Obsidian

Obsidian is a deep purple and black block that was first released into the game in version 0.30. Obsidian may be found naturally on rare occasions, when there is flowing Water and source Lava blocks nearby. Obsidian is created when flowing water hits a lava "source block"; when water and runoff lava collide, cobblestone is created. Obsidian never actually spawns with the chunk, but is created by the environment. Obsidian can only be successfully mined with a diamond pickaxe. Each obsidian block takes 15 seconds to mine when using a diamond pick. It can be broken with a non-diamond pickaxe, but this takes 50 seconds and will not yield a collectible block.

Obsidian found naturally is somewhat rare and difficult to mine since it usually rests on top of a Lava block. Obsidian farming is thus the preferred way to acquire large quantities. A basic Obsidian farm is composed of a trough seven blocks long into which seven blocks of Lava are poured using the Bucket. A water block is then placed on top of one end of the trough so that it flows onto the lava and converts it into Obsidian.

As of the Halloween Update, Obsidian can be used to create portals to The Nether. This requires at least 10 blocks of Obsidian (14 for a full frame) and Flint and Steel.

Current Uses

 * Portals to The Nether
 * Decoration
 * Explosion resistant shelters. At 6,000, Obsidian's explosion resistance rating is second only to Bedrock.  It is therefore an exceptionally desirable construction material for making defensive structures, in both SSP or SMP, as it is effectively impervious to both lava and explosions. It also takes longer to mine than any other blocks, so it's good at keeping other players out.

History
Obsidian was available for use since Classic mode. It is generally used for making dark things, or the black lines of Pixel Art.

In Survival Test mode, Obsidian was extremely tough to break and would drop one or two Cobblestone blocks when broken.

Obsidian was removed in Indev and brought back in Infdev. Obsidian was used to mark the positions of the cardinal directions. This created two intersecting planes extending just above the surface of the solid material that surrounds them. This has since been removed.

Farming and Casting
On the 16th of March 2011, a new way to farm obsidian involving redstone as the only irretrievable source (rather than lava) was discovered. The process involves having a row of running water with a line of redstone next to it and pouring the lava onto the redstone, in-turn, replacing it with obsidian. This is currently the only known way to create numerous blocks of obsidian without using multiple buckets of lava. This method still works in 1.4, even though Notch knows about it.

Redstone-to-Obsidian Converter basic tutorial

Obsidian generator different building method

Obsidian house with Redstone-to-Obsidian (no generator/digging required)

Obsidian can also be easily farmed through the creation of nether portals. Since a portal is created in the Nether to mimic the overworld, by creating pairs of portals one can destroy the first portal and run back through the second.

Basic Obsidian Farm

Structures can be constructed out of Obsidian without the use of a diamond pickaxe by creating a mold and placing the lava source within it, then running water over the lava. This will form the obsidian in place, but without diamonds it is quite hard to get rid of. Casting is recommended over mining when having a lot of buckets and still lava is nearby.

A more advanced form of casting for large structures can be made by building "scaffolding" to create a frame two away from the desired location of the Obsidian and using this to create an artificial waterfall a square away from where Obsidian is wanted. It is then possible to "float" inside of the waterfall and create large amounts of obsidian by placing buckets of lava next to it. This has the advantages of not needing to be built up and have the water moved with every new row, and allows the maximum of 36 buckets of lava to be converted at once. Care should be taken to remain clear of the row where obsidian is being created, however, as the solid block created can hurl the player through the air and cause a large amount of fall damage.

Advanced Obsidian Creation

SMP duplication
Because of the recent 1.6 update that fixed Nether in multiplayer, it is now possible to duplicate obsidian using nether portals. It is recommended to have at least two people with diamond pickaxes, or else this process may be very slow.

The process starts off with one player making a portal in the Overworld and going through the nether. This is will create a corresponding gate in the nether automatically, ensuring he has a way back. The other player will then break one of the blocks in the gate built in the Overworld. This will of course destroy the gate, leaving you with an odd obsidian structure. The player still in the nether will then reenter the portal and go back to the Overworld. Just as when first entering the nether, the game will create a corresponding gate in the overworld to link the two portals. Thus, a new gate will appear near the old destroyed one.

This process can be repeated indefinitely to produce a potentially unlimited amount of obsidian.

Safe(er) Mining
Obsidian, if found in the wild, is typically directly above a lava source block, making it dangerous and difficult to mine. This can be overcome, however by placing a water spring block directly over the block you are currently mining. This will convert any lava around the obsidian block into more obsidian, so it's less likely to fall into lava.

An equally effective way is to find the edge of the obsidian "lake", dig a one block deep hole under which there is no lava, and place the water source in this hole. Then, start mining the obsidian bordering the water spring. When it breaks, the fast-moving water will fill the void faster than the liberated obsidian block can drop into the lava. The player can continue mining outward from the spring as far as the water will travel. This method relies on the same properties of water as the first strategy, but does not require the player to battle against running water while mining.

Trivia

 * Notch once planned to make floating masses of land require Obsidian veins to stay afloat. However, he later stated on Twitter that he didn't like the idea anymore, so it's unlikely this will be implemented.
 * Even though Obsidian is the second hardest block to destroy, in reality, obsidian is glasslike (When it comes to material, not color. It is actually black, but glossy), made when lava cools, and is actually quite fragile. The misconception is probably due to obsidian being able to reach a sharpness comparable to diamond while being easier to produce, therefore being a favored material during the Stone Age for use as blades and arrow tips.
 * Obsidian portals created by the game always have corner blocks, so you can make portals without corner blocks to get four free blocks of obsidian, however, if an exit portal is floating in midair, the game will add two blocks of obsidian to each side along the bottom row, increasing the free obsidian from a new portal to eight.
 * Destroying an underwater obsidian block without a diamond pickaxe takes 250 seconds, or 4 minutes and 10 seconds. This is (obviously) impossible, because the player will run out of air long before.
 * It is a common misconception that enough TNT will destroy Obsidian. However, even though its explosion resistance rating IS finite, there is a rule within the code that if TNT completely encasing a block will not destroy the block, no amount will. However, this rule only applies to bedrock, water, and obsidian so far, because TNT encasing any other block will destroy that block. Were Notch to release an explosive with 285 explosive power, Obsidian could be destroyed by that explosive; as of now, it can only be destroyed by mining through it.

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