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Cryptocurrencies: What every budding Altcoin Miner Needs to Know

Cryptocurrencies: What every budding Altcoin Miner Needs to Know

Cryptocurrencies, who isn’t curious about Bitcoin, the virtual currency whose origin story is rife with instant millionaires, and massive scams? They say, the best way to learn is to start participating yourself.

Sure, you could hit up an exchange and drop four hundred euros or more, on part of a bitcoin, but you can also get in for free by mining the coins yourself. Bitcoin has become too hard for regular people to mine, but the world of bitcoin-like “altcoins” is still wide-open to hobbyist miners.

If you’re new to crypto, you may feel a bit overwhelmed. Fortunately it’s easier to understand than you might think. This guide is for beginners with little to no prior understanding of cryptocurrency or mining

Cryptocurrencies are the future; the time to understand how they work and more importantly, how they can help you, is now!

DEFINITION of ‘Altcoin‘ 
Altcoins are alternative cryptocurrencies launched after the success of Bitcoin. Generally, they project themselves as better substitutes to Bitcoin. … As the term ‘altcoins‘ means all cryptocurrencies which are not Bitcoin, there are hundreds of altcoins.

DEFINITION of ‘Miners‘ 
Miners can be defined as accountants who record every transactions to the blockchain. The concept is simple, a proof of payment is important if you want your payment to be valid. Miners are the people who keep the records of your payment. Hence they are record keepers who keep the system updated of new payments and existing ones.

Understanding the Basics

Bitcoin is the first virtual currency that utilizes a completely peer-to-peer network. This is huge. Before Bitcoin, all currency was controlled by either a bank, credit card company, or a government.

It is revolutionary because it gives its users control, in fact, Bitcoin wouldn’t be around without its users. It’s a decentralised currency meaning it’s not controlled by one single entity. It allows everyone on the network to share data amongst everyone else.

Well, plenty of people illegally download copies of data like songs and movies from the internet, so what’s stopping people from sending the same Bitcoin twice? 

Unlike files that can be downloaded from the internet like an MP3 or a JPEG, a Bitcoin can’t be copied or duplicated. Every time a transaction is made (e.g. Nigel sends Stuart a Bitcoin) it is visible on a public database called the blockchain. Everyone who owns Bitcoin can see the data on the blockchain.

This includes information like a transaction amount and the wallet address. Every single Bitcoin transaction since its creation is stored on the blockchain. However, it doesn’t show the name of the sender, recipient, or any identifiable information. Bitcoin is a safe and encrypted way to pay.

Although the blockchain is one central database, it’s not controlled by one central entity. Bitcoin is decentralized, meaning it’s not controlled or managed by one entity. It’s controlled by the people as mentioned before. If you’re having trouble understanding this concept so far, here’s a great video that might help:  

Everyone has their own copy of the blockchain, which is also often referred to as the ledger. Everyone is keeping track of the same thing, comparing what they have amongst each other to ensure everything matches up correctly.

Each time a transaction is made, an announcement is made to the rest of the network. Everyone can see your wallet account number, the number of the account you’re sending Bitcoins to, and the amount of Bitcoins you’re sending.

If everyone has access to the blockchain, how do we know it’s secure?

Cryptography is the method in which a transaction is validated for the blockchain.

This system utilizes bits and pieces of information called keys. It’s a mathematical guarantee that the transaction is legitimate. In order to verify the network, mathematical equations are solved. Different currencies use different algorithms, Bitcoin’s algorithm being SHA-256. These algorithms are called cryptographic hash functions.

The cryptographic hash function is solved by guessing and checking numbers until the solution is found (mining). On average, it takes about 10 minutes to solve each problem. This is why Bitcoin’s “block time” is 10 minutes. Different currencies use different algorithms and have different block times.

When you send or receive a Bitcoin, it must be verified about 6 times before the transaction is validated. Since each block takes about 10 minutes, you won’t see Bitcoin appear in your wallet until about an hour after it’s been sent.

Whoever solves the problem first gets to add the next block of transactions to the blockchain. Keep in mind these computers are guessing and checking billions of combinations before they find the solution.

The people who run their computers day and night to verify the network consume loads of electricity. Of course, they don’t do it for free. Right now, each time a block is solved the person running the hardware is awarded the block reward of Bitcoins. These people are most commonly referred to as miners and the process of verifying the network is referred to as mining.

There are only 21,000,000 Bitcoins available to be mined. They’re in limited supply, and as the amount left to mine diminishes, the price increases.

Unfortunately, we have some bad news. Altcoin mining is profitable; however, it’s difficult to turn a profit by mining Bitcoin at this time. We have used Bitcoin as an example because the same applies to all altcoins (cryptocurrency).

DEFINITION of ‘Hashrate’ 

Your mining hardware is solving cryptographic hash functions by guessing and checking solutions until it finds the right answer. Basically a hashrate is how fast your hardware can guess and check answers.

The higher the hashrate, the faster and more likely you are to solve the problem.

The most important thing to look at is the hashrate/power consumption ratio.

If your mining hardware has a low hashrate and a high power consumption then you could end up losing money in electricity costs.

DEFINITION ofMining Pools’

Mining pools consist of a collection of miners who have pooled their resources together in-order to mine a cryptocurrency. As the mining difficulty of a cryptocurrency increases, so too does the computational power required to mine it. This increase in computational power can often be too expensive for a solo miner to handle as it could result in higher energy costs, or the requirement of more specialised hardware. Therefore, miners form collectives’ in-order to better limit the cost of their mining activity.

DEFINITION of ‘Cryptocurrency Wallet’

A cryptocurrency wallet is a software program that stores private and public keys and interacts with various blockchains to enable users to send and receive digital currency and monitor their balance. If you want to use Bitcoin or any other cryptocurrency, you will need to have a digital wallet.
How do they work?
Unlike traditional ‘pocket’ wallets, digital wallets don’t store currency. In fact, currencies don’t get stored in any single location or exist anywhere in any physical form. All that exists are records of transactions stored on the blockchain.
When a person sends you bitcoins or any other type of digital currency, they are essentially signing off ownership of the coins to your wallet’s address. To be able to spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the senders will decrease accordingly. There is no actual exchange of real coins. The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.

DEFINITION of Different types of Cryptocurrency wallets’

There are several types of wallets that provide different ways to store and access your digital currency. Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.

  • Desktop: wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security however if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
  • Online: wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking attacks and theft.
  • Mobile: wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
  • Hardware: wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy. Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
  • Paper: wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward. Transferring Bitcoin or any other currency to your  paper wallet is accomplished by the transfer of funds from your software wallet to the pulic address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.

Happy Mining from the BuyFromUs boyz

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