SOUTH SALT LAKE — At the bottom of the stairs in Jacob Berezay’s split-level apartment sits a mass of wires — blue, red, yellow and black — connecting 26 black graphics cards and data processing machines roughly the size and shape of VHS tapes to two homemade computers.
“These are the rigs,” Berezay, 32, proudly states.
When you hear mining rig, you might think of a large apparatus that drills holes in the earth to extract oil, gas or minerals. But these rigs do a different job: mine cryptocurrency.
A new source of wealth for millions of computer geeks and investors around the world, cryptocurrencies, the most popular of which is bitcoin, are digital currencies that aren’t controlled by a government or a central bank, but rather operate via a decentralized network of computers. That’s where Berezay comes in. His computers simultaneously uphold the network and generate new “coins.”
As usual, Berezay, who works as a freelance web developer, is barefoot and wearing jeans and a T-shirt. He kneels to examine his mining equipment, neatly arranged on a set of wooden shelves he built himself.
Not only can you hear the buzz of the computers’ millions of simultaneous calculations, but you can feel them as well. Heat radiates from the rigs while a miniature fan aimed toward the set-up feebly stirs the air.
To someone who is unfamiliar, cryptocurrency mining might sound like digging for lost cybertreasure or some kind of scam. The actual process, though more innocuous, is no less fascinating.
Berezay’s computers work to verify transactions — like when someone sends or receives a digital coin — and in return for the work, he earns money in the form of cryptocurrency.
For some it’s a hobby, for some it’s a livelihood. For Berezay, it’s a mix of both.
Berezay has chosen to mine a popular cryptocurrency called Ethereum, which was worth just $10 at the beginning of 2017. Then the price skyrocketed. Now each coin is worth more than $1,200. The increased price is good news for Berezay, who is now able to earn about $2,400 a month with his current mining set-up.
As Ethereum, bitcoin and hundreds of other cryptocurrencies continue to climb in price, more and more people are getting into the business of mining and trying to figure out how it works. No one knows exactly how many miners there are, but experts estimate that tens of thousands of people are mining cryptocurrency in the U.S. One thing they agree on is that the numbers are climbing.
“It is more profitable now to do mining activity than it ever has been,” said Michael Carter, 40, who runs a YouTube Channel called “Bits Be Trippin’,” that teaches people how to mine and has more than 2 million views on some videos.
At the same time, innovators are coming up with creative applications for cryptocurrency technologies. Startups are raising funding by creating and selling their coins instead of the traditional method of selling equity. As advertising revenue falters, even journalists are looking to cryptocurrency to fund their work. PressCoin is a digital coin created to fund investigative journalism, Civil is a cryptocurrency-based journalism marketplace, and Kodak is offering KodakCoin, a cryptocurrency for freelance photographers. Other technological applications for the decentralized model of computing used for cryptocurrency range from cloud storage to voting.
Mining is different from investing in bitcoin by simply buying it. Miners are still investors, but they are actually generating new coins, and not purchasing existing ones. As with any investment, there are risks involved. It takes thousands of dollars to set up a mining operation. And while many experts think cryptocurrency will continue to rise in price, others fear it's a bubble that could burst at any moment.
But in Berezay’s eyes, the potential for growth — as well as the potential for profit — is limitless.
Creating the 'blockchain'
The newest generation of miners doesn’t have to go to work in dark and dangerous underground shafts. Cryptocurrency mining is happening all over the world in basements, garages and warehouses.
Cryptocurrency gets its name from cryptography — the art of writing or solving codes. Cryptocurrencies use cryptography to secure transactions as the coins or tokens are transferred directly from peer to peer. There’s no intervention or guaranty of banks, financial organizations or the government, and that is why it appeals to people who distrust these institutions.
Instead, the system relies on miners who are responsible for validating and recording transactions in a digital public ledger to prevent double spending of the currency.
The public ledger is called the blockchain. It's essentially a large database of transactions. Each “block” in the “chain” consists of the transactions that happen at any given moment, and once they are verified, it confirms to the rest of the network that a transaction has taken place.
"(Blockchain) is to bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one," said Sally Davies, a Financial Times technology reporter.
A transaction is verified when a computer solves the code or encryption associated with that transaction. Special algorithms are used to find the right mathematical key to unlock the encryption. Most miners don't even understand the complex mathematics behind the verification process. Instead, they buy software that runs the algorithms for them. For example, Berezay uses a software called Claymore Miner that employs an algorithm called Dagger Hashimoto to mine Ethereum.
In return for the work they do, miners are rewarded with new coins — of which only a certain number will ever be created.
“The miners are the ones that are keeping these networks going,” said Joe Blackburn, 32, a cryptocurrency trading expert who runs a Facebook page called Crypto Coin Trader with nearly 80,000 members.
Blackburn believes blockchain is the future of money. While many opportunity-seeking investors have been able to profit from rising prices, Blackburn believes people should invest in cryptocurrency because of its potential for real-world application.
“Blockchain was not invented to become the next stock market. It’s a technology that I believe in,” he said.
While mining is lucrative, Blackburn explained that it’s also competitive and constantly changing. Cryptocurrency miners around the world are competing to verify a transaction before someone else does — meaning the more computers and processing power you have, the more transactions you’ll be able to process and verify. That’s why bitcoin mining became so difficult as the currency rose in popularity and the number of transactions per block increased, Blackburn said.
“As the price of bitcoin goes up, the difficulty of mining increases,” said Blackburn. “You’re working harder and not receiving as much bitcoin in return, and smaller miners don’t want to put in that effort.”
Graphics cards, like the ones Berezay uses to mine Ethereum, are no longer powerful enough to verify bitcoin transactions quickly enough. Instead, people have turned to newer more powerful machines, called Asic miners, specifically invented for mining bitcoin. And more bitcoin mining operations have moved to large-scale warehouses in China, where energy to power the massive operations is cheaper.
“It’s like an arms race,” said Berezay, noting that the price of graphics cards, originally made to improve the graphics for computer games and other programs, has also tripled.
Those who have mining setups have to be ready to adapt and switch over to mining new currencies when one drops in price or becomes too difficult to mine, Berezay said.
What if you had invested in Bitcoin early?
Select a year and enter a dollar amount to see how much you would have made if you invested in BitCoin at that time!
How Berezay got started
Born in Boise, Idaho, Berezay grew up all over Nevada, Montana and Oregon. Eventually, he landed at BYU-Hawaii for college, where he developed an affinity for being barefoot while going to the beach every day and resourcefulness while living in a van for a year — showing up at seaside showers in the morning and sharing his shampoo with homeless people who had the same routine.
He would have graduated with a degree in computer science and a minor in psychology were it not for a pesky calculus class he never passed. But it didn’t matter. He got hired as a web developer at Capshare in Sandy, Utah, immediately following his last semester.
That was until he started working freelance and his brother-in-law called him up with an interesting proposition in September of last year.
He knew a guy who had made thousands of dollars mining Ethereum but setting it up wouldn’t be cheap. All the equipment would cost close to $9,000. So Berezay provided the technical know-how and his brother-in-law contributed to the capital necessary to get started.
As for Berezay’s wife, “It took … a lot of convincing,” he said.
Earnings for Berezay were slow going at first because the price of Ethereum plateaued. But he didn’t get discouraged. Berezay believed the price would go up, and it did. Now, Berezay says he’s earned back about $2,100, and in three more months he expects to break even.
That’s taking into account the energy costs as well. At any given time, Berezay’s rigs are pulling 1,900 watts, and the electricity bill is edging toward $230 a month, he said.
“But it’s also heating the house right now,” Berezay says optimistically. “So that takes off like $100 a month that we would be spending on heating.”
Still, Berezay knows the future of cryptocurrency mining is not certain. In the worst-case scenario, he can sell back the equipment he bought and get back a good chunk of his original investment. In that way, he thinks mining is less risky than just buying coins because he will still have physical capital even if the currencies lose value.
Many market-watchers have warned that the price of cryptocurrency has been largely driven by what millennials would call FOMO (the fear of missing out) and economists would call Greater Fools Theory, which states that the price of an object is not based on its actual value, but by the irrational expectations of market participants. But Berezay is prepared to face the risk.
“I’m just going to keep doing it for as long as I can,” said Berezay. And for now at least, it looks like that will be long enough for Berezay to make a substantial profit on his investment.