Cryptocurrencies: how, why and why (Topic)

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Cryptocurrencies: how, why and why


In recent days on the Internet, we increasingly come across terms such as "cryptocurrency", "bitcoin", "forks" and "mining". It's time to figure out what it is and how it works.

The term "cryptocurrency" primarily means a digital (virtual) currency, the unit of which is a coin (English -coin). The coin is protected from counterfeiting because it is encrypted information that cannot be copied.

And how, then, electronic cryptocurrency differs from ordinary money in electronic form? In order for ordinary money to appear on the account in electronic form, it must first be deposited into the account in physical form, for example, through a bank or payment terminal. That is, for ordinary currency, the electronic form is only one of the forms of presentation. The cryptocurrency is issued directly on the network and is not connected in any way with any conventional currency or with any state currency system. Thus, the answer to the question "cryptocurrency - what is it" in simple words will sound like "is it electronic money."

Currently there are two most popular cryptocurrencies: bitcoin and ether.

First, let's understand what bitcion is and how it works.

Photo Bitcoin

The developer of the program calls himself Satoshi Nakamoto, he proposed an electronic payment system based on mathematical calculations. The idea was to exchange coins without any central authority, electronically, more or less instantly, at the lowest cost.

With bitcoins, you can buy anything on the Internet, like dollars, euros or rubles, and it is traded on exchanges as well as they are. But the most important difference between Bitcoin and all other forms of money is decentralization. No institution in the world controls Bitcoin. This is perplexing for some, as it means that no bank can control this money.

Due to the fact that bitcoin is open source, independent developers have started making many different alternative cryptocurrencies for a wide variety of purposes. These cryptocurrencies are commonly referred to as "forks" or "altcoins". Each of the developers has their own goals for creating their own cryptocurrency, as well as the differences between the fork itself and its progenitor.

This led to the emergence of specialized devices called ASICs (abbreviation for application-specific integrated circuit, "special purpose integrated circuit"), designed exclusively for mining cryptocurrencies. The speed of mining bitcoins using ASICs has increased hundreds of times when compared to ordinary home computers. Due to the growth in the power of the bitcoin network, the difficulty of mining cryptocurrency has increased, after which it has become impossible to mine bitcoins on a stationary computer.

So what's the point? It's simple, due to the fact that ASIC chips are released only for a specialized encryption algorithm for mining cryptocurrencies, some independent developers have released their cryptocurrencies with a different algorithm, for which ASIC devices do not exist. This is done so that the power of the network, and therefore the complexity of mining a new fork, does not grow to huge values.

Cryptocurrencies are stored on special electronic wallets, in much the same way as with WebMoney. There are several dozen different wallets. Some of them are installed on a computer / phone, others work online. Cryptocurrency exchange is organized either through exchangers and exchanges, or directly through transfers between wallet owners.

Due to its popularity, cryptocurrencies can be used to pay in many online stores. In this way, customers can exchange bitcoins for regular currency. At the same time, payment solutions related to bitcoin are especially developed.

Now you can even issue a payment card for everyday payments. Moreover, such cards are already offered by a number of companies. They can be used in any terminal. Conversion will take place at the current exchange rate.

There is another cryptocurrency called Ether.

Photo Live

If bitcoin is just a digital currency, then ether is a blockchain-based platform. Unlike other cryptocurrencies, the authors do not limit the role of ether to payments, but offer it, for example, as a means for exchanging resources or registering transactions with assets using smart contracts, in particular, the authors called ether “crypto fuel” for the execution of smart contracts by a peer-to-peer network. Ethereum is sold on exchange services, and at its core, Ethereum is an open source, layered cryptographic protocol that provides everything you need to build and deploy modern decentralized applications. Although it looks like a combination of several projects, its development was driven by a clear vision that ensured synergistic integration of components.

Like any large software platform, the Ethereum core is complemented by a developed ecosystem, consisting of a community, technology extensions, applications and supporting services. Of course, applications are of particular interest, and there are already more than 100 such projects from third-party developers. These include prediction markets, decentralized exchanges, platforms for crowdfunding and the Internet of Things, voting and government systems, games, reputation systems, social networks, chats, insurance and healthcare services, decentralized taxi services, distributed autonomous organizations, trading systems, accounting and e-commerce applications, file storage and proof of ownership services, content distribution systems, microtransaction services and community management,

All of this confirms the healthy development of the ecosystem and suggests that Ethereum programming tools are much more powerful than Bitcoin due to Turing completeness, convenient access to the blockchain and the logic of state changes.

Now let's move on to how this kind of currency is mined.

Photography Mining

At first glance, it might seem that mining is a simple process. After all, there are special programs for currency farming. It would seem that you launched such a program and wait until it finds the code. But not everything is so rosy. The fact is that farming is done with video cards. The more there are, the faster the search for the desired code occurs.

The difficulty grows as more and more effort is spent on mining - more and more power is included in the game. Initially, a simple home computer was enough for mining, then “digital miners” switched to calculating on top-end gaming video cards, and then to specialized devices for mining. At first, they were just reprogrammed chips, and then ASICs, special-purpose integrated circuits, characterized by high speed of hashes calculation and low power consumption, came into use.

However, now new cryptocurrencies are being created on the market, which are still possible to mine on an ordinary home computer. So, for this you need:

  • Choose a cryptocurrency for mining. How to understand which cryptocurrency is best to mine today? Two popular sites will help us in this: coinwarz and whattomine, where we will see summary tables of all the cryptocurrencies that exist today. mine, as well as algorithms for their mining.
  • Choose a pool for mining. After choosing a cryptocurrency for mining, we need to find a pool in which we will mine it. Of course, you can mine "solo", i.e. alone, but it is still more effective to unite with other miners and mine in a pool. A pool is a site where many small miners unite and jointly mine cryptocurrencies.
  • Choose software for mining. The most relevant mining software today is sgminer and ccMiner.
  • Configure and run mining software
  • Withdraw the mined coins to your wallet or to the wallet of the exchange
  • There is one last step. Yours will need a wallet into which you will transfer your mined coins. The official wallet can always be downloaded from the official cryptocurrency website, but there is another, simpler option. You find your cryptocurrency on the coinmarketcap website, look at which exchanges it is traded on. Choose the one with the highest trading volume. Register on this exchange, open your personal account, find your cryptocurrency, click “Deposit” to deposit funds, and you will receive an address for your coins. Now, after you mine your first coins in the pool, you can easily transfer them to your wallet on the exchange. After that, the choice is yours: either you immediately exchange them for a more stable cryptocurrency - bitcoin, or keep them for yourself, in the hope that their price will rise.

So, we can say that cryptocurrencies have great development prospects. And if you want to start mining professionally and really make money, then it is better to start doing it right now.

The Topic of Article: Cryptocurrencies: how, why and why.
Author: Jake Pinkman