Bitcoin mining rush means real cash for makers of hardware

Bitcoin, the virtual money that exists only in digital form, is spawning a real-world hardware boom.

The currency, used to buy and sell everything from electronics to illegal drugs on the Web, has surged to about $135, more than 10 times its value a year ago.

The rally has created a cottage industry of speculators eager to get their hands on Bitcoins, which can only be created digitally by using powerful computers to solve complex software problems. That has in turn boosted a market for high-powered machines, some costing more than $20,000 apiece, which are custom-made to unlock new Bitcoins in a process called mining, a nod to the excavation of minerals and metal ore.

“Mining can actually be quite profitable when miners are able to get their equipment in a timely manner, which is what keeps many of us looking for better, faster and cheaper hardware all the time,” said Andrew Korb, who set up a fund that buys systems to mint Bitcoins and shares the proceeds with investors.

Beyond investing in the currency, the speculation has extended to equipment manufacturers targeting Bitcoin miners and automated teller-like machines for cashing in or exchanging the currency. Startups such as Butterfly Labs Inc., KnCMiner AB and Robocoin Technologies say hardware sales have soared along with the price of Bitcoins.

Shovel Makers

Korb, 24, has persuaded 65 people to invest 907 Bitcoins worth more than $100,000 in the Korb & Co. Investments Mining Fund. The group, which has a prospectus online, has bought computers from Butterfly, KnCMiner and CoinTerra to crunch data. His CoinTerra gear has yet to be delivered because the startup hasn’t begun shipping yet.

“Like during the gold rush, it’s the shovel companies that made money,” Korb said in an interview.

Korb, based in Burlington, Vermont, is taking a risk, since the cryptographic challenges embedded in Bitcoins get increasingly complicated as more digital money is created. That in turn fuels greater demand for computing power. The virtual currency was designed that way, so that the money self-regulates supply and prevents out-of-control inflation.

Since being introduced four years ago by a programmer or group using the name Satoshi Nakamoto, there are now 11.8 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks the digital currency’s activity.

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