Digital cash, mining, and a grim look at the future of graphics cards.

By Jarred Walton

The BitRiver cryptocurrency mining farm in Bratsk, Russia, with mining rigs packed on to three stories of racks.

© ANDREY RUDAKOV/BLOOMBERG VIA GETTY IMAGES

EVERY FEW YEARS, cryptocurrency returns to the spotlight with a surge in prices, and everyone suddenly wants to invest. This time, anyone with even a passing interest in computer hardware should know what Bitcoin is at some level, but how does it actually work, and when will we be able to buy graphics cards at reasonable prices again?

The first most people heard about Bitcoin was in 2011 when it jumped from being a weird experiment to having actual real-world value, reaching over $30 per BTC. Then it collapsed to below $2 and many were quick to call it a Ponzi scheme. Now, early 2021 has set new record highs, topping out at $58,000.

How far will it fall this time? Will the talk of investments from Elon Musk, Mastercard, and others push it to even higher highs? And why should billionaires even want to bother with cryptocurrencies? Let’s find out.

MEET THE BLOCKCHAIN

The starting point for Bitcoin and other cryptocurrencies is the blockchain. It’s become a buzzword, but the short description is pretty drab. The blockchain contains an open ledger of all transactions that have ever taken place on a given cryptocurrency network. Did you send money to Uncle Theo, paying him for a graphics card? It’s in the blockchain, for everyone to see. So, when your friend comes by claiming you never paid him back for the concert tickets, or the fast-food stop, or whatever, you can find incontrovertible proof—one way or the other.

That might sound interesting, but it probably sounds alarming, too. Why would you want everyone to be able to check on what amounts to your digital bank account? That’s where the second part of the blockchain comes into play: All transactions are at least somewhat anonymous. Unless you publicly list your Bitcoin wallet address—and it’s trivial to create more addresses, so you can have more than one—determining what money belongs to whom is difficult. It’s not impossible, especially with enough time, effort, and use of a specific wallet, but there are ways to obfuscate your transactions and keep them veiled from prying eyes.

The more important aspect of the blockchain isn’t just that it keeps a record of all transactions. The critical factor is that it’s backed by strong cryptography—SHA256, in the case of Bitcoin, and dozens of other cryptographic algorithms for other coins. A lot of complex math goes into the creation of a good cryptographic algorithm, with the end goal being that the only way to crack it would be brute force. SHA256 has a 256-bit cypher length, so breaking the encryption for a single message would involve finding the one number out of a256 number space that’s correct.

If that doesn’t seem like a big deal, let’s put it differently: 2256 is the same as 1.158×1077, or in other words, it’s a 1 followed by 77 zeroes. Our solar system has roughly 1.2×1056 atoms, the Milky Way galaxy has approximately 2.4×1067  atoms, and depending on whose math you want to use, the entire universe has anywhere from 1078–1082 atoms. That means a 256-bit number space is large enough that you can easily assign a unique number to every atom in the galaxy, with room to spare.

We’re simplifying quite a bit, but the main point is that cracking the cryptography behind Bitcoin would be extremely difficult, and other coins use even stronger cryptography. Bitcoin and other cryptocurrencies also use cryptography for the unique user wallet addresses. In the case of Bitcoin, there are currently a potential160 addresses, or around a quindecillion. No, we didn’t just make that word up. That’s a one with 48 zeroes after it. Or if you prefer, it’s 1 trillion × 1 trillion × 1 trillion × 1 trillion. We’re not likely to run out of wallet addresses anytime soon.

All of this cryptography plays a pivotal role in cryptocurrencies, as you might guess considering the name. They’re “currencies”— perhaps digital commodities would be a better name, but that ship has sailed—backed by cryptography. And when we say cryptography, what we mean is complex math, the sort of thing to make even your calculus teacher squinch up their face. So-called “fiat” currencies, such as the US dollar, are backed by trust in the government and banking institutions. Bitcoin and Ethereum are backed by our trust in math. Actually, they’re backed by math plus all of the people willing to participate in securing the cryptocurrency network, which brings us to the next topic.