Obsidian farming is very useful, especially earlier in the game, when massive caverns have not been found yet. Obsidian farming is accomplished by pouring lava in a trench (must be still) and then pour water so that it flows over top, creating obsidian. This is the favored way to obtain obsidian, becuase mining, and even just finding, obsidian is very risky and dangerous. Obsidian is ALWAYS next to lava, so you must either block off the lava or swim aginst the current of the water. With farming, all you do is place the lava and pour the water yourself, making it less dangerous. The only dangerous part is getting the lava with a bucket.
Building
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A VERY basic obsidian farm. Some players may think this is the act of griefing.
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An advanced obsidian farm.
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From the inside.
A good way to start is to find an open area. If you are building one underground, just dig/mine enough area for at least a 1x7 trench. There are 2 types of farms:
"Basic Farm"
This is basically just a trench dug into the ground with walls on either side; nothing special. It gets the job done without all the luxuries. It is simply made by digging (at least) a 1x7 trench in the ground and bulding short walls on either side. You then pour lava in the trench, making sure that each one will become a source block. Looking at the picture above, you can see that each end has a step; this is required for the water to flow onto the the lava. Once the trench has been filled with lava source or spring blocks (when the lava is completely), you can then pour the water onto the "step" and it will flow over the lava, transforming it into obsidian. "Pick up" the water spring with the bucket and begin to mine the obsidian. Note that you need a diamond pickaxe to mine it successfully.
"Advanced Farm"
This type of farm is far more sophisticated than a hole in the ground. What you will need to do to build it is start to make a basic farm. Make the walls one block higher and make a roof (glass is optional, it's only for aesthetic purposes.