The current banking system and fiat currencies are obsolete. They are unfit to support the new economy. Banks are intermediaries and, as such, they can hinder or delay the free flow of businesses. Banks are expensive, especially for the poor. People lose money at banks, due to outrageous fees. People are fearful of putting their money in banks in countries such as Argentina, Cyprus, and Greece. History has proven those people right. And, in the U.S., what would have happened if taxpayers had not bailed out the banks and other big financial institutions during the 2008 financial crisis? Do you remember the popular maxim “Too big to fail”? The good news is that Bitcoin and its underlying blockchain technology promise to radically improve this situation. However, as you might have guessed, a powerful banker has stated that Bitcoin must be stopped.
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More than often, people who are newly introduced to Bitcoin have no idea that the currency is already several years old. The idea of Bitcoin was first introduced in 2008, when a man named ‘Satoshi Nakamoto‘ published a paper on The Cryptography Mailing list at metzdowd.com. This paper was called Bitcoin: a peer to peer electronic cash system and is still a classic among the ‘old school’ Bitcoin fans. Not that much later, in 2009, he released the first Bitcoin software that enabled the world to start using Bitcoin.
So who is Satoshi Nakamoto? This is a question that still raises eyebrows all over the cryptocurrency world. There are plenty of suggested identities, which we will tackle later in this guide. Let’s take a look first at what we know about Nakamoto. The first certainty we have is that he did not work alone. He held close contact with other developers through forums and e-mails. He kept improving the source-code whilst taking advice from several other people. This continued until contacts between him and his team gradually began to fade. In the year 2010, he handed over control of the source code repository and alert key functions of the software to Gavin Andresen, another prominent figure in the Bitcoin universe. With the source code, he also gave away the Bitcoin.org domain and several other domains. After doing this, Nakamoto began to communicate less until he completely disappeared.
Nakamoto himself claims to be a 37-year old male who lives in Japan. A false statement according to many people. His use of the English language is near perfect, and the Bitcoin software was never documented in Japanese. A strange behavior for someone who claims to have lived in Japan for his entire life.
By now, you must have come to the conclusion that there is a lot of mystery surrounding Bitcoin’s inventor. If there is one thing the Internet likes, it’s mystery (or rather solving it). This led Stefan Thomas, a Swiss coder and active community member, to a great idea. He decided to look into the timestamps of Nakamoto’s forum posts. With over 500 posts, it had to be possible to find a pattern in it. His investigation resulted in a chart that showed a steep decline to almost no posts between the hours of 5 am, and 11 am GMT. It is very probable that Nakamoto was asleep at this time. When looking at the different time zones in the world, Nakamoto probably lives in the parts of North America that fall within the Eastern Time Zone and Central Time Zone. Parts of Central America, the Caribbean and South America are possibilities as well.
It’s great to know where Nakamoto probably lives, but it still brings us nowhere closer to his real identity. Are we even talking about a single person? Some people consider him to be a team of people. A lot of prominent coders think the Bitcoin code was too well designed for one person. Dan Kaminsky, a security researcher who read the code, said that Nakamoto could either be a “team of people” or a “pure genius”.
That said, many identities have been pinned on the Bitcoin developer over the years.
- A 2011 article in The New Yorker written by Joshua Davis suggested that Nakamoto’s identity was pinned down to a number of possible individuals. The most notable among them were Finnish economic sociologist Dr. Vili Lehdonvirta and Irish student Michael Clear. Both Lehdonvirta and Clear responded by strongly denying this.
- In October 2011, Adam Penenberg claimed he found evidence suggesting Neal King, Vladimir Oksman and Charles Bry could be Nakamoto. As an investigative journalist writing for Fast Company, he found they jointly filed a patent application that contained the phrase “computationally impractical to reverse”. This was also used in the Bitcoin white paper. To add even more proof, he showed that the domain name bitcoin.org was registered three days after the patent was filed. All of them denied being Nakamoto.
- In May 2013, Ted Nelson speculated that Shinichi Mochizuki was Satoshi Nakamoto. Mochizuki was a Japanese mathematician. These speculations were denied in an article in The Age Newspaper, without attributing a source for the denial.
- Also in 2013, Nakamoto was linked to Ross William Ulbricht, owner of the Silk Road. This link was published in a paper written by two Israeli mathematicians, Dorit Ron and Adi Shamir. They based this on an analysis of the Blockchain. They later retracted their claim.
- In April 2014, investigators from Aston University linked Nick Szabo to the Bitcoin whitepaper using a stylometric analysis. Szabo is a decentralized currency enthusiast and published a paper on “bitgold,” which is considered a precursor to bitcoin. The claim was not really taken serious when even the investigators claimed that it was a far-fetched theory: “The study does not point conclusively to Mr. Szabo. It’s just that, of all the people studied, he appears to be the most likely candidate. It’s just another clue.”
But the most well-known speculation to date came in March 2014. An article in the magazine Newsweek, written by journalist Leah McGrath Goodman, identifiedDorian Satoshi Nakamoto. As a Japanese American living in California, he fits the bill for Newsweek. Unfortunately, Dorian Nakamoto immediately responded by denyingeverything. “I did not create, invent or otherwise work on Bitcoin. I unconditionally deny the Newsweek report.” He even filed a lawsuit against Newsweek as he had journalists camping out in front of his house and chasing him by car whenever he left. The Bitcoin community, led by Andreas Antonopoulos started a fundraising campaignto support Dorian Nakamoto.
The Newsweek report led to a worldwide interest in Satoshi Nakamoto’s identity. Maybe the greatest thing about this was that it made the real Nakamoto break his long silence. At the p2pfoundation website, Satoshi Nakamoto replied to his latest thread with the following words: “I am not Dorian Nakamoto.”
So if there is one thing we can be sure of, it’s the fact that we have no clue whatsoever as to who Satoshi Nakamoto really is. Is he a genius who is singlehandedly responsible for developing a revolutionary protocol? Or is Satoshi Nakamoto a pseudonym for a team of people? Nakamoto is believed to be in possession of roughly one million bitcoins. His identity remains one of the web’s most questioned mysteries.
You’ve learned what Bitcoin is and how it works. So now, why not actually start using bitcoins? It’s incredibly easy to send and receive BTC, and this guide will show you how to get setup as a regular Bitcoin user or a Bitcoin merchant. Let’s get started.
Your Bitcoin Wallet
As with all forms of currency, you need a place to keep your money. With traditional (fiat) currency, most people keep a small amount of money in a wallet or purse while keeping the rest of their savings at the bank. Let’s see how to do something similar with bitcoins. While there are many different ways to store bitcoins, this guide will examine some of the easiest methods for new users.
In simplest terms, bitcoins are stored in digital wallets. A Bitcoin wallet is simply a piece of software that can store, send, and receive BTC. However, there are many different wallets to choose from, each with its own pros and cons. Regardless of what you choose, it’s a good idea to keep two wallets – one for spending and one for your savings. Bitcoin doesn’t rely on financial institutions like banks, and instead, users have complete control over their money. While this might sound like a huge responsibility, this guide aims to show how easy it is to be your own bank.
Your Spending (Hot) Bitcoin Wallet
Your first wallet will be used for day to day transactions, similar to the physical wallet in your pocket or purse. This type of wallet is also sometimes referred to as a “hot wallet,” meaning that it is connected to the Internet. One very popular and easy to use hot wallet is Blockchain.info, a wallet that can conveniently be accessed from anywhere in the world on any device as long as you’re connected to the Internet. To start using Blockchain, simply navigate to this page, and create an account. In just a few simple steps, you’ll have your own Bitcoin wallet!
Notice the QR code on the left and the text next to it. This is your Bitcoin address. If anyone wants to send you money, they send it to your unique address. If you want to send someone money, you go to the “Send Money” tab and enter that person’s address and the amount of bitcoins you want to send. It’s that easy.
You may have noticed something interesting. You are encouraged to share your Bitcoin address. A Bitcoin address doesn’t need to be kept private and protected the way a credit card number does. Instead, a Bitcoin address functions much like a mailing address. Anyone can send you mail, but only you have the key to access the mail in your mailbox. Similarly, anyone can send bitcoins to your address, but only you have access to the coins you receive.
Compare this to a credit card number or a debit card number.If you want to make a transaction, you have to give the merchant total access to your funds, and trust that he/she will only withdraw the amount authorized. But with Bitcoin, you send the money rather than having the merchant take the money from your wallet. As you will see, Bitcoin eliminates the need to trust third parties (although in some instances it can be convenient to trust one), and is in many ways a lot safer than traditional money.
Speaking of third parties, is Blockchain safe? The short answer is, yes. Blockchain’s source code is available for anyone to examine, meaning that users can be sure that the service isn’t doing anything suspicious behind the scenes. Furthermore, Blockchain does not have access to users’ private keys and is considered sufficiently secure by most in the Bitcoin community. Of course, for the truly paranoid, you could download a desktop wallet client such as Bitcoin Core or Electrum. Since the software would be on your own computer rather than Blockchain’s servers, it could be considered more secure. However, the downside would be that your wallet would only be accessible from your computer. Services like Blockchain provide both convenience and reasonably good security, which is important for an everyday wallet.
Your Savings (Cold) Bitcoin Wallet
Now this is where you want to make as few compromises as possible regarding security. Your savings wallet will be similar to your savings account at the bank. Since you’ll be keeping most of your bitcoins here, you’ll want to use the best possible security. One of the ways to achieve this is by making your savings wallet a “cold wallet,” meaning that it’s not connected to the Internet. By remaining offline, a cold wallet is far less vulnerable to hackers. A very easy to use cold storage solution is Coinbase Vault.
Without getting into the technical details, the way the Vault works is that Coinbase stores your bitcoins offline in various secure locations around the globe. Withdrawing coins from the Vault requires multiple layers of verification, and withdrawals are time-delayed by 48 hours, meaning the transaction can be cancelled during that 48-hour window. Coinbase has been independently audited by trusted members of the community, and is used by prominent companies such as Dell, Expedia, and DISH Network.
But of course, as mentioned above, you don’t need to trust a third party like Coinbase. It just might be more convenient, especially for newer users. To truly be your own bank, you can generate a paper walletor use an offline hardware wallet. But these are beyond the scope of this guide.
Using Your Bitcoins
So you’ve got your wallets set up. Now it’s time to start using those bitcoins! If you don’t have any BTC, you can buy some from a Bitcoin exchange. There are also some free ways to get bitcoins. But of course, the most basic feature of money is that it can be used to buy things. So where can you actually spend bitcoins? The list might surprise you:
Companies That Accept Bitcoins
– and so many others.
Furthermore, services like Gyft allow users to purchase gift cards for various stores with Bitcoin. This essentially allows users to use bitcoins at Amazon, Target, and other retailers that don’t yet accept Bitcoin payments. As Bitcoin continues to gain traction, undoubtedly more and more companies will start accepting Bitcoin payments as Bitcoin provides a secure and easy way to transmit money online.
How to Accept Bitcoins For Merchants?
Perhaps you’ve got your own business and are interested in accepting Bitcoin payments? If that’s the case, services like Coinbase and BitPay make it incredibly easy for merchants to accept bitcoins. Depending on how popular your business is, you’ll see little to no fees for accepting bitcoins (and the fees will always be less than those of fiat payment processors like PayPal).
All in all, it’s both easy and advantageous to start using Bitcoin. Hopefully this guide will help you get set up. And if you have any questions, feel free to leave them in the comments.
Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
It’s the first example of a growing category of money known as cryptocurrency.
What makes it different from normal currencies?
Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
Who created it?
A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
Who prints it?
No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.
Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.
This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
So you can’t churn out unlimited bitcoins?
That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).
What is bitcoin based on?
Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based onmathematics.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.
The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
What are its characteristics?
Bitcoin has several important features that set it apart from government-backed currencies.
1. It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
2. It’s easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It’s anonymous
Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…
4. It’s completely transparent
…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.
If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.
There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.
5. Transaction fees are miniscule
Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.
6. It’s fast
You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
7. It’s non-repudiable
When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.
So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.
Where to Buy and Sell Bitcoin
|Coinbase operates one of the most popular wallets and is an simple way to buy bitcoin. $5 bonus on sign up.||USA||BUY BITCOIN|
|Localbitcoins matches buyers and sellers online and in-person, locally worldwide.||Finland||BUY BITCOIN|
|BitQuick claims to be one of the fastest ways you can buy bitcoin.||USA||BUY BITCOIN|
|CoinCorner allow purchases with credit and debit cards for verified users.||Isle of Man||BUY BITCOIN|
|Bitbargain has a vast range of different payment options for UK buyers.||UK||BUY BITCOIN|
|Xapo is Known for it’s ease of use and bitcoin cold-storage vault.||USA||BUY BITCOIN|
The above table is an advertising unit. For more options, please see our guide to buying bitcoin.
Even if they do not accurately understand how it works, most people are at least somewhat familiar with Bitcoin. However, once they begin to get involved with cryptocurrency, they may be surprised to learn that there are actually hundreds of types of cryptocurrencies known as altcoins. Altcoins are an intriguing facet of the cryptocurrency landscape, but they are not for everyone. Altcoin newcomers often have many questions, and this guide will provide a brief overview of altcoins to help beginners decide whether or not to invest in them as part of their cryptocurrency portfolio.
What Are Altcoins and Why Do They Matter?
The word “altcoin” is an abbreviation of “Bitcoin alternative,” and thus describes every single cryptocurrency except for Bitcoin. Altcoins are referred to as Bitcoin alternatives because, at least to some extent, most altcoins hope to either replace or improve upon at least one Bitcoin component.
There are hundreds of altcoins (CoinMarketCap listed 478 at the time this guide was written), and more appear each day. Most altcoins are little more than Bitcoin clones, changing only minor characteristics such as its transactions speed, distribution method, or hashing algorithm. Most of these coins do not survive for very long. One exception is Litecoin, which was one of the first altcoins. In addition to using a different hashing algorithm than Bitcoin, Litecoin has a much higher number of currency units. For this reason, Litecoin has branded itself as “silver to Bitcoin’s gold.”
However, some altcoins innovate by experimenting with useful features Bitcoin does not offer. For example, Darkcoin hopes to provide a platform for completely anonymous transactions, BitSharesdescribes itself as “a fair version of Wall Street,” and Ripple serves as a protocol users can employ to make inter-currency payments with ease. Some altcoin ecosystems, such as CounterParty andMastercoin, even utilize the Bitcoin blockchain to secure their platform.
Many Bitcoin enthusiasts argue that altcoins are completely unnecessary and will not succeed because they cannot rival the infrastructure Bitcoin boasts. However, altcoins serve an important role. Decentralization is one of Bitcoin’s most prominent goals, and altcoins further decentralize the cryptocurrency community. Moreover, altcoins allow developers to experiment with unique features. While it is true that Bitcoin can copy these features if the developers or community desires, fully-functioning altcoins are much better “cryptocurrency laboratories” than Bitcoin’s testnet. Finally, Altcoins give Bitcoin healthy competition. Altcoins give cryptocurrency users alternative options and forces Bitcoin’s developers to remain active and continue innovating. If users do not feel that Bitcoin satisfies their digital desires, they can adopt an altcoin. If enough users left Bitcoin for a particular altcoin, the Bitcoin developers would have to adopt the features the community desired or risk losing its place as the preeminent cryptocurrency.
What Was the First Altcoin?
Created in April 2011, Namecoin was the first altcoin. Although it also functions as a currency, Namecoin’s primary purpose is to decentralize domain-name registration, which makes internet censorship much more difficult. As its place among the top ten cryptocurrency market caps suggests, Namecoin has remained one of the most successful altcoins throughout its short lifespan.
Should I Invest in Altcoins?
Due to how recent cryptocurrency was invented and how rapidly the landscape changes, all cryptocurrency investments carry a great deal of risk. Even Bitcoin–by far the most stable cryptocurrency–exhibits price volatility on a regular basis.
By comparison, however, altcoins are exponentially more volatile. Because they have such low market caps (the total value of all coins combined), altcoin markets are highly prone to price manipulation. Wealthy traders–colloquially called “whales”–often inject large amounts of capital into low-priced coins to build hype and cause the price to skyrocket. Once the price has risen considerably, the whales sell their coins on exchanges at a massive profit, hurting many gullible investors in the process. This method is known as a “pump and dump.” Not only does this hurt greedy traders who did not take the time to do their homework, but it often proves to be the breath of an altcoin’s brief lifespan.
To avoid losing all your money in a pump and dump, focus on long-term investments in coins you believe have immense potential and exhibit overall health. Generally, healthy altcoins possess strong communities, exhibit high liquidity, and have developers who proactively improve the coin’s source code (though not necessary, many users also prefer developers who reveal their true identities). CoinGecko’scomprehensive coin metric analysis algorithm statistically analyzes these three important factors and ranks coins according to overall strength.
If you do choose to invest in altcoins, it is important to remember some basic tenets of investing. Avoid the hype that coin communities propagate. Investors have an agenda, so you should not take their word at face value. Only invest in coins you have researched. It is unwise to invest in something you do not understand. Making an ill-informed investment is the first step to losing your hard-earned money. Take the time to research the coins you are considering for long-term investments, and research day-trading before you attempt to become a high-volume, short-term trader. Most importantly, never invest more than you can afford to lose. Far too many people have lost their life savings by centralizing them in volatile investments.
Where Can I Obtain Altcoins?
As with Bitcoin, there are a variety of ways to obtain altcoins. The most basic way to obtain altcoins is to accept them as payment for goods or services. If you are interested in doing this, place an ad showcasing your skill-set on a cryptocurrency job board.
You can also trade for altcoins on cryptocurrency exchanges. Most exchange use Bitcoin as an intermediary (although a few include fiat pairs), so if you do not already own bitcoins you will need to buy some before you can trade for altcoins. Some of the most-trafficked exchanges include BTER, Bittrex,MintPal, Cryptsy, and BTC38 (Chinese-only).
Many altcoin communities also sponsor giveaways to increase exposure of their coin and entice new users to join their communities. This is a great way to acquire coins if you are low on funds or do not have marketable skills.
A cryptocurrency is a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. Cryptography is used to secure the transactions and to control the creation of new coins. The first cryptocurrency to be created was Bitcoin back in 2009. Today there are hundreds of other cryptocurrencies, often referred to as Altcoins.
Put another way, cryptocurrency is electricity converted into lines of code with monetary value. In the simplest of forms, cryptocurrency is digital currency.
Unlike centralized banking, like the Federal Reserve System, where governments control the value of a currency like USD through the process of printing fiat money, government has no control over cryptocurrencies as they are fully decentralized.
Most cryptocurrencies are designed to decrease in production over time like Bitcoin, which creates a market cap on them. That’s different from fiat currencies where financial institutions can always create more, hence inflation. Bitcoin will never have more than 21 million coins in circulation. The technical system on which all cryptocurrencies are based on was created by Satoshi Nakamoto.
While hundreds of different cryptocurrency specifications exist, most are derived from one of two protocols; Proof-of-work or Proof-of-stake. All cryptocurrencies are maintained by a community ofcryptocurrency miners who are members of the general public that have set up their computers or ASIC machines to participate in the validation and processing of transactions.
History of Cryptocurrency
The first cryptocurrency was Bitcoin. Bitcoin was created in 2009 by a pseudonymous developer named Satoshi Nakamoto. Bitcoin uses SHA-256, which is a set of cryptographic hash functions designed by the U.S National Security Agency. Bitcoin is a cryptocurrency that is based on the proof-of-work system.
In April 2011, Namecoin, the first altcoin, was created to form a decentralized DNS to make internet censorship more difficult. In October 2011, Litecoin was released and became the first successful cryptocurrency to use scrypt as its hash function rather than SHA-256. This gave the general public the ability to mine for litecoins without the purchase of specific hardware such as the ASIC machines used to mine Bitcoin.
Litecoin began receiving media attention in late 2013 – reaching a market cap of $1 billion. Ripplecoin, created in 2011, was built on the same protocol as Bitcoin but services as a payment system – think of it like a Paypal for cryptocurrencies that supports any fiat currency, cryptocurrency, commodity or even frequent flier miles.
Cryptocurrencies & Market Capitalization
Bitcoin is the largest cryptocurrency in both market capitalization, volume, acceptance and notoriety, but it’s not the most valuable coin. NEMstake, while only having a market cap of $1,116,720, trades at $1,117 a coin. Looking at the market cap, Litecoin takes second place after Bitcoin with Ripple close behind.
One coin that you are more than likely familiar with is Dogecoin. Dogecoin ranks, on average, thirds in trading volume, but has a relatively low market cap – ranking number six in the largest cryptocurrency.
Cryptocurrency mining power is rated on a scale of hashes per seconds. A rig with a computing power of 1kH/s is mining at a rate of 1,000 hashes a second, 1MH/s is a million hashes per second and a GH/s is one billion hashes per second. Every time a miner successfully solves a block, a new hash is created. A hash algorithm turns this large amount of data into a fixed-length hash. Like a code if you know the algorithm you can solve a hash and get the original data out, but to the ordinary eye it’s just a bunch of numbers crammed together and remains practically impossible to get the original data out of.
SHA vs. Scrypt
While Bitcoin and a several other coins are mined using SHA-256, Litecoin and many other coins, useScrypt. This are the two major hashing functions, but several different kinds exists and are used by other cryptpcurrencies such as scrypt-N and x11. The different hashing functions were adopted to answer concerns with the SHA-256. Before, individuals were able to mine Bitcoin with their GPU’s, which require a large amount of energy. But as Bitcoin grew in popularity, ASIC SHA-256 machine were built which made GPU mining obsolete.
To give you an idea of just how powerful these machines are, a mining rig running 4 GPU’s would get a hash rate of around 3.4 MH/s and consume 3600kW/h while an ASIC machine can mine 6 TH/s and consume 2200kW/h. This effectively killed GPU mining and left many individuals worried about the security of the network. With less individuals being able to profitably mine from their home computer, the network become less decentralized. Scrypt mining was implemented with the promise of being ASIC resistant due to the memory problem it introduced.
Scrypt hashes require lots of memory, which GPU’s are already designed to handle and ASIC machines were not. However, Scrypt mining require a lot of energy and eventually scrypt-ASIC machines were designed to address this problem. At this point Litecoin considered changing their proof-of-work functionto avoid ASIC mining. Scrypt also taut that their proof-of-work is much more energy efficient than SHA-256. Bitcoin blocks are solved at a rate of 1 per 10 minutes while Litecoin blocks are solver at a rate of 1 per 2.5 minutes.
The security of cryptocurrencies is two part. The first part comes from the difficulty in finding hash set intersections, a task done by miners. The second and more likely of the two cases is a “51%” attack“. In this scenario, a miner who has the mining power of more than 51% of the network, can take control of the globalblockchain ledger and generate an alternative block-chain. Even at this point the attacker is limited to what he can do. The attacker could reverse his own transactions or block other transactions.
Cryptocurrencies are also less susceptible to seizure by law enforcement or having transaction holds placed on them from acquirers such as Paypal. All cryptocurrencies are pseudo-anonymous, and some coins have added features to create true anonymity.
Cryptocurrency Legality & Taxes
While cryptocurrencies are legal in most countries, Iceland and Vietnam being an exception – Iceland mainly due to their freeze on foreign exchange, they are not free from regulations and restrictions. China has banned financial institutions from handling bitcoins and Russia, while saying cryptocurrency is legal, has made it illegal to purchase goods with any currency other than Russian rubles.
In the U.S., the IRS has ruled that Bitcoin is to be treated as property for tax purposes, making Bitcoin subject to capital gains tax. The Financial Crimes Enforcement Network (FinCEN) has issued guidelines for cryptocurrencies. The issued guidelines contain an important caveat for Bitcoin miners: it warns that anyone creating bitcoins and exchanging them for fiat currency are not necessarily beyond the reach of the law. It states:
“A person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.”
Miners seem to fall into this category, which could theoretically make them liable for MTB classification. This is a bone of contention for bitcoin miners, who have asked for clarification. This issue has not been publicly addressed in a court of law to date.
There are a host of services offering information and monitoring of cryptocurrencies. CoinMarketcap is an excellent way check on the market cap, price, available supply and volume of crypto currencies. Redditis a great way to stay in touch with the community and follow trends and CryptoCoinCharts is full of information ranging from a list of crytocoins, exchanges, information on arbitrage opportunities and more. Our very own site offers a list of crypto currencies and their change in value in the last 24hrs, week or month.
Liteshack allows visitors to view the network hash rate of many different coins across six different hashing algorithms. They even provided a graph of the networks hash rate so you can detect trends or signs that the general public is either gaining or losing interest in a particular coin.
A hand website for miner is CoinWarz. This site can help miners determine which coin is most profitable to mine given their hash rate, power consumption, and the going rate of the coins when sold for bitcoins. You can even view each coins current and past difficulty.
While it is now considered too late for hobbyists without expensive ASIC processors to start mining bitcoins, many of the alternative digital currencies are still well suited for mining on your home PC.
In this guide, we’ll take you through all you need to know to start digging up a few litecoins, feathercoins or dogecoins without any costly extra equipment.
For the most part, cryptocurrencies employ either SHA-256 or scrypt as their proof-of-work hashing algorithm, but many of the newer currencies have opted for scrypt.
Scrypt tends to be the more memory intensive of the two – however, home PCs with reasonably powerful graphics cards can still mine those cryptocurrencies quite effectively, as there are no dedicated ASICs to compete with – yet.
Perhaps surprisingly, it’s still possible to use just your computer’s CPU to mine some of the digital currencies. This holds true, even if you have only a laptop with integrated graphics; though this may not prove terribly effective and is not a set-up we would recommend.
Wallets at the ready
Before you start mining, you will need a wallet to keep your hard-earned coins in (see our guide to storing bitcoin). A good option is to head to the homepage of the currency you intend to mine and seek out the download link for the default wallet app. If you would like to do more research into litecoin specifically, we have a guide on how to get started.
If you find yourself in need of help and advice, most altcoins have community forums, as well as their own subreddit. The majority of wallets are based on the original Bitcoin-Qt client. Be warned, though, that before these wallets are truly usable, you may face a lengthy wait while the coin’s entire block chain downloads.
The need for speed
Unless you possess specific mining hardware, there are two ways to mine cryptocurrencies: with your central processing unit (CPU) or with your graphics processing unit (GPU) – the latter being sited, of course, on your graphics card.
Of the two, a GPU offers far better performance for the cryptographic calculations required. However, if you are making your first foray into mining and don’t possess a souped-up gaming computer – a laptop with Intel integrated graphics, perhaps – it will still be possible to mine those altcoins, but at a far slower rate.
The catch with GPU mining is that it requires a dedicated graphics processor, such as you may have fitted inside your desktop PC – the Intel integrated graphics cards found in most laptops are just not suitable for the task. To keep speeds up to a respectable level, most altcoin miners build dedicated machines using motherboards that can house multiple graphics cards, usually via riser cables.
Be aware, too, that mining digital coins is very system intensive and can reduce the lifespan of your electronic components. It’s a good idea to make sure you have adequate cooling in place, keep an eye on those temperatures and keep hold of any warranties – just in case.
Solo, or with the crowd?
It can be helpful to think of mining pools as joining a lottery syndicate – the pros and cons are exactly the same. Going solo means you get to keep the full rewards of your efforts, but accepting reduced odds of being successful. Conversely, joining a pool means that the members, as a whole, will have a much larger chance of solving a block, but the reward will be split between all pool members, based on the number of ‘shares’ earned.
If you are thinking of going it alone, it’s worth noting that configuring your software for solo mining can be more complicated than with a pool, and beginners would probably be better off taking the latter route. This option also creates a steadier stream of income, even if each payment is modest compared to the full block reward.
Installing your CPU miner
A handy piece of software called cpuminer is the easiest way to start mining, but does require the ability to use the command line on your computer. The program can bedownloaded from SourceForge and is available for Windows (32 and 64 bit), OS X and Linux. For the purposes of this guide, though, we are making the assumption that you are using the Windows OS.
First, download the appropriate file for your operating system. The zip file can be extracted to anywhere on your hard drive, as long as you remember where it went. A good idea would be to create a ‘cpuminer’ folder on your desktop.
Writing your script
So, how to set up cpuminer with the parameters needed for your mining pool? Well, it’s usually simplest to write a one-line script (known as a ‘batch file’ in Windows) to launch the miner with the correct instructions.
To do this you will need the following:
- The full path of the directory in which the mining program (“ “) is stored (eg: “C:\cpu-miner-pooler”).
- The ‘stratum’ URL of your mining pool server (eg: “stratum+tcp:// “).
- The port number of your mining server (eg: “3333”).
- Your mining pool username (eg: “username”).
- Your worker name or number (eg: “1”).
- Your worker password (eg: “x”).
Now, open Notepad or your preferred text editor. Do not, however, use a word processor such as MS Word. Next, enter the script using the following formula (note that this method assumes you are mining a currency that uses the scrypt algorithm):
start “path”– -url URL:PORT –a scrypt – – userpass USERNAME.WORKER:PASSWORD
So, using the example details above, you would have produced the following text:
start “C:\cpu-miner-pooler”–url stratum+tcp:// -a scrypt –userpass username.1:x
Save this file with a “.bat” extension; for example: ““.
Once the batch file is saved, double click it to activate the miner program. Your mining pool will most likely have a web-based interface and, within a few minutes, the website should show that your mining worker is active.
Now that you know how to mine with the CPU, let’s have a look at using your GPU.
Setting up your GPU miner
For those that intend to mine with GPUs, or USB mining devices, cgminer is the program to use and can be downloaded from the developer’s website – unless, that is, you’re a Mac user, in which case you will find some unofficial binaries here.
Versions of cgminer following version 3.72 do not support scrypt mining, and support for GPUs was removed in version 3.82. Therefore, the latest version isn’t necessarily the one to download. Instead, seek out the version appropriate for your needs.
Again, in this example, we are making the assumption that you are using the Windows OS. However, if you are using Linux or OS X, the command line arguments (ie: the parameters) are the same. Furthermore, the instructions below once again assume you will be mining a scrypt currency.
Extract the software into a folder that can easily be found, eg: “c:\cgminer\”.
Before going any further, make sure that your graphics drivers are up to date.
Next, press the Windows key together with the “R” key, type in “cmd”, and press “enter”. This will open the command terminal. Use the “cd” command to change the directory to the one housing the cgminer zip file.
Then, type in “–n”. This will list all recognised devices on your PC. If your graphics card is detected, you should be good to go. If not, you’ll have research the steps required to properly set up your specific graphics card.
You will now need your mining pool details, just as with the CPU mining section above:
- The full path of the directory in which the mining program (“ “) is stored (eg: “C:\cpu-miner-pooler”).
- The ‘stratum’ URL of your mining pool server (eg: “stratum+tcp:// “).
- The port number of your mining server (eg: “3333”).
- Your mining pool username (eg: “username”).
- Your worker name or number (eg: “1”).
- Your worker password (eg: “x”).
Now we’ll make a batch file again, in order to start cgminer up with the correct parameters. In this case, the command structure is:
Start “path” cgminer — scrypt -o URL:PORT -u USERNAME.WORKER -p PASSWORD
Start “C:\cgminer\” — scrypt –o stratum+tcp://–userpass username.1:x
Watching your miner
Now the mining software of choice is set up, you will see various statistics scrolling across your command line terminal. If you are using cgminer, you will see more information than you would with cpuminer. In the case of the former, you will see information about the currency and the mining pool, as well as about your mining hardware. If you’re running cpuminer, you will only see references to blocks that your PC has solved; although, it does, at least, show your hashing speed.
Maximising your power
Good news for miners who own PCs with dedicated graphics cards: it is possible to run both cpuminer and cgminer at the same time. To make this possible, add a “– threads n” argument to the minerd command. Here, “n” stands for the number of CPU cores that you wish to employ for mining.
Remember to leave one or two cores free to control your GPUs, though. Setting minerd to use all CPU cores will mean that the CPU will be too busy to send data to the GPU for processing. For example, if you have a quad core CPU, try setting the “–threads” argument to “2” or “3”.
Mining with both GPU and CPU concurrently reveals just how much better GPUs are at mining than the CPU. Compare the hash rates shown in the terminal windows for each of your mining programs and you should see at least a five-times difference in hashing speed.