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

5 Types of Tokens You Need to Familiarize Yourself With Today

The market for digital tokens has grown significantly in the past few years. Unlike the stock market which only offers basic shares in companies, the broad range of investing potential makes digital tokens incredibly attractive to shareholders. Here are a few types to be aware of.

Digital Currencies

These make up the most well-known and inclusive category of digital tokens. Also known as cryptocurrencies, digital currencies utilize blockchains to provide fast peer-to-peer transactions and function similarly to real currencies.

Different types of cryptocurrencies have emerged, each catering to different user needs.

  • Bitcoin (BTC) is the most widely recognized.
  • Litecoin (LTC) offers faster and cheaper transfers than BTC.
  • Monero (XMR) is a privacy-centric alternative to BTC.

While success stories of making millions and billions off of Bitcoin have hit the news recently, cryptocurrencies are still incredibly volatile, and the lack of government regulation on the currencies makes adoption rather risky.

Utility Tokens

Also known as app coins or user coins, utility tokens can be thought of as tickets for users to access specific platforms. For instance, a startup project might give these out to users who then have permission to use the product and possibly provide suggestions on its development.

Utility tokens provide a convenient method for startups to raise initial funds and receive consumer feedback quickly.

Basic Attention Tokens (BAT) is one example. BAT is the internal currency for the Brave browser and is used for exchanging products, images, and articles amongst its users.

Equity Tokens

Equity tokens are also called security tokens or tokenized securities. They can be seen as digital shares in a company. Each owner of an equity token has a right to a portion of a company or project.

Equity tokens enable startups to thrive by lowering the barrier of entry for investing in new projects. Also, security tokens are becoming more government-regulated over time, which may lead to more adoption in the future. Overstock is one example of an equity token distributor.

Asset Tokens

Asset-backed tokens are exactly what they sound like. They take the place of physical items in digital markets. However, asset tokens aren’t too popular since the price of the token generally stays in line with the price of the associated item.

Tiberius Coin, for example, is a new type of asset-backed token that is linked directly to physical metals.

Reputation/ Reward Tokens

Finally, we have reputation tokens that are rewarded to users for participating in certain blockchain platforms. By interacting with other members, users will gain more of these types of tokens.

Having more reputation tokens is an indication that you are trustworthy in that particular platform. Further, reputation tokens can sometimes be exchanged for cryptocurrencies.

STEEM, for instance, is issued in the Steemit social media and content creation platform.

Choosing the Right Token

There’s no easy answer when it comes to choosing the right token. It really depends on your investment strategy, your risk tolerance, and the quality of the tokens that you are investing in.

Hopefully this article has provided you with a basic understanding of the different types of tokens.

Eric Carriere

3 Reasons Why Bitcoin May Never See $20,000 Again

In its earliest years, cryptocurrencies found an appeal amongst strong libertarians who sought a type of currency that was not under the control of centralized governments or major financial institutions. Just recently, it’s found an appeal amongst almost everyone who noticed its recent surges in value and massive media coverage.

But while cryptocurrency, and Bitcoin in particular, has risen in price considerably, there are good reasons why mass adoption hasn’t occurred. Before you go out and chase after the Bitcoin dream, keep in mind that the currency is still:

  • Highly volatile and thus not a recommended candidate for a stable income.
  • Not accepted everywhere. You can’t pay your taxes with it yet for example.
  • Heavily regulated and sometimes outright banned in various nations.
  • Possibly unsafe to use, as its security has not been thoroughly tested

And in recent months, the price of Bitcoin has taken a general fall from its peak in late 2017.

But why?

The Huge Influx of Bandwagon Adopters

Bitcoin has become so popular that the term has been embedded in the minds of the general public. News of various individuals earning billions off of the currency transpired, and, as a result, tons of investors driven by positive sentiment flooded the market in late 2017. This had a few major consequences:

  • Those same investors driven by emotion were also incredibly sensitive to fluctuations. Whenever the price fell greatly, they scattered.
  • The influx of December 2017 resulted in more Bitcoin deposits than withdrawal, which drives supply up much higher than demand. Consequently, the price became unsustainable.
  • Mining Bitcoin is now more expensive than ever. Even an $800 GPU struggles to produce a nontrivial profit nowadays when you factor in the power bill.

The Lack of Security

Since Bitcoin isn’t controlled by a central agency and trader identities are completely anonymous, very little can be done whenever a security issue does rise up. Just recently, popular South Korean cryptocurrency exchange service Bithumb was hacked, resulting in over $30 million dollars being stolen.

The price of the currency in the market fell accordingly, and since this incident wasn’t the first of its kind in recent months, it seems the issue of security will continue to be an obstacle in Bitcoin’s adoption.

The Scandals

Well before its heyday, Bitcoin held a notorious reputation as a popular tool for illicit online activities such as drug trades and the exchange of certain materials on the Deep Web.

But now, the Bitcoin scandals have shifted towards white-collar crime. Among other incidents:

  • In mid-2018, the U.S. Justice Department launched a criminal investigation into Bitcoin price manipulation by various traders. The threat of further regulation being placed on the cryptocurrency brought down its price.
  • Various rumors emerged when Tether, or specifically the Bitfinex Corporation that owns it, was alleged to have been artificially raising the price of Bitcoin. The ensuing scandal was dubbed a “bloodbath on the cryptocurrency prices” by UC Berkeley Computer Science professor Nicholas Weaver.

Advice for the Road

Investing in cryptocurrencies is exciting, but like anything in life, you need to take the time to learn the pros and cons of getting involved in such a volatile industry. There is a solid chance Bitcoin will continue to appreciate in the long-term. Still, that doesn’t mean it won’t experience violent drops over the short-term.

Whatever you decide, treat your crypto investments like any other investment. You need to go in with a plan and stick to it.

Eric Carriere

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

Shout-Out to itBit Closing My User Account

I both love and hate itBit. When I first was learning about Bitcoin, itBit was my first exchange. It had everything to get started: phone support, the ability to create a wallet, and a simple interface to trade directly against the US and Singapore dollar. They had zero withdrawal fees and only if one traded on their platform.

However, they hate it if you trade too much or too little. In my case, I traded too little. Twice in one year they sent me this questionnaire:

From time to time, we ask clients to provide additional information on their account activity. This annual review helps ensure our bitcoin trading services and community of traders are secure.

Please reply back to this email with responses for the following questions:

1) What is the source of funds for your account? Please provide, in detail, how the source of funds is generated. For example, if the account is funded by BitCoin, please indicate how and where the BitCoin deposits were sourced. If the account is funded by USD, please indicate source of funds for the USD deposits.

2) Please provide the name and location of your employer, your title/position and a description of your occupation.

3) Please provide your annual salary.

4) What is the purpose of your itBit Account?

5) If you are a trader, please provide us with a description of your trading strategy.

6) If you trade on other bitcoin exchanges, please provide us with their names.

7) What third party bitcoin wallets do you use?

8) What is your estimated monthly trading volume on our platform? (Please provide in USD per month)

All this info can and will be used against you. My purpose was for trading but I know of others that have used it for other purposes, which itBit closed down user accounts.

The last straw happened when I transferred a larger than normal amount of Bitcoin to itBit in order to upgrade a hardware wallet (but was unsure that the funds would remain after the upgrade):

From time to time, we will ask our clients questions to ascertain the nature of their activity. We do this to ensure the safety and security of our trading platform. We would like some further information regarding your activity:

1. We noticed several Bitcoin deposits recently, with minimal trading activity, and followed by subsequent Bitcoin withdrawals. Could you please provide a reason for the transaction activity.

2. Please provide any update to your client profile (e.g., occupation, salary, purpose of account) since the last correspondence regarding your client profile, if necessary.

Thank you.
itBit

Two months later they closed down my account. When I replied “why?” I received no response:

After a review of your account, we will not be able to maintain an account for you. Please submit a withdrawal request for the remaining balances that you have. On [three days later], we will close the account, so please initiate the withdrawal requests as soon as possible. In the meantime, please do not trade on our platform.

Regards,
itBit Support

Seriously, just because I did minimal trading activity itBit closes my account. For legal reasons I reserve comment, but am merely publicizing the facts in terms of how itBit conducts its business towards some of their clients.

Guest User

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