Penning Down The Thoughts: The first miner

GOLD
MINING
BLOCKCHAIN
BITCOIN
By Jimmie Steinbeck

Another drop from co-founder and CEO, Jimmie Steinbeck, “walking” with The Pen Team and explaining the whole shenanigan about bitcoin mining. During the Gold rush in the mid-1800s, mining became a method for the rapid influx of fortune seekers. Today the term mining is synonymous with the process of solving complex mathematical challenges on the bitcoin blockchain. Here’s a read on what mining is, means, and how it all began right here in Penning’s “hometown”.

WHAT IS MINING

Before we begin, maybe it’s a good idea to explain what mining is. Bitcoin is in many ways considered gold, and back in the “gold old days”, people would literally dig for gold, more commonly known as mining gold. Today a Gold mining business is run by big to medium corporations, through explorative projects in areas where they project Gold to exist. Now back to Bitcoin mining, as explained in the previous post of this series, bitcoin exists on blockchain technology which is a complicated mathematical process. In order for any transaction to be conducted a series of equations occur to make the transaction as unique as possible, which is why the keys and IDs for wallets are so cryptic and complex to look at. So, Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math problems to verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin. For each transaction, a new block to the bitcoin blockchain is added, and in order to successfully add a block, Bitcoin miners compete to solve these extremely complex math problems that require the use of expensive computers and an enormous amount of electricity. To complete the mining process, miners must be first to arrive at the correct or closest answer to “the question”. The process of guessing the correct number (aka hash) is known as proof of work. Miners guess the target hash by randomly making as many guesses as quickly as they can, which requires major computing power. If a miner is able to successfully add a block to the blockchain, they will receive 6.25bitcoins as a reward. As it requires so much computing power, server farms and cooling systems, etc. miners exist to ease that load of work to successfully keep the bitcoin blockchain “alive” and well. This is the equivalent of land with a lot of gold (found through explorative methods) in a country where the government allows resourceful companies to mine for gold, even though the process of equipment is heavy and energy-wise intense and the chance of discovery (“the question”), leading to a mine being developed (new hash) is very low (less than 0.1%), miners still take a crack at it. Hope that made sense, moving on to my story.

WALKS INTO A BAR

Musen & Elefanten, a local bar in Copenhagen, was the first business to accept bitcoin as payment for beers and drinks in Denmark, and that became the place we met and talked about bitcoin in the early days.

Known today as Coinify was earlier founded by Kris Henriksen, when the company was known as BIBS (Bitcoin Indbetalings Service) he developed and built an app solution to handle bitcoin payments for the bar. Later in May 2014 Kris and Lasse Birk Olesen from another local company Bitcoin Nordic merged the two companies and co-founded Coinify together with Hans Henrik Hoffmeyer and Mark Højgaard. The latter two are still in the company today as COO and CEO. Hans Henrik also plays a big part in the regulation of crypto in Europe, and through his engagement in The Blockchain and Virtual Currencies Working Group they have helped form the MiCA. Voyager Invest acquired Coinify in an $84 million deal in 2021. Coinify stayed as a single entity under the same brand and leadership. Until 2021 I was part of the company as an external consultant.

Coinify is the number 1 virtual currency payment provider in Europe, operating in 180+ countries and territories in operation, with 2.5 millon+ registered traders worldwide, and 65 global payment solution providers integrated. Today more than 100.000 businesses and millions of customers around the world are using their solution to handle payment with +15 crypto assets. They are today the backbone of many big and known crypto companies where they handle fiat on and off-ramp solutions, payments gateways, and credit card payments. For many years Blockchain.com was one of their clients. Blockchain.com is a cryptocurrency financial services company. The company began as the first Bitcoin blockchain explorer in 2011 and later created a cryptocurrency wallet that accounted for 28% of bitcoin transactions between 2012 and 2020.

In the first couple of years, the blockchain and bitcoin community in Denmark wasn't particularly big, but through the years it has grown and there have been founded many of the biggest players in the industry here in our country outside Denmark, but with danish founders, investors and developers. Just to name some, Chainalysis, Reality+, MAKER DAO, DigiShares, Bitcoin Suisse, OpenLedger, Coinify, ARYZE, and Concordium. Also in the legal aspect, we have outstanding experts like Samar Law, Penning's legal partner, and Lawyer Nikolaj Juhl Hansen, and the community keeps growing.

MY FIRST MINER

Back in 2010, I got my first miner, at that time it was simple, install a wallet app called “bitcoin-Qt” and off we go. The first bitcoin wallet was a full client, which meant you had to download the entire blockchain history for it to synch. This wasn’t an issue, to begin with, since there was precious little history to record, although the synchronization period swiftly expanded. Reviewing the wallet in 2012, Vitalik Buterin wrote: “Because it is a full node, the client must download the entire (currently 6 gigabytes) blockchain to operate, which can take up to a few days the first time you start the client and several minutes to an hour every time you start the client afterward if you do not keep it running constantly.” Today, the BTC blockchain is approaching 430 GB. life data here

I was an official part of the blockchain and was mining Bitcoins. That simple. I used my MacBook Air generation 1, and the CPU power it had. Later I was building real mining rigs, That’s what these self-build machines of graphic cards (GPUs), and stuff from an ordinary gaming computer were called. We started mining bitcoins on a big scale. In 2013 after we had tried a lot of different solutions to mine as many Bitcoins as possible from gaming shops, friends’ home computers, and laptops at the office, we ordered our first professional industrial manufacturer Butterfly Labs, Bitforce SC 60 bitcoin miner, pricetag 32 Bitcoins. Yes, with a price tag today $ value of +600.000$.

The problem was that Butterfly Labs shipped so many miners out that the difficulty level on the blockchain skyrocketed and it ended up mining about 5 Bitcoins before we shut it down. Hmm, we had to find a new solution and fast, if we were going to be a part of the validation process of the bitcoin blockchain. I got an idea, at that point I did not know that this became one and maybe the first cloud mining solution out there. We started Cryptomine an online-based bitcoin miner-leasing service. Users were able to lease a part of a miner and get a percentage of the bitcoins we mined. The concept was simple, we buy a lot of miners and “sell” 75 % of the hash/power they provided to the network, we used the last 25 % to cover the running costs and our income, and everyone was happy and had a chance to contribute to the network.

I found a manufacturer in Switzerland and ordered 10 machines with each 2,8 T/hash mining power. We sold the first +100 contracts the first evening we launched. Unfortunately, the manufacturer in Switzerland lead us down later with a large shipment and went bankrupt and we had to shut the operation down. At that point, we sold merely 1000 contracts up front for the next delivery of miners to cover the upfront payment of the miners. We ended up paying back all the customers with our own bitcoin and money and sold the rest of our mining fleet. We ended up getting some of our bitcoin back that we had put in deposits for the miners we ordered. We learned a lot about running a mining pool from our time in Cryptomine. Years later when Dash came to market, a clone of bitcoin, launched a new way of mining called POS, proof of stake, we started Stakem and ran masternodes for + 30 different blockchains. I will get back to that later.

“Penning down the thoughts” is a series compiled by the CEO and Co-Founder of Penning, Jimmie Hansen Steinbeck. A compilation of his vast experience, knowledge, failures, successes, know-how & ideas. Jimmie has spent the last decade (almost since the birth of bitcoin), working in the crypto, blockchain (also known as Web3) space, as an investor, entrepreneur, and expert advisor to numerous crypto companies.

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