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Bitcoin Mining – What Is It, How Does It Work, and Why Do I Care?

If you’re new to Bitcoin, the idea of mining virtual currency may seem strange. You probably have several questions:

  • How can you mine something that doesn’t exist?
  • Why do people have massive rooms full of computer equipment?
  • How does the BTC mining process work?
  • Should I even care?

Whatever questions you may have, don’t sweat it, you’re not alone in your confusion.

What is Bitcoin Mining?

The quickest way to understand Bitcoin mining is to forget everything you know about traditional mining. Bitcoin’s don’t require excavators, pick axes, and other real-world equipment, they need computing power.

You see, in the world of crypto mining, Bitcoins are mined when the computing power of your hardware (computers, graphics cards, etc.) solve mathematical problems.

And while this may seem strange, as miners solve these problems, they tether together transactions in the blockchain, which rewards them with brand new Bitcoins. These rewards are handed out to miners every 10 minutes.

When these transactions are tethered together and verified, it provides the blockchain with the integrity it needs to be secure, transparent, and infallible.

But there’s a catch. As more Bitcoins get mined, the mathematical problems get harder, they require additional computing power, and this cycle repeats indefinitely until the final Bitcoin is mined.

Curious how many that is?

The maximum number of Bitcoins that will ever be mined is 21 million. Currently, miners have found around 4.3 million so far.

For many larger miners, maintaining the integrity of the blockchain is a worthwhile endeavor. After all, the average price of Bitcoin at the time of writing this article is around $6,700 USD.

So, by now we know that Bitcoin mining:

  • Rewards miners with new bitcoins
  • Confirms transaction using the computing power of the miner’s equipment
  • Provides vital security to the network

You’re probably thinking, this sounds easy, I’m going to start mining some Bitcoin with my old laptop.

Sadly, those days are over. Bitcoin mining is an extremely competitive field and major companies have entire warehouses full of specialized equipment for the sole purpose of mining Bitcoin.

Miners are the Backbone of the Bitcoin Network

Miners do a lot more than just mine Bitcoins. They are one of the main reasons why Bitcoins are so secure, transparent, and irreversible.

Let’s look at an example:

  • Transactions with 0 confirmations can still be reversed.
  • 1 confirmation is all you need to verify a smaller transaction ($1,000 or less).
  • 3 confirmations are enough to verify $1,000 – $10,000.
  • 6 or more confirmations are recommended for transactions between $10,000 and $1,000,000.

But here’s the catch.

If we didn’t have miners doing what they do, these confirmations wouldn’t happen in the first place. And if a single miner managed to control 51% of the network, they could control the network. But that can never happen because mining is decentralized across tens of thousands of machines.

And there you have it, Bitcoin mining made easy.

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Rafi Hecht

Bitcoin-Crypto Scare: So What if Tether Isn’t Pegged to the US Dollar?

Lately I’ve read about how Tether is famously pegged to the US Dollar and that if proven insolvent, it can easily crash Bitcoin and all other cryptocurrencies. The rationale is that, since Bitcoin exchanges cannot directly connect with banks due to banks being wary of cryptocurrencies, a “lookalike” dollar is used instead and some exchanges have allowed users to buy Bitcoin by first converting US dollars into Tether on a 1/1 basis so that it’s not tied to any bank, and then Tether can be used to buy Bitcoin, Ethereum and other cryptocurrencies. Tether is now standing on shaky ground since a) the owners cannot prove it’s solvency (that it actually has a like amount of US dollars to Tethers bought), and b) Tether’s relationship with accountants Friedman LLP dissolved. The concern is that once the US dollar isn’t viably represented, nothing can be pegged to it and Cryptocurrences will crash on the basis of not being related to anything.

My question is, so what about Tether? If Tether proves it’s insolvency, then there might be a brief shakeup in Cryptoland but, ultimately Bitcoin and many cryptocurrencies are here to stay. The Blockchain technology, advances to the Lightening network, and the idea that Bitcoin is meant to be a global (non?) currency more widely used than the US Dollar or the Euro really makes the Tether meaningless for other cryptocurrencies at the end of the day. However, exchanges that heavily rely on Tether as if it were the US dollar might need to have a “plan B” in case Tether crashes since the exchanges themselves may crash.

Unfortunately the only way to be a verified exchange, at least according to the New York Department of Financial Services, is to have a Bitlicense, which is insanely expensive (at least $5,000 per application per state) for an application that has no guarantee it will be approved. Many exchanges like Binance for example haven’t applied for one yet. Only six exchanges including itBit and Coinbase have a BitLicense and allow one to buy/sell directly to the US Dollar without needing Tether to act as a middleman. To quote from Inverse.com:

“DFS has not received an application for a license from Binance,” the department confirms to Inverse.

The New York DFS further confirms it “has granted licenses to bitFlyer USA, Coinbase Inc., XRP II and Circle Internet Financial, and charters to Gemini Trust Company and itBit Trust Company.” Coinbase and Ripple, two of the largest exchanges in the market, were issued licenses to operate in New York back in May 2016.

What this appears to mean is that ultimately, those six will survive and will wreak havoc to end users looking for a pleasant trading experience. In past years for example itBit has closed numerous user accounts. From an exchanges standpoint this will be a bitProblem. Fewer exchanges mean fewer transactions in the short-term, but it also means more transactions to fewer exchanges in the long term, which will drive the price of Bitcoin, Ethereum and the rest to their previous prices.

Rafi Hecht

RentBerry: 4 Reasons to Dislike It

Recently I’ve been hounded with Facebook and Google Ads on Rentberry and how to get in on the ICO. I then am taken to a slickly built website and design-wise, everything looks good. That’s where it ends there.

I personally won’t be in on this ICO for the following reasons:

1. Landlords Won’t Take

In concept, no landlord that I know of will want to accept rent in rentberry tokens. Most landlords are of the older generation that, if you’re lucky they just heard of Bitcoin and can’t wrap their heads around that. In addition, landlords need that money to pay other bills etc. Will the electric bill, heating bill, etc. be payable via rentberry tokens? There are also government hurdles which a decentralized token like rentberry is ironically trying to avoid.

2. Weak Implementation

The implementation is weak. Their platform website looks like a simple MLS listings platform that any website can have. See Ian Balina’s video for more on this:

3. Vague Roadmap Description

There’s a vague description in terms of what they’re roadmap looks like. Visiting their homepage reveals that.

4. No Dedicated URL

This irks me more than anything. Notice how their URL is on a platform called cryptonomos.com. I understand if the token sale is done on that platform as it’s simple to use, but seriously, not having the base website under it’s own dedicated URL?

Sorry, I’m out.

Rafi Hecht

Omer Adam – I Bought You Bitcoin – Eretz Nehederet

Lyrics translated by Orit Dagan:

I heard about a friend who bought Bitcoin just at the right time
Paid 100 shekels and won plenty
I immediately said to my brother, Achidov
Let’s buy in now, it’ll still go up
We went to Amiran with a few friends
We got onto Coinmama and all the sites
I bought 4 at yesterday’s rate
And now, please G-d, may it not fall

Now I spend the whole day in front of the screen
Because I bought you Bitcoin
We check if it climbed or plummeted
Because I bought you Bitcoin

After it rose, I suddenly lost all I invested
And I think it’s too bad I didn’t cash it in
You can see it, I charted it all, I swear
Maybe I bought a bit too much
Wait!
It’s climbing, it’s climbing, it’s climbing
and it’s falling;
It’s climbing, oh my G-d, it’s falling!

Now my whole day is in front of the screen,
Because I bought you Bitcoin,
I bought you Bitcoin
I promise we’ll exit at 20K
Because I bought you Bitcoin,
I bought you Bitcoin

No more bets (stress)!

Rafi Hecht

The Big Bang Theory and the Bitcoin Entanglement (Season 11 Episode 9) Review

Like many in the cryptocurrency community, I was excited about the notion of Bitcoin appearing on the Big Bang Theory. Not only does it increase exposure to Bitcoin, which will help drive the price further up but it also might educate the masses into what Bitcoin, blockchain and the cryptocurrency market is.

Sadly, while the show might have driven the price up a bit (as of this writing Bitcoin is valued at $11,803 per), it failed in the educational aspect, displaying clear ignorance of Bitcoin. Here are two examples.

1. Failed Photographic Memory

In the show, Sheldon actually mentioned that he has a photographic memory. Later on, when it was revealed that Sheldon moved the coins to Leonard’s Batman USB drive on his key chain (only for Stuart to wipe it clean for $10), the show ended. Anyone in the crypto community knows that blockchain contains all the transactions and that, if Sheldon had a memory he would have either memorized the private key or the 12-18-24 word phrase associated with the wallet, restored the coins onto a wallet application like Electrum and the show might have had a different ending. However, no character on the show gets wealthy (save for the actors) and people are now left with the impression that the coins are physically stored on the computer and nowhere else. Very misleading.

2. Bitcoin Mining

Mining bitcoins involve a computer solving complex algorithms to keep the blockchain going. The way Leonard, Rajesh and Wollowitz were doing it was that they were manually solving the algorithms, which is a slow and manual process.

That said, when the show begins with “dressing like Avatar” when Avatar technically isn’t one character, you know you’re in for trouble. The silver lining here is that it shows how early Blockchain technology is for the masses (similar to the World Wide Web in the ’90’s – I still remember someone writing to me about his “web sight”) and that the only direction cryptocurrencies in general are going now is up.

Rafi Hecht

The BIT.AC Scam and a Cautionary Tale About Fraudulent Online Wallets

Earlier this year, someone starting out with cryptocurrency wallets experimented with a site called bit.ac, using a review on cryptojunction to influence his decision Other sites revealed that the site was launched in mid-2016 with much promise. The website had an address listed as well as a phone number and contact form, but there was no individual contact to email. Considering that most other online wallets operate the same way, this wasn’t an issue.

The site operated more or less smoothly (save for one Ethereum transaction getting stuck until a support ticket was addressed) until one day in April the server went completely down with a blank page reading “NGINX server.” There were no Facebook or Twitter notifications that maintenance was being done and no way to contact the site owner. This smelled like “scam” all the way.

Miracle of miracles, the site went back up the following day and the user was able to immediately withdraw his funds immediately, forgetting about it. A little after that, a barrage of 2,000+ emails saying “Password reset” was sent to that users’ inbox. What made things worse was that there was no way to cancel the account, with the email address being firmly tied into the platform.

Looking into the site recently revealed that it’s permanently down and has been since June-July. The last “Tweet” was on August 8th stating that a new website was to be launched soon. That never happened and many users lost their coins. Not only that, many users beforehand had their wallets wiped clean, being sent to the same wallet address. A quick scan of the site’s Facebook page in the comments reveals this to be case.

Doing further research, the company was formally dissolved in June 11, 2017, with the phone number going to a “virtual office” and the business not existing. In addition, a “Philipp Schnabel” is a German bloke (Correspondence address: 123 Friedrichstr, Berlin, Germany, 10117) that did business in London and apparently ran off with everyone’s money. It also appears that he got away with it since he controlled the private key(s) on the site. In addition, he evidently ran other scam crypto sites before such as OWY and Coinomi, both scams.

*** UPDATE 2017-12-17 ***

The domain apparently wasn’t reregistered and a Russian site is in place of it, leading one to believe that it was run by a Russian hacker.

*** END UPDATE ***

This alone is proof that, should you not have an offline/secure cryptocurrency wallet like Ledger or Trezor, or more ideally a paper wallet where only you control the private key, you will be burned. Cryptocurrencies are still very much the “wild west” and there is absolutely zero protection should your wallet/funds get compromised.

Rafi Hecht

Substratum – Decentralized Web Hosting Without Any Special Software

Recently a new Ethereum-based token has been released on an exchange called Substratum. Substratum like many other technologies promises a decentralized internet using your computer. The difference here is that Substratum apparently doesn’t require any special software to run on your computer.

The implications are mind-boggling. For example, in countries like China where internet is heavily regulated and restricted, having a Substratum VPN allows one to bypass such restrictions and be able to browse freely, which is what the internet was meant for in the first place before net neutrality became a buzz term. As the localized server, by your computer providing some juice for the decentralized network, your account receives substratum.

In all, this is exciting since this is an alternate internet option for users that may not necessarily be tech-savvy. This eliminates the need for VPN or Tor technology to access country-restricted websites.

Substratum’s full whitepaper can be read here. The ICO has ended but you are able to exchange ethereum for sub on etherdelta as of this post. It should come out on regular exchanges soon. With that in mind plus the upcoming second round of token burning, get in on it now!

Rafi Hecht

Bitcoin-Crypto Dip and What It Means For the Future

This past weekend has seen a significant dip with all cryptocurrencies, not only Bitcoin. Bitcoin, at one point last week surpassing $4,900 per coin, has now dipped to around $4,000 per coin. NEO has also seen a significant dip, plummeting to below $20 from over $50 a few weeks ago. The main reason given is that Chinese regulators have banned all new organizations raising funds from ICO’s. As it is, this isn’t the first time the pesky Chinese affected Bitcoin and all cryptos. Earlier in March they announced they were going to consider clamping down on trading, which caused Bitcoin back then to dip as well.

Some investors though are saying that this recent dip is short-lived and will pick up soon. This is what’s happened with previous dips and therefore it stands to reason that this is what will happen again.

There may be another reason Bitcoin and all cryptocurrencies dipped: Labor Day weekend. Much of the U.S. and Canada have celebrated by spending more time with families and less time trading. It’s likely that the dip in trading caused a dip in the value of cryptocurrencies, which is primarily based on supply and demand. Once trading becomes more frequent again, we should expect another rise in Bitcoin and all alt-coins, which will overshadow any Chinese regulation on ICOs which has no bearing on what currently exists.

Rafi Hecht

Is the Upcoming Bitcoin Hard Fork a Bad Thing?

For many in the cryptocurrency world, unless they have been hiding under a rock, they know that Bitcoin (BTC) is about to undergo a “hard fork.” The rationale is simple: the purpose behind cryptocurrencies including Bitcoin is to conduct transactions on the internet in a quick and efficient manner. Bitcoin though takes a while before its transactions clear. One underlying cause is due to the fact that Bitcoin’s blockchain at 1 MB block size is outdated and cannot support the amount of transactions in 2017 as it did back in 2008.

The fork, which will split Bitcoin into two cryptocurrencies, is supposed to address that issue. Bitcoin Cash (BCC) is supposed to utilize a new and improved blockchain at 8 MB per block. This will address the issue of a super-slow blockchain for the near future.

What some crypto investors are concerned about is that this will spell the end of Bitcoin as we know it, and that it’s worthwhile to invest in other cryptocurrencies or cash out. For investing in other cryptocurrencies there doesn’t seem to be much point as Bitcoin will always be the “mother” of all cryptocurrencies and if Bitcoin goes down, so will all others, better blockchain technologies be damned. To be clear, the blockchain technology will remain in use for other applications, but the perceived value of all other cryptocurrencies will drop, so the “end of Bitcoin” isn’t going to happen. As for cashing it out, that may be an investor’s prerogative but it might end up backfiring in the event Bitcoin or Bitcoin Cash shoots up in value.

The above said, what’s a Bitcoin investor to do? Here’s what I would do: many wallet companies and exchanges (Ledger, Kraken, Bittrex to name some) offer to have BTC and BCC show up in your account. In other words, you essentially are doubling your coins by having the same amount of BCC as BTC since it’s the same blockchain doubled – that’s the effect of the fork. I would put my bitcoins there. I would also advise those having a wallet that won’t support or give you your rightful BCC (Coinbase, itBit, etc.) to temporarily move your BTC to a new wallet that will support BCC which gives you that currency as well. Once the fork is done you can move your BTC back to your previous wallets and have some BCC left over. Regarding Bitcoin being devalued, yes, there is a realistic possibility that BTC will go down quite a bit, but will likely go back up as it has in the past.

So is this hard fork necessarily a bad thing? I don’t think so.

Rafi Hecht