When bitcoin first started, one of its core concepts was that anybody could host the blockchain on their home PC and 'mine' the currency - referring to the act of solving tricky computational problems to verify transactions on the blockchain, ensure its security and simultaneously mint new coins.
This so called proof-of-work mechanism rewards the first participant to solve the puzzle in bitcoin, the idea being that on average everyone would be paid marginally more than cost of the electricity consumed.
The problem with this model, apart from the fact it wastes a colossal amount of power essentially producing nothing more than waste heat, is that pretty soon only those with the most powerful specialist computers featuring high powered application specific integrated circuits (ASICs) and graphics processing units (GPUs) stood a chance of winning the race and this earning bitcoin for their efforts.
Thus, far from distributing responsibility for verifying transactions on the blockchain evenly and avoiding centralised control, the security and viability of bitcoin is now dependent on a few huge server farms owned by mostly Chinese companies with mining operations based in Iceland and other places where electricity is cheap.
The ethereum blockchain and associated cryptocurrency was created in 2013 in part to overcome some of the scalability problems associated with bitcoin with many tweaks to the blockchain, but the signs are that it too is hitting the buffers as far as sensible expansion is concerned.
Ironically, an economy that is meant to be driven by pure logic is underpinned by behaviours that seem quite insane when viewed from outside of the cryptosphere.
As Quartz reports, ethereum miners, spurred on by a speculative market that has seen the price of the Ether rise from $10 in February to a peak of $400 in June, have found that it makes financial sense to charter their own 747s to deliver the latest most powerful GPUs to their secretive ‘mines' rather than rely on standard shipping - which they calculate would be too slow to keep them ahead of a game that many more are eager to join.
"Time is critical, very critical, in mining," Marco Streng, CEO of ethereum miner Genesis Mining, told Quartz. "For example, we are renting entire airplanes, Boeing 747s, to ship on time. Anything else, like shipping by sea, loses so much opportunity."
The potential profits have led to a run on the latest GPUs, said Streng: "This created an absolute shortage in the market. The mining gear has a certain price. And suddenly the price of coins goes from $10 to $400—so a factor of 40. The mining return has gone up by 40 but the hardware is still the same cost. This creates an incredible economic incentive for people to start mining."
Ethereum is planning to switch from the wasteful proof-of-work mechanism for verifying the integrity of the blockchain to so-called proof-of-stake which is thousands of times more efficient, but this is still a work in progress. Other models include proof-of-resource put forward by MaidSafe and others. Perhaps for now, though, the wise investor should be backing AMD and Nvidia, manufacturers of the high-end GPUs favoured by the miners - or Boeing, vendor of their shipping vehicle of choice.
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