Cryptocurrency, Mining, and Your Wallet

Cryptocurrency has gained popularity over the last seven years, thanks to Bitcoin. In 2010, Laszlo Hanyecz made the first real-world purchase using 10,000 Bitcoin (about €20) to buy a pizza . Today that amount of Bitcoin is worth

€55,723,881.

Cryptocurrency Bitcoin value
Bitcoin’s value over time

What is cryptocurrency?

Cryptocurrencies are “digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” Does it sound complicated? Here’s the breakdown: cryptocurrency is fiat money like the Euro (and almost all currencies); commodities don’t back it, so it only has the value we assign to it. However, it’s safer than physical money because no central bank regulates it.

Who Regulates it?

There are a lot of cryptocurrencies, but only a select few are successful. While this post focuses on Bitcoin, the rules apply to all of them.

Users regulate Bitcoin. To understand that, we need to get a grasp on mining. The term “mining” misleads a little; “hashing” describes what actually goes on better. In any case, mining occurs when transactions take place. To ensure security, no one computer processes a transaction; instead the mining software splits it up and compares the results from each computer. If enough of the answers are the same, the transaction succeeds. So, “mining” uses a program on your computer that does some math to validate a transaction.

The crypto community values miners because multiple computers need to approve a transaction, so many cryptocurrencies, including Bitcoin, pay miners to mine. They do this by releasing more of the currency, which sounds like it would devalue the money, but it’s much more controlled and predictable than money minted by central banks.

Not all cryptocurrencies pay out based on GPU power though; some pay out based on your stake in them (how much you own) and others pay out based on how much hard drive space you devote to them.

More on Mining

To mine, you  need at least a mid-level gaming computer, as miners use either you GPU or CPU. You can mine with less powerful computers, but it won’t be profitable. Miners benefit from the anonymous and untraceable nature of the newly released currency.

I decided to start mining to see what it was all about. I described my setup to a friend who recommended NiceHash, which tells you whether it’s profitable to mine. For me it’s profitable because I don’t have an electricity bill, but if I did, I doubt it would be. Set up is simple enough and you just have to let it run. After a week, I’d earned enough to deposit into a wallet, 0.0001 BTC (about €5), so I decided it wasn’t for me.

Issues

Hackers use Bitcoin, because of its anonymous nature, to ransom data that they steal using viruses. This ransoming activity affects Bitcoin’s image.

Is Cryptocurrency for You?

Yes. Mining isn’t for everyone, but you should buy into cryptocurrency. It’s basically the first world currency, it’s secure, and it can be exchanged for other currencies. While it’s not accepted everywhere, it’s getting there.