Cryptocurrency Articles

Cheat Sheet / Updated 04-05-2022

So, you’ve heard about Bitcoin and other cryptocurrencies, and you’re ready to add these new kids on the block to your investment portfolio — that’s great! You’re now officially a part of the future economy. To make the best decisions for your portfolio, educate yourself on the basics of cryptocurrencies and what you need to get started. Also, be sure to do your homework on a crypto’s fundamentals before adding any new assets to your portfolio.

Cheat Sheet / Updated 03-28-2022

Ethereum is much more than just another blockchain implementation. It is a complete dApp (decentralized app) development and runtime environment. To best leverage all that Ethereum offers, become familiar with what blockchain technology can do for you and the extras that Ethereum offers. Learn the main language of smart contracts, Solidity, and how you can use its syntax to make your dApps provide value to its users. And establish a healthy respect for each of the steps in the Ethereum dApp development process so you will have more effective software.

Article / Updated 02-18-2022

Simply stated, a cryptocurrency is a new form of digital money. You can transfer your traditional, non-cryptocurrency money like the U.S. dollar digitally, but that’s not quite the same as how cryptocurrencies work. When cryptocurrencies become mainstream, you may be able to use them to pay for stuff electronically, just like you do with traditional currencies. However, what sets cryptocurrencies apart is the technology behind them. You may say, “Who cares about the technology behind my money? I only care about how much of it there is in my wallet!” The issue is that the world’s current money systems have a bunch of problems. Here are some examples: Payment systems such as credit cards and wire transfers are outdated. In most cases, a bunch of middlemen like banks and brokers take a cut in the process, making transactions expensive and slow. Financial inequality is growing around the globe. Around 3 billion unbanked or underbanked people can’t access financial services. That’s approximately half the population on the planet! Cryptocurrencies aim to solve some of these problems, if not more. The basics of cryptocurrencies You know how your everyday, government-based currency is reserved in banks? And that you need an ATM or a connection to a bank to get more of it or transfer it to other people? Well, with cryptocurrencies, you may be able to get rid of banks and other centralized middlemen altogether. That’s because cryptocurrencies rely on a technology called blockchain, which is decentralized (meaning no single entity is in charge of it). Instead, every computer in the network confirms the transactions. The definition of money Before getting into the nitty-gritty of cryptocurrencies, you need to understand the definition of money itself. The philosophy behind money is a bit like the whole “which came first: the chicken or the egg?” thing. In order for money to be valuable, it must have a number of characteristics, such as the following: Enough people must have it. Merchants must accept it as a form of payment. Society must trust that it’s valuable and that it will remain valuable in the future. Of course, in the old days, when you traded your chicken for shoes, the values of the exchanged materials were inherent to their nature. But when coins, cash, and credit cards came into play, the definition of money and, more importantly, the trust model of money changed. Another key change in money has been its ease of transaction. The hassle of carrying a ton of gold bars from one country to another was one of the main reasons cash was invented. Then, when people got even lazier, credit cards were invented. But credit cards carry the money that your government controls. As the world becomes more interconnected and more concerned about authorities who may or may not have people’s best interests in mind, cryptocurrencies may offer a valuable alternative. Here’s a fun fact: Your normal, government-backed currency, such as the U.S. dollar, must go by its fancy name, fiat currency, now that cryptocurrencies are around. Fiat is described as a legal tender like coins and banknotes that have value only because the government says so. Some cryptocurrency history The first ever cryptocurrency was (drumroll please) Bitcoin! You probably have heard of Bitcoin more than any other thing in the crypto industry. Bitcoin was the first product of the first blockchain developed by some anonymous entity who went by the name Satoshi Nakamoto. Satoshi released the idea of Bitcoin in 2008 and described it as a “purely peer-to-peer version” of electronic money. Bitcoin was the first established cryptocurrency, but many attempts at creating digital currencies occurred years before Bitcoin was formally introduced. Cryptocurrencies like Bitcoin are created through a process called mining. Very different than mining ore, mining cryptocurrencies involves powerful computers solving complicated problems. Bitcoin remained the only cryptocurrency until 2011. Then Bitcoin enthusiasts started noticing flaws in it, so they decided to create alternative coins, also known as altcoins, to improve Bitcoin’s design for things like speed, security, anonymity, and more. Among the first altcoins was Litecoin, which aimed to become the silver to Bitcoin’s gold. But as of the time of writing, more than 1,600 cryptocurrencies are available, and the number is expected to increase in the future. Key cryptocurrency benefits Still not convinced that cryptocurrencies (or any other sort of decentralized money) are a better solution than traditional government-based money? Here are a number of solutions that cryptocurrencies may be able to provide through their decentralized nature: Reducing corruption: With great power comes great responsibility. But when you give a ton of power to only one person or entity, the chances of their abusing that power increase. The 19th-century British politician Lord Acton said it best: “Power tends to corrupt, and absolute power corrupts absolutely.” Cryptocurrencies aim to resolve the issue of absolute power by distributing power among many people or, better yet, among all the members of the network. That’s the key idea behind blockchain technology anyway. Eliminating extreme money printing: Governments have central banks, and central banks have the ability to simply print money when they’re faced with a serious economic problem. This process is also called quantitative easing. By printing more money, a government may be able to bail out debt or devalue its currency. However, this approach is like putting a bandage on a broken leg. Not only does it rarely solve the problem, but the negative side effects also can sometimes surpass the original issue. For example, when a country like Iran or Venezuela prints too much money, the value of its currency drops so much that inflation skyrockets and people can’t even afford to buy everyday goods and services. Their cash becomes barely as valuable as rolls of toilet paper. Most cryptocurrencies have a limited, set amount of coins available. When all those coins are in circulation, a central entity or the company behind the blockchain has no easy way to simply create more coins or add on to its supply. Giving people charge of their own money: With traditional cash, you’re basically giving away all your control to central banks and the government. If you trust your government, that’s great, but keep in mind that at any point, your government is able to simply freeze your bank account and deny your access to your funds. For example, in the United States, if you don’t have a legal will and own a business, the government has the right to all your assets if you pass away. Some governments can even simply abolish bank notes the way India did in 2016. With cryptocurrencies, you and only you can access your funds. Cutting out the middleman: With traditional money, every time you make a transfer, a middleman like your bank or a digital payment service takes a cut. With cryptocurrencies, all the network members in the blockchain are that middleman; their compensation is formulated differently from that of fiat money middlemen’s and therefore is minimal in comparison. Serving the unbanked: A vast portion of the world’s citizens has no access or limited access to payment systems like banks. Cryptocurrencies aim to resolve this issue by spreading digital commerce around the globe so that anyone with a mobile phone can start making payments. And yes, more people have access to mobile phones than to banks. In fact, more people have mobile phones than have toilets, but at this point the blockchain technology may not be able to resolve the latter issue. Common crypto and blockchain myths During the 2017 Bitcoin hype, a lot of misconceptions about the whole industry started to circulate. These myths may have played a role in the cryptocurrency crash that followed the surge. The important thing to remember is that both the blockchain technology and its byproduct, the cryptocurrency market, are still in their infancy, and things are rapidly changing. Let me get some of the most common misunderstandings out of the way: Cryptocurrencies are good only for criminals. Some cryptocurrencies boast anonymity as one of their key features. That means your identity isn’t revealed when you’re making transactions. Other cryptocurrencies are based on a decentralized blockchain, meaning a central government isn’t the sole power behind them. These features do make such cryptocurrencies attractive for criminals; however, law-abiding citizens in corrupt countries can also benefit from them. For example, if you don’t trust your local bank or country because of corruption and political instability, the best way to store your money may be through the blockchain and cryptocurrency assets. You can make anonymous transactions using all cryptocurrencies. For some reason, many people equate Bitcoin with anonymity. But Bitcoin, along with many other cryptocurrencies, doesn’t incorporate anonymity at all. All transactions made using such cryptocurrencies are made on public blockchain. Some cryptocurrencies, such as Monero, do prioritize privacy, meaning no outsider can find the source, amount, or destination of transactions. However, most other cryptocurrencies, including Bitcoin, don’t operate that way. The only application of blockchain is Bitcoin. This idea couldn’t be further from the truth. Bitcoin and other cryptocurrencies are a tiny byproduct of the blockchain revolution. Many believe Satoshi created Bitcoin simply to provide an example of how the blockchain technology can work. All blockchain activity is private. Many people falsely believe that the blockchain technology isn’t open to the public and is accessible only to its network of common users. Although some companies create their own private blockchains to be used only among employees and business partners, the majority of the blockchains behind famous cryptocurrencies such as Bitcoin are accessible by the public. Literally anyone with a computer can access the transactions in real time. For example, you can view the real-time Bitcoin transactions. Risks of cryptocurrency Just like anything else in life, cryptocurrencies come with their own baggage of risk. Whether you trade cryptos, invest in them, or simply hold on to them for the future, you must assess and understand the risks beforehand. Some of the most talked-about cryptocurrency risks include their volatility and lack of regulation. Volatility got especially out of hand in 2017, when the price of most major cryptocurrencies, including Bitcoin, skyrocketed above 1,000 percent and then came crashing down. However, as the cryptocurrency hype has calmed down, the price fluctuations have become more predictable and followed similar patterns of stocks and other financial assets. Regulations are another major topic in the industry. The funny thing is that both lack of regulation and exposure to regulations can turn into risk events for cryptocurrency investors. Gear up to make transactions Cryptocurrencies are here to make transactions easier and faster. But before you take advantage of these benefits, you must gear up with crypto gadgets, discover where you can get your hands on different cryptocurrencies, and get to know the cryptocurrency community. Some of the essentials include cryptocurrency wallets and exchanges. Cryptocurrency wallets Some cryptocurrency wallets, which hold your purchased cryptos, are similar to digital payment services like Apple Pay and PayPal. But generally, they’re different from traditional wallets and come in different formats and levels of security. You can’t get involved in the cryptocurrency market without a crypto wallet. Get the most secure type of wallet, such as hardware or paper wallets, instead of using the convenient online ones. Cryptocurrency exchanges After you get yourself a crypto wallet, you’re ready to go crypto shopping, and one of the best destinations is a cryptocurrency exchange. These online web services are where you can transfer your traditional money to buy cryptocurrencies, exchange different types of cryptocurrencies, or even store your cryptocurrencies. Storing your cryptocurrencies on an exchange is considered high risk because many such exchanges have been exposed to hacking attacks and scams in the past. When you’re done with your transactions, your best bet is to move your new digital assets to your personal, secure wallet. Exchanges come in different shapes and forms. Some are like traditional stock exchanges and act as a middleman — something crypto enthusiasts believe is a slap in the face of the cryptocurrency market, which is trying to remove a centralized middleman. Others are decentralized and provide a service where buyers and sellers come together and transact in a peer-to-peer manner, but they come with their own sets of problems, like the risk of locking yourself out. A third type of crypto exchange is called hybrid, and it merges the benefits of the other two types to create a better, more secure experience for users. Cryptocurrency communities Getting to know the crypto community can be the next step as you’re finding your way in the market. The web has plenty of chat rooms and support groups to give you a sense of the market and what people are talking about. Here are some ways to get involved: Crypto-specific Telegram groups. Many cryptocurrencies have their very own channels on the Telegram app. To join them, you first need to download the Telegram messenger app on your smartphone or computer; it’s available for iOS and Android. Crypto chat rooms on Reddit or BitcoinTalk: BitcoinTalk and Reddit have some of the oldest crypto chat rooms around. You can view some topics without signing up, but if you want to get involved, you need to log in. (Of course, Reddit isn’t exclusive to cryptos, but you can search for a variety of cryptocurrency topics.) TradingView chat room: One of the best trading platforms out there, TradingView also has a social service where traders and investors of all sorts come together and share their thoughts, questions, and ideas. Invest Diva’s Premium Investing Group: If you’re looking for a less crowded and more investment/trading-focused place to get support, you can join our investment group (and chat directly with me as a perk too). On the flip side, many scammers also target these kinds of platforms to advertise and lure members into trouble. Keep your wits about you. Make a plan before you jump in You may just want to buy some cryptocurrencies and save them for their potential growth in the future. Or you may want to become more of an active investor and buy or sell cryptocurrencies more regularly to maximize profit and revenue. Regardless, you must have a plan and a strategy. Even if your transaction is a one-time thing and you don’t want to hear anything about your crypto assets for the next ten years, you still must gain the knowledge necessary to determine things like the following: What to buy When to buy How much to buy When to sell The following sections give you a quick overview of the steps you must take before buying your first cryptocurrency. If you’re not fully ready to buy cryptocurrencies, no worries: You can try some of the alternatives to cryptos like initial coin offerings, mining, stocks, and more. Select your cryptocurrencies More than 1,600 cryptocurrencies are out there at the time of writing, and the number is growing. Some of these cryptos may vanish in five years. Others may explode over 1,000 percent and may even replace traditional cash. You can select cryptocurrencies based on things like category, popularity, ideology, the management behind the blockchain, and its economic model. Because the crypto industry is pretty new, it’s still very hard to identify the best-performing cryptos for long-term investments. That’s why you may benefit from diversifying among various types and categories of cryptocurrencies in order to manage your risk. By diversifying across 15 or more cryptos, you can stack up the odds of having winners in your portfolio. On the flip side, overdiversification can become problematic as well, so you need to take calculated measures. Analyze, invest, and profit When you’ve narrowed down the cryptocurrencies you like, you must then identify the best time to buy them. For example, in 2017 many people started to believe in the idea of Bitcoin and wanted to get involved. Unfortunately, many of those people mismanaged the timing and bought when the price had peaked. Therefore, they not only were able to buy fewer bits of Bitcoin (pun intended), but they also had to sit on their losses and wait for the next price surge. However, by analyzing the price action and conducting proper risk management, you may be able to stack the odds in your favor and make a ton of profit in the future.

Article / Updated 02-16-2022

When it comes to Bitcoin and other cryptocurrency, mining is not about tunneling into the ground and hauling out ore. It's actually a computerized method for verifying the legitimacy of cryptocurrency transactions and entering new cryptocurrency into circulation. Cloud mining operations are mining farms — data centers dedicated to mining — that sell or lease hashing power to cryptocurrency miners. The essence of the service is that a third-party hosts mining equipment and provides access to the rewards associated with the equipment. Cloud mining has many advantages and disadvantages. For one, the user must trust the cloud provider in a space ripe with scams and frauds. The user is not in control of the equipment or how it is used. The advantages, of course, are not having to fill your home with computer equipment, not having to deal with the noise, the heat, the power consumption, and the upkeep of the mining equipment, and so on. Essentially, you outsource the work. Pool mining versus cloud mining So what’s the difference between pool mining and cloud mining? In both cases you’re working with a third party: With pool mining, you need your own mining rig, and through the use of the pool’s software, you contribute your mining rig’s processing power to the mining operation. You’ll need to deal with buying and managing equipment, running the equipment, cooling the equipment, keeping a solid Internet connection up and running, and so on. With cloud mining, you are essentially an investor in a mining operation; all you provide is money. Cloud mining companies sign up thousands of individuals to invest various sums into the operation and who take a cut of the proceeds in return. All you need to do is find a reputable cloud-mining operation (be careful!), send them money, and go about your daily business while they manage everything. Pros and cons of cloud mining In cloud mining, don’t get to keep blocks you mine (you have to share them); you have to pay the cloud-mining firm a fee to play (but think of all the hassle you avoid!), and like pool mining there is the danger of concentration of power into a small number of hands. You may also find switching more difficult, as some cloud contracts require a longer term commitment; you may not be able to jump ship quickly. Also, on occasion, if mining the particular cryptocurrency becomes unprofitable (as sometimes happens), the operator may cancel the contract. Carefully do your homework and research on cloud mining firms prior to investing any significant amount of money into these services. A brief guide to cloud mining In cloud mining, you essentially fund a portion of a mining operation, and the cloud miners do the rest. You are, in effect, an investor in the operation. These companies offer hash rate contracts. You buy a certain hash rate, for a certain period of time, and you then benefit proportionally based on the percentage of the overall cloud mining operation that you have funded. A huge advantage of these services is that it’s totally hands off — no equipment to buy or manage, no space to find for the equipment, no equipment noise, no heat to deal with. Cloud mining service solves those issues for you. However, cloud mining can also be somewhat risky. Many are not profitable for the durations specified in the contract and can leave purchasers of these services losing money, in some cases, over the long run. Users may have been better off simply purchasing the cryptocurrency that their mining contract mines. (That, of course, is often also true of pool and solo mining.) Other risks include outright scams. A common mantra in cryptocurrency mining circles is “not your keys, not your coin.” In the case of cloud mining contracts, one might say, “Not your mining hardware, not your rewards.” The following services rank near the top of trustworthy cloud mining operators. However, caveat emptor, buyer beware. For all services, you must do your due diligence, find out what the community is saying about them, and ensure that they are, or still are, trustworthy and reliable: Genesis Mining Hash Nest Bit Deer Hash Flare This list is brief as many experienced miners only feel comfortable about only a few cryptocurrency cloud mining providers, as many of the rest are not trustworthy and do not offer the services they advertise. However, that doesn’t mean the preceding services always provide profitable mining contracts. It just means they do in fact deliver on the services that they offer and they provide the hash rates advertised for the period promised. But that doesn’t mean profitability at all times. Cloud mining contracts profitability varies widely between services. Note also that there’s overlap between pool mining and cloud mining. Some pools will not only use your hash power, but will also sell you hash power. After you’ve set up your account with Honeyminer, for example, the pool will try to sell you more hash power. In effect, you’re connecting your processors to the pool’s node, but you are also providing cash to the pool to purchase more computing power, which they will then manage for you. Cloud mining is just one option available to cryptocurrency miners. Always do your research before you begin any cryptocurrency mining endeavor.

Article / Updated 02-16-2022

Cryptocurrency mining involves the addition of transactions to a blockchain by a crypto miner. But, it’s a bit more complicated than that. Take a look at decentralization and discover the role of the crypto miner. Understanding decentralized currencies Cryptocurrencies are decentralized — that is, no central bank, no central database, and no single, central authority manages the currency network. The United States, for example, has the Federal Reserve in Washington, the organization that manages the U.S. dollar, and European Central Bank in Frankfurt manages the euro, and all other flat currencies also have centralized oversight bodies. However, cryptocurrencies don’t have a central authority; rather, the cryptocurrency community and, in particular, cryptocurrency miners and network nodes manage them. For this reason, cryptocurrencies are often referred to as trustless. Because no single party or entity controls how a cryptocurrency is issued, spent, or balanced; you don’t have to put your trust in a single authority. Trustless is a bit of a misnomer. Trust is baked into the system. You don’t have to trust a single authority, but your trust in the system and fully auditable codebase is still essential. In fact, no form of currency can work without some form of trust or belief. (If nobody trusts the currency, then nobody will accept it or work to maintain it!) In the trustless cryptocurrency world, you can still trust the cryptocurrency community and its mechanisms to ensure that the blockchain contains an accurate and immutable — unchangeable — record of cryptocurrency transactions. Cryptocurrencies are established using a set of software rules that ensure that the system can be trusted, and the mining process is part of this system that allows everyone to trust the blockchain. Cryptocurrencies have no central bank printing new money. Instead, miners dig up new currency according to a preset coin-issue schedule and release it into circulation in a process called mining. So why is the process called cryptocurrency mining? When you compare cryptocurrency mining to gold mining, the name becomes clear. In both forms of mining, the miners put in work and are rewarded with an uncirculated asset. In gold mining, naturally occurring gold that was outside the economy is dug up and becomes part of the gold circulating within the economy. In cryptocurrency mining, work is performed, and the process ends with new cryptocurrency being created and added to the blockchain ledger. In both cases, miners, after receiving their reward — the mined gold or the newly created cryptocurrency — usually sell it to the public to recoup their operating costs and get their profit, placing the new currency into circulation. The cryptocurrency miner’s work is different from that of a gold miner, of course, but the result is much the same: both make money. For cryptocurrency mining, all of the work happens on a mining computer or rig connected to the cryptocurrency network — no burro riding or gap-toothed gold panners required! The role of the crypto miner Cryptocurrency miners add transactions to the blockchain, but different cryptocurrencies use different mining methods, if the cryptocurrency uses mining at all. (Most cryptocurrencies don’t use mining.) Different mining and consensus methods are used to determine who creates new blocks of data and how exactly the blocks are added to the blockchain. How you mine a particular cryptocurrency varies slightly depending on the type of cryptocurrency being mined, but the basics are still the same: mining creates a system to build trust between parties without needing a single authority and ensures that everyone’s cryptocurrency balances are up-to-date and correct in the blockchain ledger. The work performed by miners consists of a few main actions: Verifying and validating new transactions Collecting those transactions and ordering them into a new block Adding the block to the ledger’s chain of blocks (the blockchain) Broadcasting the new block to the cryptocurrency node network The preceding cryptocurrency mining process is essential work, needed for the continued propagation of the blockchain and its associated transactions. Without it, the blockchain won’t function. But why would someone do this work? What are the incentives for the miner? The bitcoin miner actually has a couple of incentives (other cryptocurrencies may work in a different manner): Transaction fees: A small fee is paid by each person spending the cryptocurrency to have the transaction added to the new block; the miner adding the block gets the transaction fees. Block subsidy: Newly created cryptocurrency, known as the block subsidy, is paid to the miner who successfully adds a block to the ledger. Combined, the fees and subsidy are known as the block reward. In Bitcoin, the block subsidy began at 50 BTC. (BTC is the ticker symbol for bitcoin.) The block subsidy at the time of writing was 12.5 BTC. The block subsidy is halved every 210,000 blocks, or roughly every four years; around May 2020 it halved again to 6.25 BTC per block. The image below, from the BlockChain.com blockchain explorer, shows a block subsidy being paid to an address that is owned by the miner who added the block to the blockchain. Near the top you can see that 12.5 BTC is being paid as the subsidy; the actual sum received by the miner (the full reward, 13.24251028 BTC) is larger, because it also includes the transaction fees for all the transactions in the block. Making cryptocurrency trustworthy For a cryptocurrency to function, several conditions must be met by the protocol. Jan Lanksy’s 6-factor list is particularly helpful. (Jan is a cryptocurrency academic and PhD of Computer Science and Mathematics at The University of Finance and Administration in Prague). As can be seen, below, mining (in the mineable cryptocurrencies, non-mineable currencies have different mechanisms) is an integral part of making sure these conditions are met. The system doesn’t require a central authority and is maintained through distributed consensus. That is, everyone agrees on the balances associated with addresses in the blockchain ledger. Mining is an integral part of adding transactions to the blockchain and maintaining consensus. The system keeps track of cryptocurrency units and their ownership. Balances can be proven at any point in time. Mining adds transactions to the blockchain in a way that becomes immutable — the blockchain can’t be changed. If the blockchain shows your balance is five bitcoin, then you absolutely do own five bitcoin! The system defines whether new cryptocurrency units can be created, and, if so, the system defines the circumstances of their origin and how to determine the ownership of these new units. A fixed issuance or inflation rate is predefined. Mining provides a way to release new cryptocurrency into circulation at a predetermined, controlled rate, with ownership being assigned to the miner. Ownership of cryptocurrency units is proved through cryptography. The three conditions of authenticity, nonrepudiation, and immutability are met, through the use of cryptography. Miners, using cryptography, verify that transaction requests are valid before adding them to a new block. The miner verifies that the transaction request is for a sum that is available to the owner of the crypto, that the owner has correctly signed the request with his or her private key to prove ownership, and that the receiving address is valid and able to accept the transfer. The system allows transactions to be performed in which ownership of the cryptographic units is changed. Transactions can be submitted only by senders who can prove ownership of the cryptocurrency being transferred. Cryptocurrency owners prove ownership by signing transactions using the addresses associated private key. Mining is the process through which transactions are accomplished, and miners verify ownership before adding the transaction to the blockchain. If two different instructions for changing the ownership of the same cryptographic units are simultaneously entered, the system performs at most one of them. There is no ability for someone to double-spend the same unit. The problem of double-spending was one that weakened earlier digital currencies. But with modern cryptocurrencies, miners vet transactions, searching the blockchain record of transactions to determine whether the owner actually has sufficient balance at that moment. If a sufficient balance isn’t accounted for within the spend address (the Input address) in the transaction request, the transaction will be rejected by the node software and never mined onto the blockchain. Also, if the same sender has two or more pending transaction requests, but doesn’t own enough cryptocurrency to cover them all, miners can decide which of the requests is valid. Additional transactions will be discarded to avoid double-spending the same currency. If even one of these six conditions aren’t met, a cryptocurrency will fail because it can’t build enough trust for people to reliably use it. The process of mining solidifies and satisfies every single one of these conditions. The Byzantine Generals There’s a mind exercise known as the Byzantine Generals Problem (or the Byzantine Fault, the error avalanche, and various other things) that illustrates the problem that cryptocurrency consensus algorithms seek to solve. The overall problem? You’re trying to reach consensus; in cryptocurrency, you’re trying to reach agreement over the history of currency transactions. But in a cryptocurrency network, a distributed computer system of equals, you have thousands, maybe tens of thousands of computers (nodes); in the Bitcoin network you currently have 80,000 to 100,000 nodes. But out of those tens of thousands of systems, some are going to have technical problems; hardware faults, misconfiguration, out-of-date software, misfunctioning routers, and so on. Others are going to be untrustworthy; they’re going to be seeking to exploit weaknesses for the financial gain of the people running the node (they are run by “traitors”). The problem is that for various reasons, some nodes may send conflicting and faulty information. So someone came up with a sort of parable or metaphor, the Byzantine Generals Problem. (A guy named Leslie Lamport Shostak first told this story back in 1980, in a paper related to general issues of reliability in distributed computer systems.) Originally named the Albanian Generals Problem, it was renamed after a long-defunct empire so not to offend any Albanians! Apparently distributed-computing academics like to sit around and devise these little metaphors; there’s the dining philosopher’s problem, the readers/writers problem, and so on. In fact the Byzantine Generals Problem was derived from the Chinese Generals Problem. Anyway, the idea is this, as described in the original paper: “We imagine that several divisions of the Byzantine army are camped outside an enemy city, each division commanded by its own general. The generals can communicate with one another only by messenger. After observing the enemy, they must decide upon a common plan of action. However, some of the generals may be traitors, trying to prevent the loyal generals from reaching agreement. The generals must have an algorithm to guarantee that A. All loyal generals decide upon the same plan of action….[and] B. A small number of traitors cannot cause the loyal generals to adopt a bad plan.” That’s the problem that cryptocurrency consensus algorithms, as they’re known, are trying to solve. How do the generals (the computer nodes) come up with consensus (all agree on the same plan of action—or transaction ledger), and avoid being led astray by a small number of traitors (faulty equipment and hackers)? Looking at the cryptocurrency miner To have a chance at the mining reward, crypto miners must set up their mining rigs (the computer equipment) and run that cryptocurrency’s associated mining software. Depending on how many resources the crypto miner is committing, he or she will have a proportional chance to be the lucky miner who gets to create and chain the latest block; the more resources employed, the higher the chance of winning the reward. Each block has a predetermined amount of payment, which is rewarded to the victorious miner for their hard work to spend as they wish. So how is the winning miner chosen? That depends. In most cases, one of two basic two methods are used: Proof of work: Under the proof of work method, the miner has to carry out a task, and the first miner to complete the task adds the latest block to the blockchain and wins the block reward, the block subsidy and transaction fees. Bitcoin and other cryptocurrencies, such as Ether (for now, it may switch to Proof of Stake at some point), Bitcoin Cash, Litecoin, and Dogecoin, use proof of work. Proof of stake: In the proof of stake system, the software is going to choose one of the cryptocurrency nodes to add the latest block, but in order to be in the running, nodes must have a stake, generally meaning that they must own a certain amount of the cryptocurrency. The cryptocurrency network chooses the miner who will add the next block to the chain based on a combination of random choice and amount of stake — for example, with some cryptocurrencies, the more cryptocurrency owned and the longer it has been owned, the more likely the miner is to be chosen. (It’s like owning lottery tickets; the more you own, the more likely you are to win.) With other cryptocurrencies, the choice is made sequentially, one by one, from a queue of preselected miners. When Bitcoin first started, anyone with a simple desktop computer was able to mine. The would-be miner simply downloaded the Bitcoin mining software, installed it, and let the BTC roll in! As time went on, though, competition increased. Faster and more powerful computers were built and used for mining. Eventually, specialized processing chips called Application Specific Integrated Circuits (ASICs) were developed. An ASIC, as the name implies, is a computer chip designed for a specific purpose, such as displaying high-resolution graphics quickly, running a smartphone, or carrying out a particular form of computation. Specific ASICs have been designed to be highly efficient at the forms of computation required for cryptocurrency mining — for example, for Bitcoin mining. Such a chip can be 1,000 times more efficient at Bitcoin mining than the chip in your PC, so in today’s Bitcoin mining environment, it’s go ASIC or go home! For high-difficulty cryptocurrencies, such as Bitcoin, the ideal mining environment is one with: Low hardware costs: Those mining rigs aren’t free. Low temperatures: Lower temperatures make cooling your mining rigs easier. Low electricity costs: Mining rigs can use a lot of power. Fast, reliable Internet connections: You need to be communicating with the cryptocurrency network rapidly with minimal downtime because you’re in competition with other miners. Fear not, though! With many different copies and mimicry of Bitcoin running rampant, Bitcoin is no longer the only game in town, and you can find lots of alternative mining choices, with varying levels of required computing power. Today, some of the most profitable cryptocurrencies to mine are lesser known and can be mined using off-the-shelf computer hardware due to less stringent difficulty levels that are associated with lower popularity and adoption. Currently, a large portion of the global cryptocurrency mining takes place in China, at perhaps three times the rate of the next closest nation (the United States). A combination of cheap electricity and easy access to cheap computer components for building mining rigs gives China an edge that Chinese miners have leveraged and so far, maintained, even with their government’s apparent disapproval of cryptocurrencies. This is a testament to how resilient and difficult to shut down distributed cryptocurrency systems such as Bitcoin are. Making the crypto world go ’round A cryptocurrency has value because a large number of people collectively believe that it does. But why do they believe cryptocurrency has value? The answer is trust. A holder of Bitcoin can trust that their Bitcoin will be in their wallet a day from now or 10 years from now. If they want to research how the system works, they can audit the code base to understand the system on a deeper level to see how trust is maintained. However, if they do not have the skillset or the computer science knowledge to audit code, they can choose to trust that other people, more knowledgeable than them, understand and monitor the system; they can trust the overall blockchain community that is managing the particular cryptocurrency. Without the mining functionality underpinning the distributed peer-to-peer cryptocurrency system, this collective trust (based on the proof of collective work towards the chain) would not exist. Cryptocurrency mining makes sure that your balances won’t change without your authorization. It incentivizes everyone to behave correctly and punishes those who don’t. It creates a digital form of value transfer that can be trusted by each individual user as an equal peer in the network because every part of the system is aligned for one purpose: providing a secure way to create, verify, and transfer ownership of digitally scarce cryptographic units.

Cheat Sheet / Updated 02-07-2022

Bitcoin ― what an enigma! It seemingly came out of nowhere, and 13 years later is worth hundreds of billions of dollars, even though few people understand how it works. The information in this Cheat Sheet should help reduce some of the mystery and confusion so that you can begin your Bitcoin journey with confidence.

Cheat Sheet / Updated 12-21-2021

Cryptocurrency mining is a relatively new concept that started slowly and has, over about a decade, developed into an entire industry with a wild-west-gold-rush reputation. The mining of “digital gold” in the form of cryptocurrencies is often painted as a get-rich-quick scam, with comparisons to tulipmania and the gold rushes of years past. Indeed, the industry is rife with hype, scams, and misleading promotions, and there’s a lot of room for error. However, there are profitable mining ventures, and there is still room for you, as a new miner, to profit from cryptocurrency mining if you do your research, do your homework, and plan carefully.

Article / Updated 12-21-2021

Two types of bitcoin exchanges are in use: peer-to-peer and regular. Regular bitcoin exchanges use an order book to match, buy, and sell orders between people. However, neither the buyer nor the seller has any idea who the other party is, and this provides all users with a certain level of anonymity and privacy protection. This is the most commonly used form of exchanging local currency to and from its digital counterpart in the form of bitcoin. However, bitcoin was originally created to enable peer-to-peer transactions. Unlike other familiar peer-to-peer technologies you may be familiar with, such as torrent applications, in the bitcoin domain peer-to-peer means a one-on-one relationship. A peer-to-peer transaction means that you have data related to the person or entity you're interacting with at all times, rather than interacting with several different peers, as in the case of torrents. The information you have on that person can range from a bitcoin wallet address, to their forum username, location, IP address, or can even involve a face-to-face meeting. Rather than using an order book to match up buy and sell orders — and thus controlling all the funds being used on the exchange platform itself — peer-to-peer exchanges match buyers and sellers without holding any funds during the trade. For example, say you want to buy a bitcoin from someone who lives in the same city as you do. Rather than hoping to stumble across that person on a traditional exchange — chances of that are slim to none — you can initiate a peer-to-peer transfer with that individual. There are several bitcoin platforms in existence that allow you to register an account in order to find other bitcoin enthusiasts in your local area. Some of the more popular platforms include Gemini.com for the U.S. market, whereas Bitstamp.net and Kraken.com offer facilities for customers in international markets subject to their individual policies and restrictions. That said, not everyone will be willing to meet up face to face. Some people prefer a payment by traditional means, such as a bank transfer or PayPal, rather than meet up for a cash transaction. Depending on what kind of trading experience you prefer, peer-to-peer trading may be more suitable for your needs than the regular exchange. Generally, peer-to-peer trades do not require you to provide any documentation regarding your identity and offer a reputation system in order to track your own — and other users' — trading history. In doing so, your chances of completing a trade successfully will only increase. One of the most interesting aspects about peer-to-peer bitcoin exchanges is their built-in reputation system. Because you're dealing with other traders directly, whose funds are not overseen by the platform owners themselves, the trust element is more important than ever before. It only makes sense to know a little bit more about traders' previous history before going into business with them.

Cheat Sheet / Updated 12-08-2021

Cryptocurrency All-in-One For Dummies provides helpful advice for navigating the blockchain world and cryptocurrencies that run them — from the ins and outs of wallets, exchanges, Bitcoin, and Ethereum to investing in cryptocurrencies and even mining your own. Here, we give you bonus content that we couldn’t fit in the book. Explore crypto’s basic components, real-world-use cases for blockchain, what to consider before investing in cryptos, important reminders to keep you safe on the blockchain, how to determine which crypto is profitable to mine, and several resources to help you learn even more about the wide world of cryptocurrencies.

Cheat Sheet / Updated 11-11-2021

A non-fungible (meaning unique, non-replaceable) token (NFT) is a unique digital code that represents some kind of digital item. It could be digital art or music, for example. An NFT is secured and stored on a public blockchain. One token is not interchangeable for another, and a token cannot be further divided. There are many different types of non-fungible tokens, and they can be created on well-known blockchains like Bitcoin and Ethereum.