What is Cryptocurrency?

Cryptocurrency is a medium of exchange much like fiat currencies. However, cryptocurrency is digital and decentralized; meaning the design behind it is entirely different from normal currencies. It’s designed for the purpose of digital information exchanges through a process that follows certain principles of cryptography. Cryptography is what secures the transactions and controls the creation of new coins. As you may know already, the first cryptocurrency to be created was BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... back in 2009, but it’s far from the only one nowadays, with more than 1300 cryptocurrencies existing as a reaction to bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add.... These are referred to as altcoinsThe term altcoin refers to every digital currency that is not Bitcoin, hence the name “alternative coin”. For the most part, they’re rarely too different from Bitcoin in order to be too relevant, but that’s not to say that there aren’t some....

As mentioned previously, cryptocurrencies are decentralized, which is one of its most attractive features. What this means is that cryptocurrency isn’t controlled by a third party of any kind, so no banks or governments can control the value of the currency.

BitCoin mining machine

Cryptocurrencies tend to be designed with controlled supply in mind, meaning that the production of coins decreases over time. BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... was the first one, with a market cap of 21 million. This makes cryptocurrency different from fiat currencies where a financial institution can create more money, causing inflation. Satoshi Nakamoto designed bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... to cap bitcoinsIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... in circulation when it reaches 21 million, meaning it will never go past that, and this system is the baseline for all the cryptocurrencies that came after.

While there are plenty of different cryptocurrency specifications, most are derived from one or two protocols: Proof-of-work or Proof-of-stake. Cryptocurrencies are maintained by a community of miners, who are members of the public that set up their computers or, specialized hardware (ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. machines) to participate in the validation and processing of transactions.

The history of cryptocurrencies

BitCoin mining machine

The first one was BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add.... BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... came into light back in 2009 by a developer that goes under the pseudonym Satoshi Nakamoto. The currency uses SHA-256, a set of cryptographic hash functions designed originally by the U.S National Security agency. BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... is based on the proof-of-work system.

Later in April of 2011, Namecoin came up, which was the first altcoinThe term altcoin refers to every digital currency that is not Bitcoin, hence the name “alternative coin”. For the most part, they’re rarely too different from Bitcoin in order to be too relevant, but that’s not to say that there aren’t some.... However, its purpose was to form a decentralized DNS to make censorship over the internet more difficult. Then, in October of that same year, Litecoin was created, becoming the first successful cryptocurrency to use Scrypt as a hash function instead of SHA-256. This made mining litecoin easier because there was no need to buy specialized hardware like the ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. machines used for bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... mining.

The market cap of cryptocurrencies

In terms of notoriety, volume and market capitalization bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... is at the top, but lately, with cryptocurrencies being embraced by a much wider audience, you can see other coins gaining a lot of relevance too, like Ethereum being second and BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... Cash being third in the rank of coins with the largest market capitalization.

What are cryptocurrency hashes?

Mining power is based on a scale of hashes per second, the more hashes per second, the faster can the block be solved. For reference, here is a small comprehensive list of the hash per second scale:

 

  • KH/s: Kilohashes per second. One Kilohash=1,000 hashes.
  • MH/s: Megahashes per second. One Megahash=1,000,000 hashes.
  • GH/s: Gigahashes per second. One Gigahash = 1,000,000,000 hashes.
  • TH/s: Terahashes per second. One Terahash = 1,000,000,000,000 hashes.
  • PT/s: Petahashes per second. One Petahash = 1,000,000,000,000,000 hashes.
BitCoin mining machine

Whenever a block is solved by a miner, a new hash is created. An algorithmIs a procedure or mathematical formula that a computer follows to solve a problem. For example, a search engine algorithm follows a procedure where it takes search strings of keywords and operators as input and then searches a database associated wit... then turns this large amount of data into a fixed-length hash. Much like a code, if you know the algorithmIs a procedure or mathematical formula that a computer follows to solve a problem. For example, a search engine algorithm follows a procedure where it takes search strings of keywords and operators as input and then searches a database associated wit... you can solve a hash and get the original data out, but to the ordinary eye it’ll just look like a bunch of random numbers, making it impossible to get the original data out of.

SHA against Scrypt

BitCoin mining rules

BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... and other coins are mined using SHA-256, while other altcoinsThe term altcoin refers to every digital currency that is not Bitcoin, hence the name “alternative coin”. For the most part, they’re rarely too different from Bitcoin in order to be too relevant, but that’s not to say that there aren’t some..., including Litecoin, use Scrypt. These are the most common hashing functions, but far from the only ones, scrypt-N and x11 are also used by other cryptocurrencies. The reason different hashing functions started to be used in altcoinsThe term altcoin refers to every digital currency that is not Bitcoin, hence the name “alternative coin”. For the most part, they’re rarely too different from Bitcoin in order to be too relevant, but that’s not to say that there aren’t some... was to answer some of the concerns that showed up with SHA-256. When BitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... was just starting, people were able to mine and profit with their GPU’s. However, when it truly got popular, specialized hardware was created, which are ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. SHA-256 machines, making GPU mining obsolete.

The reason GPU mining became obsolete is because ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. mining rigs are absurdly powerful, let’s make a comparison: A 4 GPU mining rig can get a hash rate of 3.4MH/s, give or take, and consume up to 3600kW/h, while an ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. machine has a set hash rate of 6TH/s and consumes 2200kW/h. As you can see, this made GPU mining simply ineffective, even more when you consider that the more bitcoinsIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... are mined the harder it gets. Because of this, fewer users were able to mine for profit from their home computer, making the network less decentralized. This is where Scrypt came into play, with a promise of being ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. resistant due to a memory problem introduced.

Scrypt hashes require lots of memory, which is something that ASICStands for Application-Specific Integrated Circuit. In general terms an ASIC is a very powerful chip designed with a specific purpose in mind. machines weren’t designed to handle. But GPUs are. However, due to the energy consumption from Scrypt mining, scrypt-ASIC machines were designed.  Scrypt also has a more energy efficient proof-of-work compared to SHA-256, where bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... blocks are solved at a rate of 1 per 10 minutes, litecoin ones are solved in 2.5 minutes.

The security of cryptocurrencies

You can divide it in two parts. The first one being the difficulty in finding hash intersections, which is a task done by miners. And the second and more likely of the two is something called a “51% attackIn theory, the blockchain of a cryptocurrency could be disrupted if an individual or, more likely a group of individuals control 51% of the network. This is very unlikely as the resources, coordination and finances required for it to happen are almos...”. Basically, if a miner showed up and managed to have the mining power of more than 51% of the network, he could take control of the blockchain and generate an alternative blockchain. However, he’d still be very limited to what he could do. At best, he can reverse some of his transactions or block new ones, but that’s it.

In addition to this, due to the pseudo-anonymity of cryptocurrencies, seizures by law enforcements or transactions being held don’t really happen. There are also some altcoinsThe term altcoin refers to every digital currency that is not Bitcoin, hence the name “alternative coin”. For the most part, they’re rarely too different from Bitcoin in order to be too relevant, but that’s not to say that there aren’t some... that are completely anonymous.

Legality and taxes

With the exception of a couple of countries, cryptocurrencies are completely legal. However, they’re not exempt from regulation. China and Russia are known to have a strict policy against cryptocurrencies, with the former banning financial institutions from handling bitcoinsIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... and the latter, making it illegal to purchase goods with any currency that isn’t the Russian ruble.

In the U.S, bitcoinIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... is subject to capital gains tax, and the Financial Crimes Enforcement Network issued guidelines for cryptocurrencies. One of them contain something specifically directed at miners, warning that anyone creating bitcoinsIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add... and exchanging them for fiat currencies are not beyond the reach of the law. Here’s the exact statement:

BitCoin mining rules

“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 fall into this category, which in theory makes them liable for MTB classification. But the truth is, this statement was released years ago already, and no clarification has been given to miners, neither has it been addressed in public in a court of law.

Cryptocurrency services

There are plenty of different services available that offer information and monitoring of cryptocurrencies. CoinMarketCap is good to check out the supply, volume, price and market cap of cryptocurrencies. To keep in touch with the community, follow trends and keeping up to date, Reddit is the way to go. And if you’re interested in mining, Coinwarz will come in handy. It’s a site that helps you determine what the most profitable cryptocurrency to mine is according to your hash rate, power consumptions and the exchange rate of that coin when selling it for bitcoinsIs the first decentralized digital currency, founded back in 2009 by a man going under the pseudonym Satoshi Nakamoto. Decentralization is one of its many features, because it means it’s not regulated by a third party like a bank or government. Add.... It even lets you check both the current and past difficulty of mining a specific coin you’re interested in.

Small disclaimer: These sites are only a few of the many alternatives you can choose from, these are just one of the most popular or common suggestions, for example, if you don’t like Reddit, there are plenty of other communities you can choose from, so keep that in mind.

 

BitCoin Mining Investment

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