Inside the Race to Build the World’s Fastest Bitcoin Miner

There’s more than one way to make money from the Bitcoin craze, which has seen the value of the digital currency increase more than six-fold over the past few months. You can do it the old-fashioned way: buying low and selling high. But for the sophisticated digital-currency investor, there’s a whole other world of Bitcoin speculation: the Bitcoin mining rig.
Like the currency itself, this strangely lucrative game is heating up — in a big way. One mining rig — available for preorder at a cost of about $1,800 in February — is now selling for more than $22,000 on eBay. And it hasn’t even shipped yet.
Over the past year, a handful of companies have raced to build a new generation of computers that are specifically designed to mint digital money, and many speculators across the Bitcoin world are dying to get their hands on the latest hardware. This week, one of these companies, Butterfly Labs, is finally shipping its first custom-designed machines, six months behind schedule.
If Bitcoins are the fiat currency alternative for techno libertarians, then Bitcoin miners are the digital mint operators who keep the whole thing running. Bitcoin transactions are not registered with any central bank or brokerage firm or website. They’re logged by a peer-to-peer network of computers. These computers keep track of who’s transferring Bitcoins to whom, and then — every 10 minutes — they enter a kind of cryptographer’s lottery, with the winner getting paid 25 Bitcoins for their work. That’s how new Bitcoins get into the network. It’s also how the Bitcoin miners earn their keep.
For Bitcoin miners, the name of the game is cryptography. And the lottery ticket is a hash — a number that represents a big bunch of data and is created via cryptographic algorithms. If one miner — or a group of miners — can take the transactions on the Bitcoin network and convert them into more cryptographic hashes faster than someone else, they have a better chance of winning that 25 Bitcoin payout. As Bitcoins have skyrocketed in value, the Bitcoin miners have been throwing more and more computing power onto the network.
When Bitcoins were first introduced, you could win the hashing lottery with a regular old personal computer. Now that’s pretty much impossible. In fact, it now takes about 9 million times as much processing power to produce Bitcoins as it did in the beginning. So, for any Bitcoin miner to have a reasonable chance of winning, they have to seriously up their game.
That’s where the new mining gear comes into play.
In the past year, three companies, Butterfly Labs, Avalon Asics, and Asicminer led a race to produce a new generation of computers built with custom-designed chips (they’re called ASICS: application-specific integrated circuits) that do nothing but create tickets for the Bitcoin mining lottery.
You plug one of these machines into your computer, run special mining software, and sit back and wait for the Bitcoins. But they’re so powerful that they’re making things harder for other miners. “The difficulty has been skyrocketing lately as these ASICS have been coming online,” says Gavin Andresen, chief scientist with the Bitcoin foundation.
Last summer, Bitcoin miner Scott Novich bet on Butterfly Labs. It seemed like a reasonable bet at the time because Butterfly had already shipped specialized Bitcoin mining rigs that, when pooled with other miners, were cranking out an average of four to six Bitcoins per month for Novich, a graduate student at Rice University. Butterfly had the best reputation; it had shipped well regarded mining rigs in the past. And its miners — which look like stretched out versions of the Roku media player — simply looked cool.
So last July, Novich and a few friends shelled out an advance payment of about $1,200 for a Butterfly miner that the company said would be able to perform more than 60 billion hashes per second. His current mining rig performs 750 million hashes per second.
The Butterfly gear was supposed to ship by November. Today Novich is still waiting.
The problem was that Butterfly — based out of Kansas City, Missouri — banked on a cool design and a brand new chip manufacturing process and ended up getting in over its head. “We’ve hit quite a few snags along the way, says Butterfly Chief Operations Officer Josh Zerlan.
The company had to redo its initial chip designs, but the worst snag was in November, when the Butterfly got a hold of its first chip samples. They were basically too hot to work, Zerlan says. “The plastic packaging on the top of the chip just couldn’t exhaust the heat fast enough, so it basically melted the package.”

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