Topher Webb – LTUAE

What is Cryptocurrency, Mining & how it works?

What is the Crypto currency?

A crypto currency is a digital currency that does not have a physical embodiment of the type of a coin or a piece of paper. Crypto currencies not only do not have a physical equivalent, but there is also no digital unit. There is a public book of transactions – the so-called blockchain – in which all transactions are recorded, but there are no actual things that are exchanged. When the crypto currency “changes”, a record is created in the blockchain describing the transaction and the transaction becomes known to the public through the network. The network recognises the recipient as the new owner and no longer allows you to send the spent crypto currency as your own.

The most popular crypto currency.

  1. Bitcoin (the most popular, it’s the most expensive)
  2. Etherium (ether)
  3. Litecoin
  4. Monero
  5. Zcash

How to get a crypto currency?

There are 4 ways to acquire a crypto currency, but before that you need to create a purse.

  1. Stock exchanges. Here everything is almost like on a regular exchange. You buy or sell, the exchange takes its commission.
  2. Exchange services. The simplest, fastest and safest way to purchase an ordinary user is to purchase crypto currencies in exchange services, which allow you to convert money into crypto currency and back at the internal rate. They are mainly suitable for transactions on small amounts for which the use of exchanges does not justify itself because of bank tariffs, commissions for exchange, restrictions on the size of transactions.
  3. Purchase directly. To do this, you need to find someone who wants to sell you bitcoins and agree on a course. Usually it will be slightly lower than on the exchange, because both the seller and the buyer save on commissions.
  4. Mining – about it below.

What is mining?

Mining can be conditionally divided into 2 types: using own equipment and by renting remote equipment (cloud mining).

Mining is essentially the only way to issue crypto currency. This is the decentralized emission production (printing) of crypto currencies. Each crypto currency has its own emission. The issue of each crypto currency is limited, and its price is the ratio of capitalization to issue.

Mining basically is when you offer or lease your equipment and electricity for hashing. That’s why it’s called a “crypto” currency. Not because it is “hidden”, but because it uses cryptography as the type of code that the network provides. Imagine a jeweler. If you sell him a gold ring, the jeweler says: “Yes this is real gold.” Miners confirm that the crypto currency you sent was yours and that it comes to where you need it. They also provide this transaction and distribute it in the block for all nodes in order to add to the chain of the block (just think of it as an added receipt to the list of all incoming crypto currencies). It is easier to think about crypto currencies if you imagine a large ledger that indicates who has access to a certain number of crypto currencies.

How does mining work (using bitcoin as an example).

The essence of bitcoins mining is to solve complex computing tasks. Bitcoins are extracted not by one, but by “packs” or blocks. Initially, the block size was 50 BTC, but it is halved after every 210,000 units recovered.

The new block comes to the surface approximately every 10 minutes. The total number of BTC (bitcoins) will never exceed 21 million. 60% of all BTCs are already mined and, according to forecasts, this figure will reach 99% by 2040.

The award for the creation of a new block is reduced every four years: in early 2013 it was 50 BTC, now it has decreased to 12.5 BTC.

How does cloud mining work?

Simply put, cloud mining is the collective use of the processing power of remote data centers (data centers). You only need a home computer for communication, at will – a crypto currency purse.

How to calculate the profitability of mining?

To begin with, you need to decide on the crypto currency that you will earn. Crypto currencies have different algorithm of finding, this determines the type of equipment and its cost, as well as its consumption and subsequent profit.

Equipment is the biggest expense in mining. Next, the cost of electricity goes, but in comparison with the cost of equipment it is insignificant. Further, the rent (when the equipment is small, the rent is likely to be on costs to go immediately after the equipment).

How to store crypto currency?

In order to fully use crypto currencies, you need a “purse”. In the terminology of this payment system, the wallet is a pair of two very large numbers. The first number is called a public key – this is the address accessible to everyone, which is used to send or receive a crypto currency. It is also convenient to imagine it as a bank account. The second number is called a private (secret) key and it acts as a password to the account.

The main task of the crypto currency wallet is just to store the private key, which is necessary to access your crypto currency address and, accordingly, your funds. Naturally, it is extremely important to ensure its reliable protection and backup of data stored on it.

Wallets for storing crypto currency are of four main types: wallets installed on your own computer, mobile wallets, Internet wallets, and also paper wallets.

How do crypto currency transactions occur?

Crypto currency transactions are performed between crypto currency wallets for security purposes, they are digitally signed. Everyone in the network knows about the transaction and the transaction history can be traced back to the starting point at which crypto currency was generated. However, they do not know the identity of the wallet owner, since the transaction does not need to transfer their personal data. It is because of this that he is so popular in the shadow economy.

What are pools (using the bitcoin example)?

A pool is a large number of computers united by one goal – to close a block, thereby getting a reward, since the reward is given only to the one who closes it. The group of mining machine owners pool together and divide the booty among themselves. This is done in order to increase the chance of closing the block. The reward is smaller, but the chances of closing a block is much much higher when miners pool their mining hashrate instead of going it alone.

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