21-01-2015, 21:07 #1
[EN] The Economist explains: How bitcoin mining worksAS THE bitcoin price continues to fall, sceptics have started to wonder what will happen to the industry underpinning this digital “crypto-currency”. Around the world, hundreds of thousands of specialised computers have been built to create (or “mine”) bitcoins and, in the process, validate transactions and protect the system. How does bitcoin mining work?
The aim of bitcoin—as envisaged by Satoshi Nakamoto, its elusive creator—is to provide a way to exchange tokens of value online without having to rely on centralised intermediaries, such as banks. Instead the necessary record-keeping is decentralised into a “blockchain”, an ever-expanding ledger that holds the transaction history of all bitcoins in circulation, and lives on the thousands of machines on the bitcoin network. But if there is no central authority, who decides which transactions are valid and should be added to the blockchain? And how is it possible to ensure that the system cannot be gamed, for example by spending the same bitcoin twice? The answer is mining.
Every ten minutes or so mining computers collect a few hundred pending bitcoin transactions (a “block”) and turn them into a mathematical puzzle. The first miner to find the solution announces it to others on the network. The other miners then check whether the sender of the funds has the right to spend the money, and whether the solution to the puzzle is correct. If enough of them grant their approval, the block is cryptographically added to the ledger and the miners move on to the next set of transactions (hence the term “blockchain”). The miner who found the solution gets 25 bitcoins as a reward, but only after another 99 blocks have been added to the ledger. All this gives miners an incentive to participate in the system and validate transactions. Forcing miners to solve puzzles in order to add to the ledger provides protection: to double-spend a bitcoin, digital bank-robbers would need to rewrite the blockchain, and to do that they would have to control more than half of the network’s puzzle-solving capacity. Such a “51% attack” would be prohibitively expensive: bitcoin miners now have 13,000 times more combined number-crunching power than the world’s 500 biggest supercomputers.
Clever though it is, the system has weaknesses. One is rapid consolidation. Most mining power today is provided by “pools”, big groups of miners who combine their computing power to increase the chance of winning a reward. As mining pools have got bigger, it no longer seems inconceivable that one of them might amass enough capacity to mount a 51% attack. Indeed, in June 2014 one pool, GHash.IO, had the bitcoin community running scared by briefly touching that level before some users voluntarily switched to other pools. As the bitcoin price continues to fall, consolidation could become more of a problem: some miners are giving up because the rewards of mining no longer cover the costs. Some worry that mining will become concentrated in a few countries where electricity is cheap, such as China, allowing a hostile government to seize control of bitcoin. Others predict that mining will end up as a monopoly—the exact opposite of the decentralised system that Mr Nakamoto set out to create.
21-01-2015, 23:10 #2
What the Bitcoin Shakeout Means for Data Center ProvidersThere’s a major shakeout underway in bitcoin cloud mining, with some firms shutting down or halting payouts to customers, while others are shifting their business models.
The fallout is being felt by data center operators who leased space to large mining operations, prompting one provider to sue a bitcoin customer for millions of dollars in unpaid hosting costs.
The turmoil is driven by an extended slump in the value of bitcoin and other virtual currencies. After soaring as high as $1,100 in late 2013, the price of bitcoin has plunged, hitting a low of about $225 on Tuesday.
This decline has wreaked havoc with cloud mining operations, who lease processing power to users. Many of these companies operate their own warehouse-style computing facilities, but some providers lease data center space from wholesale providers.
On Monday, C7 Data Centers filed suit against mining company CoinTerra, which has missed $1.4 million in payments. The suit seeks up to $5.4 million in damages, citing C7’s costs for provisioning power and the balance of CoinTerra’s contract. CoinTerra disputes the charges and says it has filed a counterclaim.
CoinTerra CEO Ravi Iyengar told us the company has defaulted on its debt as a result of C7 shutting down CoinTerra’s infrastructure at its data centers. As a result, the bitcoing miner has halted operations and stopped payouts to its customers.
CoinTerra is also a major customer of CenturyLink, which has leased more than 10 megawatts of data center capacity to the mining firm. Its servers at CenturyLink data centers have also been shut down.
The Downside of Speculative Mining
Bitcoin mining has always been a speculative business, offering a way to mint digital money with high-powered hardware by processing transactions, with financial rewards paid out in virtual currency (hence the “mining” nomenclature). The network is based on a public ledger known as the blockchain, with each transaction verified using cryptography.
The returns on mining fluctuate with the price of bitcoin and network activity. As the price of bitcoin has plunged, even industrial-scale mining operations are unable to cover their costs. On Monday, the second-largest bitcoin mining pool said it was temporarily suspending operations, saying mining had become unprofitable.
Another mining company that has leased significant data center space is CloudHashing, now owned by Peernova. Customers have complained that the company is mining fewer coins and that payouts have become erratic.
“CloudHashing is very much operational,” said Emmanuel Abiodun, president of Peernova. “We have simply pointed our mining machines to a larger mining pool to increase the block discovery frequency which is a good thing for all customers. The growth of the bitcoin network made that decision absolutely necessary. Customers will now be paid on a weekly schedule.”
Shifting Focus Amid Mining Challenges
Peernova, like other companies in the ecosystem, has been changing its strategy. In December the company said it had raised $8.6 million in new funding and would use the money to accelerate its development of blockchain-based software products for enterprises. “A large amount of our efforts this year will be delivery of these applications,” Abiodun said.
Another firm that has shifted its business focus is GAW Miners, which made a major push into cloud mining last summer. The company recently launched its own virtual currency called Paycoin, and some customers who continue to mine using GAW’s cloud-based “hashlets” say their maintenance fees can exceed the returns from mining.
The turmoil has been felt most acutely among smaller players in cloud mining. Over the past month, a growing list of companies have either halted their cloud mining operations or curtailed payments to customers, including ZeusHash and PB Mining. In perhaps the most bizarre development, cloud mining service Hashie suspended operations and temporarily replaced its web site with an “alternate reality game.”
For Data Centers, Credit Risk Comes Into Focus
The chaos makes the risks of the bitcoin sector stark. As we noted in July, the sector presents a challenge for the data center industry. As demand for bitcoin mining capacity soared in early 2014, some providers leased significant amounts of space and power to bitcoin specialists, while others skipped these deals, wary of the density requirements, economics and potential credit risk.
“Some investors don’t want to touch the Bitcoin industry,” data center industry veteran Mark MacAuley, a managing director at RampRate, said at the time. “The risk is outside the profile that’s palatable to some investors.”
Credit risk is not a new issue for the data center industry, which was hard-hit by the dot-com bust and the collapse of speculative startups. The wave of dot-com bankruptcies rippled through the colocation sector, leading to the collapse of major players like Exodus Communications, AboveNet, and MCI WorldCom.
As the industry recovered, data center providers tightened their credit standards and limited the scope of their construction projects, seeking to keep the supply of space in line with customer demand. After a lengthy period with few customer default problems, the industry’s appetite for risk has been tested by the bitcoin sector.
Warehouses Ride Out the Storm
As we noted in the early days of the bitcoin boom, mining infrastructure is split between data centers and no-frills hashing centers featuring high-density hardware and low-reliability power infrastructure, often housed in former warehouses.
Advocates of the hashing center model say low-cost infrastructure is critical to riding out volatile shifts in the the bitcoin sector. Chief among them is Dave Carlson, the founder of MegaBigPower, who predicted that warehouse-based operations would prove a competitive advantage in turbulent times.
“Most data center pricing models are not very applicable to the Bitcoin market,” Carlson said in October, when the price of bitcoin was $330. “The people who have signed up at data centers are getting squeezed (on operating margins). I’ll still be running when those guys shut off.”
Some cloud miners using commercial data center space insist they can continue to compete.
“Bitcoin pricing does not affect us as much as other services, as we have relatively lower maintenance costs than the market,” said Abiodun of Peernova. “You will see other services affected by this price slip. It will ultimately lead to a slower growth of the mining network, which we predicted in 2014.”
The falling price of bitcoin has impacted CloudHashing’s ambitions, however. “We have plans to grow our footprint this year,” said Abiodun. “This is bitcoin-price-dependent, however.”
A Difficulty Disconnect?
Other mining industry executives say the relationship between price and competition has become unpredictable.
“Price is just one component of the puzzle,” said Iyengar, CEO of CoinTerra. “The difficulty has gone up significantly, while the price has gone down.”
In December 2013, the price of bitcoin stood at $1,147 and the network hashrate was just 5 petahashes per second. Midway through 2014, the price had slipped to $647, while the hashrate jumped to 145 petahashes. Last week the network hashrate hit an all-time high of 358 petahashes, even as the price fell below $250.
On Tuesday the hashrate finally declined, dipping to 250 petahashes, presumably because the huge mining pool CEX.io suspended operations after the latest increase in difficulty made mining unprofitable.
“Pretty much all the mining companies are struggling,” said Iyengar. “The mining industry is somewhere no one would have predicted six months ago. The model we all relied upon has collapsed.”
Iyengar speculated that the disconnect was due to “irrational mining” by some large players, who are either operating at a loss or obtaining power at below-market rates.
Data Centers and Bitcoin: What Now?
Where does this leave the data centers that have focused on the bitcoin sector? That’s an important question for firms like C7, which has about 4 megawatts of available space optimized for bitcoin tenants.
“We have seen a decline from previous demand,” said Wes Swenson, CEO of C7. “We are not seeing as strong an increase with the newer-generation machines or startups as we saw with the previous generation of machines or startups. Perhaps the exchange price and increasing computational difficulty is keeping a lot of the prospectors out of the market.”
Swenson believes that opportunities still exist in the bitcoin sector, but said that market conditions have narrowed the workable scenarios. C7 has designed space optimized for cost-conscious bitcoin clients. But with the price of bitcoin hovering near $225, profitability is elusive. One option is to focus on the times when electricity is cheapest.
“We can offer an off-peak product for miners in this N inventory, allowing them to mine in off-peak hours in the winter and summer at about 50 percent of the cost per kW,” said Swenson. “They get less operating hours, but the hours in which they operate are generally a 50 percent to 60 percent margin between the colo cost, and the mining revenue. If the miners could operate in off-peak hours it would be extremely advantageous, and we have a product that will allow them to do that.”
22-01-2015, 14:46 #3
Bitcoin Gets Liquid: BitFury Buys Immersion Cooling SpecialistOne of Bitcoin’s biggest players is turning to immersion cooling to address the shifting economics of cryptocurrency mining. Bitcoin hardware specialist BitFury Group said today that it will acquire Allied Control, a startup known for designing a high-density bitcoin mine in a Hong Kong skyscraper.
The deal is a vote of confidence in immersion cooling, in which high-density hardware is dunked into fluids similar to mineral oil. BitFury’s move suggests other mining players may also examine liquid cooling as a tool to slash operating costs following a price crash, which has altered the economics of bitcoin and caused a shakeout in the mining sector.
The acquisition may also boost the use of data center containers to allow bitcoin miners to shift capacity to areas with cheaper power costs and renewable energy sources.
BitFury is a leading maker of specialized semiconductors for Bitcoin transaction processing (“mining”), known as Application Specific Integrated Circuits (ASICs). Last year BitFury raised $20 million in venture funding to roll out a global data center network, including facilities in Finland, Iceland and the Republic of Georgia.
Allied Control creates extreme density data centers for high performance computing. Last year it expanded into bitcoin, creating tanks filled with Novec, a liquid cooling solution created by 3M. Each tank houses densely-packed boards of ASICs. As the chips generate heat, the Novec boils off, removing the heat as it changes from liquid to gas. The system is extremely efficient, with one client reporting a Power Use Effectiveness (PUE) of 1.02.
“This acquisition will enable us to substantially increase the energy efficiency of our data centers and speed up deployment of our new ASIC chip, allowing us to lower overall capital expenditure,” said Valery Vavilov, CEO of BitFury. “In addition, it provides an opportunity for us to enter new markets such as HPC, using the experience of the Allied Control team. The use of immersion cooling will provide BitFury with flexibility when choosing locations for our data centers.”
Liquid cooling solution boils inside an Allied Control immersion cooling tank, dissipating heat from the bitcoin ASIC boards visible under the surface. (Photo: Allied Control)
Bitzfury says that using immersion cooling will reduce operating expenses on data center maintenance as well as on lowering its PUE. It has been working with Allied Control on proof of concept (POC) for its immersion-cooled data center. “The results, so far, are very promising and we are looking forward to significantly scale up soon,” the company said.
The shift to immersion cooling reflects a sharper focus on data center efficiency by industrial mining operations, whose profit margins have been squeezed by the recent collapse in the price of bitcoin. After soaring as high as $1,100 in late 2013, the value of a bitcoin has plunged to about $230. This has had a huge impact on bitcoin cloud mining, with some firms shutting down or halting payouts to customers.
In addition to supporting extreme power density, immersion cooling has the potential to slash the cost of data center infrastructure, allowing users to operate servers without a raised floor, computer room air conditioning (CRAC) units or chillers. It also allows ASICs to operate without fans, which are typically among the largest components of a bitcoin mining rig.
Rapid Refresh Rate
Allied Control’s immersion cooling tanks are ideal for bitcoin mining because they support rapid hardware refresh cycles. The backplanes housing the ASICs are designed to support multiple generations of chips.
This is of particular interest to BitFury, which has updated its ASIC design three times over the past two years to keep pace with the arms race in bitcoin hardware. In 2013 bitcoins were mined using CPUs and GPUs, followed briefly by FPGAs (Field-Programmable Gate Arrays), and then the launch of custom ASICs.
“Both blockchain technology and two-phase immersion cooling are very disruptive in nature,” said Kar-Wing Lau, VP of Operations at Allied Control. “Passive two-phase immersion cooling is especially promising for blockchain transaction processors as it addresses their need for flexibility and rapid deployment while allowing to take full advantage of higher hardware power density. BitFury, with its focus on efficiency, renewable energy and innovation, is the perfect match for this technology.”
BitFury previously has used designs known as hashing centers, which combine high density and low redundancy and are often built in warehouses or other powered shells.
The facility features a broad hot aisle, in which hot air exits the back of the racks and is vented through the roof of the coop-style building. The clear plastic barriers above the racks prevent the hot air from mixing with the cold aisle, which enters the rows of ASIC rigs from a cold aisle along the perimeter of the building.
These racks of high-density Bitcoin mining rigs stretch the length of the building in the BitFury hashing center in the Republic of Georgia. (Photo: BitFury)
Allied Control’s cooling enclosures use open bath immersion (OBI), a passive two-phase cooling technique which uses a boiling liquid to remove heat from a surface and then condenses the liquid for reuse, all without a pump. This graphic illustrates how the system works:
One of Allied Control’s innovations is the DataTank, a container-based system designed to deploy immersion-cooled bitcoin hardware in increments of up to 1.4 megawatts at a time. BitFury sees this design as optimal for rapid deployment of capacity.
“We will use best practices and experience in building DataTanks with custom modifications in order to deploy new, more efficient and low cost solutions for new BitFury ASIC chips,” said BitFury, which is examining several strategies for deploying new capacity. The DataTank model would allow BitFury to quickly create new data centers in remote areas that offer cheap power.
An intriguing option for industrial bitcoin miners would be tapping solar arrays or other sources of renewable energy, a model Microsoft has been exploring with methane-powered containers. Servers could also be housed near utility bulk transmission lines to capture cheaper rates, a concept being tested by BaseLayer in Phoenix.
BitFury’s focus on immersion will get the attention of other industrial bitcoin mining operations. After focusing on more powerful hardware as they scaled up in 2014, these huge mines are now looking to streamline their data center operations. The price decline of bitcoin has accelerated that process, and may prompt others to test-drive immersion technologies.
Validation for 3M Approach
The success of Allied Control and its bitcoin cooling solutions has served as a major validation for 3M, which has been touting the potential benefits of open bath immersion for years. The technology was initally demonstrated at Data Center World in 2012.
It’s not immediately clear what a shift to immersion cooling by bitcoin miners might mean for data center service providers, who have struggled with the economics and shifting tides of bitcoin. C7 Data Centers recently filed suit against bitcoin specialist CoinTerra, saying the customer owed more than $1.4 million in hosting fees.
Immersion cooling is relatively rare in multi-tenant service provider data centers, but there have been some recent examples with interesting economics.
Last spring data center service provider CyrusOne signed a lease for 41,000 square feet of space in its Phoenix data center for a customer housing high-density equipment in immersion cooling tanks. CyrusOne delivered the space at a cost of $1.5 million per megawatt, significantly below the $7 million per megawatt the company typically spends on enterprise data center space with “five nines” of uptime. CyrusOne didn’t identify the tenant or its business, but the deal aligns closely with the requirements of Bitcoin miners.