Nowadays all you hear about is mining this, mining that – well it makes sense. Its something new, something super cool, something that grants us the opportunity to make some money, and it makes us feel futuristic. I bet you’ve got a lot of questions, and I think we have all your answers.
Before we dive into the specifics of cryptocurrency we want to give you a little history about how cryptocurrencies were born. Lets start with the fact that Satoshi Nakamoto, the “unknown” inventor of Bitcoin (the first and most significant cryptocurrency) never actually even intended to invent a currency – in fact, cryptocurrencies accidentally emerged as a side product of another invention. WHAT? Yeah, we couldn’t believe it either. Makes it sound like it was something super easy that anyone could do it. Think again… anyways lets continue… In 2008, Satoshi revealed that he developed a “Peer-to-Peer Electronic Cash System” – Bitcoin! A completely decentralized digital cash system with no server or central authority. Confused? We don’t blame you – Its technical and complex.
To get a clear understanding about this digital cash you need to imagine a payment network that contains accounts, balances, and transactions. This is something that anyone can understand. But, understanding is not enough – a huge problem is that every payment network is at risk of running into what is known as double spending: you have to make sure that an entity spends money only once, instead of twice on the same transaction. This makes sense right? I mean you don’t want to buy something and pay for it twice, you always watch your credit card statement to make sure you aren’t double charged and you contact your banking institution who does their usual “investigation” and then eventually (hopefully) credits you money if you run into an issue. The banking institution is able to do this because it has a system that is managed by a central server that is responsible for tracking and recording all credits, debits, and balances. In contrast, in a decentralized network this “manager” just doesn’t exist. This means that every single entity has to manage its own transactions. Every single entity in a network has to have a list that contains all transactions and must be able to check if future transactions are valid or if there is an attempt to double charge/spend. If any of the entities in the network encounter a discrepancy with a single transaction, even if its tiny, then everything is off balance – simply put “broken.” This is something that is very hard to monitor and keep track of unless there is a manager controlling it all – until now…until cryptocurrency… Nobody could figure this out before Satoshi. In fact, just like your probably thinking, everyone thought this was something that was simply not possible to do. Satoshi proved us all wrong and was able to invent cryptocurrencies to solve this issue.
WHAT EXACTLY ARE CRYPTOCURRENCIES?
Now that we gave you a brief history lesson we can start digging into the fun stuff – the actual cryptocurrencies. Lets begin with the definition, its really quite simple “a cryptocurrency is a limited entry in a database that cannot be changed unless specific conditions are fulfilled.” Look at it this way: you have money sitting in your Wells Fargo account – this money is just a regular entry in a database that may only be changed under a certain condition (if its debited or credited). Now, lets compare this to the mechanism of the database of cryptocurrencies. A cryptocurrency such as Bitcoin, Euthereum, Zcash, etc.. consists of a network of peers. Each and every peer has a record of the complete history of every transaction and thus of the balance of each account. A transaction is simply a file that says, “George gave X amount of Ethereum to Samantha” and is signed by George’s private key. Its very simple, its just a transaction, something moving from one peer to another. This transaction is known almost instantly by the entire network. But, it doesn’t get confirmed instantly. Confirmation is a very significant concept in cryptocurrencies. In fact, this is where miners like you and me come into play – ONLY MINERS CAN CONFIRM THESE TRANSACTION. This is how miners work and get paid for their jobs – they confirm transactions by stamping them as legitimate and spreading them in the network. After a transaction is confirmed by a miner, every node has to add it to its database and it becomes part of the blockchain. For doing this very important job miners get paid with a token of cryptocurrency. I know what your thinking… huh? Thats what mining is? Lets take a further look shall we.
Satoshi thought all of this through… he set rules so that although anybody can be a miner, no one can abuse the system. His rules require that miners have to invest their computers to even qualify for the job. They have to use their own computer hardware to find a hash – which is a product of a cryptographic function that connects the new block with its predecessor. This hash is the proof of work performed. Although this may be quite confusing, its very important to understand, so in other words miners have to compete to solve the cryptologic puzzle. Once the minor finds the solution he can build a block and add it to the blockchain. As an incentive, the miner is then allowed to add a coinable transaction that gives him a specific number of Bitcoins (or any other cryptocurrency). This is actually the only valid way to create cryptocurrency. Since the difficulty of this puzzle increases the amount of computer power that the miners invest, there is only a certain amount of cryptocurrency token that can be created in a certain amount of time. Cryptocurrencies are built on cryptography – meaning they are not secured by persons or by trust, but by MATH. You read correctly – Math. The class in school you never understood why you had to take since you weren’t going to be a scientist or a doctor. The class you always struggled with. The class you were so happy when you never had to take it again. Well now your all grown up and now you get why you needed to learn math. Because math rules the world. Math is the universal language- the answer will never change no matter what country, time, or place, you are in. Math is certain. 2+2 will always be 4 There is absolutely no chance on any planet that 2+2 will ever be 10. It simply isn’t possible- Math is certain, math is fact. For this reason, there is a higher chance that a meteor will fly through the cosmos and some how end up hitting the White House than there is a chance that a cryptocurrency address is compromised. MATH.
TRANSACTIONAL VS MONETARY PROPERTIES
Now, lets discuss some properties of cryptocurrencies starting with the transactional properties – Irreversible, pseudonymous, fast and global, secure, and permissionless.
1. Irreversible: like a bank wire transfer, once a transaction has been confirmed, absolutely nobody can reverse it. This is a very very very strict rule, there are absolutely no exceptions, not Satoshi, not Trump, not Putin. No one. If you send your currency to someone who scams you, there is no going back and no one can help you. Its lost forever.
2. Pseudonymous: Neither transactions nor accounts are connected to any type of real world identities. What this means is that you receive cryptocurrencies on so called addresses, which are just randomly seeming chains of approximately thirty characters. While although it may be possible to analyze the transaction flow, it is not necessarily possible to connect the actual real world identity of said users with those addresses.
3. Fast and Global: transactions occur nearly instantly in the network and are typically confirmed within just a few quick minutes. It doesn’t matter if the currency is sent to someone next door or someone across the earth. All transactions arrive super quickly.
4. Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of a private key can send any sort of cryptocurrency. This scheme is impossible to break, its more secure than possibly anything you can think of.
5. Permissionless: the best thing about cryptocurrency is that it is available to anyone who is interested and permission is not required. Its a free software that once installed you are able to receive and send cryptocurrencies.
Now that we went over the transactional properties, lets review the monetary properties – Controlled supply and no debt but bearer.
1. Controlled Supply: most cryptocurrencies limit the supply of available tokens. For example, in Bitcoin, the supply decreases in time and will reach its final available number somewhere in around 2140. All supply of cryptocurrencies are controlled by a schedule that is written in the code. This means that looking forward today, we are able to get an idea and calculate the future of any cryptocurrency – we know exactly what to expect. Again, its MATH!
2. No Debt But Bearer: Cryptocurrencies don’t represent debts, they only represent themselves. They are money – they have value the same way dollars, silver, and gold do. But, there is a difference- cryptocurrencies are a controlled supply that are not able to be changed by the government, banks, or any other institutions. The use of cryptocurrency cannot be hindered, prohibited to accept payment, and a transaction cannot be undone. This completely takes away the control of the state. Its pretty cool for us common folk, but I’ll make an educated guess that the government isn’t pretty happy with that.
All in all, simply put – cryptocurrencies are digital gold. They are legitimate money that is safe from any sort of political influence. They are a money that promises to preserve and increase its value over time. They are a fast, private, and secure form of payment that is accepted worldwide.
TYPES OF CURRENCIES
Now, lets discuss the different types of cryptocurrencies you have probably already heard about.
1. Bitcoin – oh Bitcoin, the one that started it all! Bitcoin serves as the digital gold standard in the whole cryptocurrency industry, is used as a global means of payment and is the de-facto currency of cyber-crime like dark markets or ransomeware. Bitcoin isn’t going anywhere anytime soon, so get used to it!
- There are 21 million bitcoins that can be mined in total.
- On January 13, 2018 16.8 million (80%) of the entire bitcoin supply, were mined. This means that only 4.2 million bitcoins (20%) were left as of January 13, 2018 until its 21 million supply cap is reached.
2. Ethereum – Vitalik Butrin takes second place next to Bitcoin creator Satoshi for creating Ethereum. Ethereum can not only process transactions but can also process complex contracts and programs. This makes Ethereum the perfect instrument for blockchain application.
- The ethereal network is used to create about 1/2 of all ICOs. In other words, many coins on the market are Ethereum based.
- Ethereum can be used to do a variety of things, particularly it can be used to make multiple unique cryptocurrencies, to do any type of contract, and even be used to create/store blockchain-based apps. This can result in unique token/cryptocurrencies that aren’t Ether (but use the Ethereum network) such as Augur, Golem, Aragon, etc.
3. Litecoin – Litecoin was one of the first cryptocurrencies after Bitcoin and is considered the silver of the bunch (as Bitcoin is considered the gold). Litecoin facilitated the emergence of several other cryptocurrencies which used its codebase but made it even lighter. (Dogecoin or Feathercoin). Nonetheless, Litecoin failed to find a real use case and actually lost its second place but its still actively being developed, traded, and hoarded as a backup in the unforeseen event Bitcoin fails.
4. Monero – Monero is the most prominent example of the cryptonite algorithm. This algorithm was invented to add the privacy features that Bitcoin was always missing. When using Bitcoin, every transaction is actually documented in the blockchain and the trail of transactions can be followed. Monero introduced a concept called ring-signatures which was able to cut through the trail.
5. Zcash– Just like Bitcoin it has a hard limit of 21 million coins. Zcash transactions work a bit differently than Bitcoin because they use Zk-Snarks which stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” This means that Zcash is the first open, permission less cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography. Some interesting facts about Zcash:
- All of the 21 million Zcash coins are expected to be fully mined by 2032. This means that every 4 years the block reward gets halved to keep the supply in check.
- Unlike most other coins Zcash wasn’t pre-mined nor is it ICO funded.
- Zcash had a group of closed investors who funded $1 million to kickstart its development. The investors were promised with 10% reward of the total supply in an incremental way over the first 4 year period – they like to call this the “Founders Reward”
- Some of those investors include Barry Silbert, Erik Voorhes, Roger Ver, and Naval Ravikant.
- Edward Snowden tweeted “Agree. Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but “if its not private, its not safe.”
- The company behind Zcash, the Zerocoin Electric Coin Company (ZECC) partnered with JPMorgan Chase to add Zcash’s privacy technology to Quorum, an enterprise blockchain platform JPMorgan built on Ethereum.
WHAT DO YOU NEED TO MINE CRYPTOCURRENCY?
First things first, ELECTRICITY. You have to realize that mining eats up A LOT of electricity. Electricity has different costs throughout the world, and if you have the luxury to shop around, we would highly recommend it. So do some research, Russia, Iceland, and Quebec are all good options. In fact, almost every home in Russia has its own mining rig because the cost of electricity is so low – and they obviously love to mine!
Now, to summarize what we discussed above, the point of mining is basically to accomplish 3 things: (1) providing bookkeeping services to the coin network. In other words, mining is a 24/7 computer accounting in which the miner works by confirming transactions. In return for this work the user is (2) paid a small reward for his or her accounting services by receiving fractions of coins every few days. (3) Make sure your electricity costs are kept down, otherwise whats the point?
Now, lets discuss what you’ll need to mine:
1. A coin wallet. This is a password-protected container/wallet that stores your earnings and rewards and keeps a network-wide ledger of transactions
2. A free mining software package.
3. A membership in an online mining pool – this is basically a community of other miners who combine their hardware thereby increasing profitability and income stability.
4. Membership at an online currency exchange– you’ll need this when your ready to exchange your coins for cash and vice versa.
5. A 24/7 reliable internet connection – (at least 2 megabits per second)
6. A hardware setup in a cool and air conditioned space
7. A desktop or custom built computer or mining rig that is designed for mining. Now, its important to note that you wont be able to use the hardware for anything else, so if you do choose to use your machine to mine, you better be ready to invest in another daily machine.
8. A Graphics processing unit(GPU). Wondering which ones we recommend? Well, lets name a few:
- Nvidia GeForce GTX 1070 – we recommend this card because it has a low power draw and a high hash rate. It also has a high amount of memory, but unfortunately its mucho dinero. For those of you that no nabla espanol, well that means its expensive. But then again, if your into cryptocurrency mining for the long run, its probably the best mining GPU thats available at the moment.
- AMD Radeon RX 580 – if your an AMD fan, then this is the GPU we would absolutely recommend. Why? Well you can find it at a very reasonable price and its excellent at cooling. Nonetheless, the RX 580’s ideality for mining isn’t a secret, so the card is typically sold out and very hard to find because its in such a high demand for mining.
- AMD RX 480 – now, although this is an older GPU its available at a great price and it has great mining performance. But, unfortunately, just like the RX 580, the good price makes it high in demand, which makes it hard to find since everyone wants to get their hands on it.
- AMD Radeon RX Vega 56 – simply put, this GPU is one of the best value packed cards on the market. Not only is it cheaper than the Nvidia GTX 1070, but it also actually has been proven to run faster as well. Although it has great mining performance, the fact that it has high energy consumption and runs a bit hot may be a game breaker for some.
- Nvidia GTX 1080 Ti– this GPU is outstanding, it is super powerful and has excellent hash rates. But, it is very expensive to buy and run.
- Nvidia GTX 1070 Ti – Now, analyzing the negative first, since its a newer model than its brother, the 1070, it does cost more, but what doesn’t entirely make sense is that it also has a higher power consumption than the 1070. But as expected, it is very powerful and has very good hash rates.
When your looking for the right GPU, its important to think about the memory the GPU features as well as its power needs and costs. When you first start mining you aren’t going to be bringing in a bunch of coins right away, its going to take some time. So you’ll want to make sure that you mitigate your initial costs as much as possible while maximizing your profits.
9. A fan to blow cool air across the mining rig. The hardware has to be kept cool, its important that it doesn’t overheat.
10. Knowledge – the absolute most important thing to be successful in mining is to constantly educate yourself with the latest technologies and developments.
WHAT IS THE FUTURE OF CRYPTOCURRENCY?
The market of cryptocurrencies is a fast and wild beast. Nearly every day there are changes whether it be new currencies emerging or old ones fading away. But one thing is certain, each new currency comes with its own interesting story that brings changes to our world. We think that these different cryptocurrencies are the money of the future and that not only are they here to stay but they are here to evolve as time goes by. If your thinking about hoping on the mining bandwagon, we greatly recommend it!
Looking for a mining rig? Check out what we have in stock here. If we don’t have what your looking for check back later, we update our stock daily as these rigs have become so popular they tend to go rather quickly. Have a specific rig in mind that your looking for? No problem, let us know, we are more than happy to customize it for you. Local in Los Angeles, stop by our warehouse, we would love to show you around and work together to prepare a custom mining rig.
Random funny fact: back in 2011 when mining was still an ongoing development a user posted on a Bitcoin forum called bitcointalk.org saying “Where to put mining rigs? Wife wants them out of the house!” This user was asking for advice on renting a space for his rigs because his wife couldn’t stand the heat and noise. – Looking back today I bet she wishes she made him invest in more mining rigs rather than spend unnecessary money to house them elsewhere! Crazy how times change. Hold on to your rigs folks! They’ll bring you good things:)