How to set up a private bitcoin network with mining on a single machine? I created a testnet for mining using several ports in a single machine. However I see that the source codes [CAddrInfo, CAddr] are based on IP and not IP||port. Is there an easy change to make it do mining across ports [under same IP] or this is simply not possible?
I've had to do this, so I'll try to describe exactly what you need to do to get mining on testnet to work in a local setup. For our purposes, we'll have 2 instances of bitcoind running, the first set up to be a miner, the second as a peer.

First, create two directories, one for the miner, the other for the peer:

$ mkdir 1
$ mkdir 2


Now create this file in the 1 directory:

$ &lt;your favorite editor&gt; 1/bitcoin.conf


Here are the contents of the file:

testnet=1
irc=0
dnsseed=0
upnp=0
listen=1
checkpoints=0
server=1
rpcuser=test
rpcpassword=test
rpcallowip=127.0.0.1
port=20000
rpcport=20001


Now go and make the same file for the 2 directory

$ &lt;your favorite editor&gt; 2/bitcoin.conf


Contents:

testnet=1
irc=0
dnsseed=0
upnp=0
listen=0
checkpoints=0
connect=127.0.0.1:20000
rpcuser=test
rpcpassword=test
port=20010
rpcport=20011


Run the first instance:

$ bitcoind -datadir=1 -daemon


Run the second instance:

$ bitcoind -datadir=2 -daemon


You can check to see if everything is up and running by using bitcoin-cli:

$ bitcoin-cli -datadir=1 getinfo


Blocks should be 0 until you mine something.

If you have mining hardware, you can now mine by connecting to 127.0.0.1:20001 with the user/pass of test/test. The actual command to connect will differ based on the mining software you use, but for bfgminer, it would be something like:

$ bfgminer -o http://127.0.0.1:20001 -O test:test --generate-to &lt;a testnet address&gt; --no-longpoll -S all


Note that CPU mining takes several hours to find a block from my experience.