorcism also stood the test of time, until we discovered antibiotics.


CrazyCooter's picture

I got bored with this subject long ago. I made one articulate post. Here:


Log in or you might not see it because it is on page X.



DoChenRollingBearing's picture

Great link with a great analogy re quantum vs regular computers.  Link workz, fishez!


Um, but how much was a Bitcoin worth last April...?  ;)

Dane Bramage's picture

Hey, it's Christmas!  Can't decorate your tree with BitCoin!  I'm with Yukon Cornelius & Sam the Snowman ~> https://www.youtube.com/watch?v=7EXCDCXaIkQ

malikai's picture

Bubble, Ponzi, etc, etc. Yawn.

Here we are again at the doorstep of yet another broken downtrend. This time from a much higher low and in a much shorter timeframe.

Just can't fix stupid.

GetZeeGold's picture



Jessie Livermore is rolling over in his grave.



You handed your money over....and didn't even get a tulip for it?


GetZeeGold's picture





If it was virtual.....I hope they received a plethora of them.

fonestar's picture

Only idiots could compare a flower with a globally distributed, decentralized computer network.  And Bitcoin is nowhere near a mania stage.  Even my tech savvy friends are just watching this from the sidelines somewhat puzzled.  Few people have heard of Bitcoin in 2013 and very very few people both understand it and see the value in it.

I am predicting 2014 will be yet another stellar year for Bitcoin.  Rarely in history have we seen something this far ahead of its competitors released into the wild.



BaBaBouy's picture

You GUYS Can Keep Fucking With BitCoinz And See
Where This Virtual WIFI Fluff Takes You...
AND I'll Happily Stick With The HARD AU And AG ...

outamyeffinway's picture

And what, you'll wait for them to be money again? I hope you're very young and patient.

TeamDepends's picture

...have gone vertical, my shiney friend.  Can we have a hallelujah  in the house!!!!  The shorts are getting squeezed.  What kind of chump bets against a winner?

Prisoners_dilemna's picture

From $1200-$1215???

If you're on team depends then I guess 10 steps is an achievement worth exclaiming about.


I can't wait for the day gold goes vertical.  AAAAAnnnnnyyyy day now.


Til then another scarce money we have it bitcoin. Stop bashing and diversify your scarce resources.

No one here is telling you to sell all  your gold to buy farmland. But it's not a bad idea to have some right?

malikai's picture

I looked at today's gold.

Then I looked at last month's gold.

Then I just shook my head..

Kirk2NCC1701's picture

So, in EFFECT (if not by design/intention), this amounts to the free market subsidizing (paying for) the HW and Infrastructure Development of super-computer networks with a very specialized ability...

Since most of the mining is GPU-intensive, and given that graphics cards are IMAGE PROCESSING devices, how long will it be before the OTHER shoe drops... AI that can 'recognize' the way a human can.

Put another way... "SKYNET thanks you", as do its owners.  For doing (a) voluntarily and (b) at your expense, that which they could otherwise not achieve without tremendous cost, complexity and resistance.  If this is indeed the "big picture", they must be ROTF LTheirAO!

malikai's picture

WTF are you talking about?

Why am I even bothering to ask? Its obvious you have no fucking clue what you're talking about.

Protip: GPU != ASIC. "Skynet" doesn't fucking exist.

Stop using Hollowwood bullshit to paint pictures of the future. At least in the Terminator movies, they got some details sort of right. You can't even do that.

outamyeffinway's picture

So many crazies on ZH anymore.....ridiculous.

XitSam's picture

Skynet doesn't exist .... yet.

Kirk2NCC1701's picture

I wish I had revisited my post sooner, so I could have responded to YOUR nonsense in time.

No need to get abusive & hostile (unless that's your tool of last resort), but you sir clearly know nothing about Image Processing, or you'd know that graphics cards do NOTHING BUT Image Processing.  Unlike you, I have actually done IP the hard way:  using Matrices.  What have you done?  Played with Photoshop?

And clearly you lack a sense of humor, irony or sarcasm to grasp my elementary reference to Skynet.  Any child knows that it does not exist.  You'd think that you could figure out that I used it as a metaphor?  I.e., as a metaphor for Full Spectrum Dominance by TPTB.

p.s. Are you the 'Malikai' who posted this YT video?   http://www.youtube.com/watch?v=K3Rrb_qR0ik

zerozulu's picture

How far this ponzi can go, depends upon NSA,

The hash function that bitcoin relies on—called SHA-256, and developed by the US National Security Agency—always produces a string that is 64 characters long. For example:




You could run your name through that hash function, or the entire King James Bible. In either case, you’ll get 64 characters out the other end. And, for a given input, you’ll always get the same output.

malikai's picture

Wow. Did you come up with that one all on your own?

I mean, you figured it out didn't you? It's an NSA ponzi because each hash string is 256bits.

Time for me to get out now while I still can!!

Skateboarder's picture

I care because I don't want kids to grow up thinking that imaginary shit like bitcoin is real, and I certainly don't want kids pursuing the mining of bitcoins because I cannot think of a greater waste of the boon that is cheap electricity. See HonestAnn's post about space aliens down below.

If it's all for the children, why are we raising them to embrace/pursue/compete for all kinds of fucked up ideals, when we know better?

I met one of my friends' new boyfriend yetserday and in the course of conversation told him never to be a middleman in his life, to always do something real and useful. He completely agreed and thanked me for reminding him.


wee-weed up's picture

Bitcoin cheerleaders still believe in Santy Claus!

Prisoners_dilemna's picture

And infallible math apparently too.

Maybe the math fairy will come visit me tonight if i put a bitcoin under my pillow.   /sarc

Steaming_Wookie_Doo's picture

OK, someone can correct me on this if my math is wrong.

21mil total bitcoins. 25 vended every 10 min, so that'd be 3600 coins/day (1440 mins/day divided by vending every 10 min times 25 bitcoins). At that rate it'd take 15.98 yrs to shell out all 21mil bitcoins (not sure when they officially started). Now we have a big ramp up in the computing power crunching the math problems required to solve for your bitcoin prize, so your chances of being one of the 144 "winners" per day grows ever smaller. I can't see how investing in this much hardware will actually pay off unless the "price" of bitcoins keeps hitting new, exponential nosebleed heights.

Some other questions from the NYT article which I think are valid:

"Open source notwithstanding, who gets to set the rules? Why the arbitrary number of 21 million bitcoins and no more? Who is there to verify there really is 21 million, and no more? What would happen to all these mining operations, with all the awesome computing powers, and there is no more mining to do, once the ceiling is reached? Who is to say if the upper reach of 21 million is to be raised...or not? Who designs or controls these supposedly complex mathematical problems for these miners to solve? Why wouldn't the designers simply submit the solution and claim the bitcoins, if only just for greed?"

I'm stuck on the undisclosed significance of the math problems that all this machinery is supposed to solve. It seems a really weird and arbitrary thing to do to put these coins into "circulation". This is either some diversion for a ponzi scheme, or we're being secretly used to crunch numbers (a la the old SETI signal processing in the late 90's) for some secret space project...

TheHound73's picture

Aye, the miners' investments seem to indicate they believe the price will go much higher. *wink wink*

GetZeeGold's picture



Aye, the miners' investments seem to indicate they believe the price will go much higher.


Miners: A Story Of What Can, And Will, Go Wrong With "Miners" In Ten Pictures



Matt's picture

Mining was supposed to be the less exciting way to gradually make money over time. The hardware is going to hit limits soon, since the foundries don't go below 14nm even experimentally yet, so within a couple generations there will probably be a plateau. 

While I do not know the reasons behind the specific values selected, I have looked at it and compared all of the knock-off alternate coins that are just bitcoin but with more or less coins and faster processing times, and I can see that a lot of thought went into selecting the specific values chosen.

Anyone who wants to spend the time can read the source code and verify whatever they want.

The reward halves every ~4 years, so it will take longer than any of us will live before the reward disappears completely. The mining pool that finds the block also gets any transaction fees in it; the goal is that eventually the transaction fees will surpass the block reward and eventually be the only source of income.

The designers would not tamper with the system, because a loss of faith would render all the coins worthless, unless they were vindictive or insane.

The purpose of the math problems is to prevent counterfeiting and verify valid transactions. 

Rock On Roger's picture

As Above, So Below




Stack On


Honestann will understand.

malikai's picture

Truly an enlightened one. Do you share the same couch with Skateboarder?

I can't wait to see the 'best performing assets of 2013' post.

I look forward to yalls drivel on the 31st.

greenbear's picture

While most of these questions and concerns are valid,  they have all been answered and refuted YEARS AGO!  Just think, if you would have bothered to do the research at that time, you could have spent a thousand dollars of risk capital on Bitcoin,  which at today's prices is worth roughly 7 million dollars.  Being lazy and stupid can be quite expensive no?

The Original Bitcoin White Paper by Satoshi Nakamoto


outamyeffinway's picture

That's why so many ZH'ers are mad. Not only did they miss the boat but the boat is far along in its voyage.

An entire industry EXISTS and yet people are waiting for the boat to sink when the passengers have already reached other shores. Meanwhile they are waiting for their gold to "go to the moon" as it (doesn't) becomes money again. And then they call other people stupid, crazy, whatever.

Arguing for something that doesn't exist and arguing against something that does....


i-dog's picture

Here's something that doesn't add up with your math: So far - with around 13 million 'coins' having been minted since Jan 2009 - the coins have been minted at an average rate of 7,000/day = a new block having been mined every 5 minutes since inception.

That reduces the total mining period to just 8 years - ie. only 3 more years remaining! (assuming that increasing mining 'degree of difficulty' is offset by hardware advances ... with a 4x speed increase expected over that period under Moore's Law).

I also wonder just how many 'amateurs' have been scoring coins with their laptop GPUs when they're competing against those 'big rigs' in each 10-minute, errr, 5-minute window.

malikai's picture

I think you forgot to apply exponential decay to the block reward.

It halves every 4 years.

Please try to do the actual research yourself.

In answer to your open-ended thought: Between 2009-2010, many, many blocks were found by amateurs on their laptops just playing around. Today, you probably have a better chance of winning the lottery - unless you accept your small hashing power and join a pool, where you'll get your share (minus fees) of the reward.

i-dog's picture

Thanks for the correction. Much clearer now (though I still have no interest in having my 'wallet' included in any digital block chain that is monitored by the globalist politburo).

Drifter's picture

If the 21 million limit ever increased, bitcoin value would crash, it would be the end of bitcoin.

Limited supply is bitcoin's most important "value" characteristic, as it is with any currency.

Of course there is no real limit. Any number of "crypto-currencies" can be created "out of thin air".

XitSam's picture

Miners are creating networks built with other peoples' hardware and other peoples' electricity bill.

What I want to know is why Bitcoin hates the environment to waste so much electricity?

Blano's picture

Given the complexity and machinery required for mining after reading this article, I doubt you have to worry about many kids OD'ing on virtual currencies.

zerozulu's picture

New generation of kids will simply stay away from virtual currencies because math has something to do with it and they cannot sniff it.