The excessive excitement for cryptocurrency is largely provoked by the great demand for bitcoin (Bitcoin). Many recognize it as a full-fledged means of payment. But in order to clearly understand what Bitcoin is and where it comes from, it is first necessary to understand the technical aspect and the history of its creation. Initially, it is worth remembering that bitcoin is a digital currency. Compared to dollars, rubles, hryvnias, it is not supported by a material base.
The creation of bitcoin is attributed to Satoshi Nakamoto. Officially, he is credited with the idea of a cryptocurrency based on math calculations. The digital origin of the currency guarantees decentralization – no one dictates the rules to the owners of the currency, bitcoin is distributed evenly around the world, and every owner is a full-fledged participant in the system.
WHAT DOES BITCOIN PROVIDE?
Previously, national currencies were backed by gold and silver, now by GDP. In theory, you can go to any bank in the country and exchange paper money for its equivalent in the form of gold bullion and back. While Bitcoin is not backed by anything, it’s just math. During the creation of Bitcoin, the main idea was to create not an analog of real money, but a semblance of gold – what modern money is secured with. How does gold differ from dollars, rubles, zloty, euro, and others? The volume of gold is clearly limited in nature. There is no way to get more gold than there is. And it would be very difficult to create it synthetically, and this process is unstable.
To extract gold from nature would take people’s time. As a result, 1 kg of mined valuable metal can be pegged to the labor required to mine it and used as the equivalent of free labor in the future, in other words, money.
Something similar is inherent in bitcoin. The cryptocurrency is limited to 21,000,000 coins. When the total amount reaches this number, the subsequent issuance will be stopped so that inflation does not occur. Coin mining needs specific costs. Whereas gold mining takes human labor, Bitcoin mining takes computer resources.
BITCOIN’S USEFULNESS IN REAL LIFE
The cryptocurrency’s high level of dynamism attracts investors who prefer highly volatile assets. Bitcoin is just beginning to be used as a means of payment, but many Forex brokers have their finger on the pulse and, in addition to currency pairs, have introduced instruments like BTCUSD. Traders, who used to deal only with real money, now have an opportunity to add a modern tool to their portfolios. As a result, several options for making money from this cryptocurrency have emerged:
Buying assets to wait for a significant increase in the exchange rate in relation to real currency;
buying/selling in Forex market and betting on options market – as a result, you will be able to make a profit when the rate goes up and down;
direct sale/purchase of Bitcoin, with relentless monitoring of exchange rates.
The advantage of this digital currency is that it requires significantly fewer material resources than a direct exchange of money. As a result, the payment for the labor of the performers is made from the mined “free” funds.
WHERE DOES BITCOIN COME FROM?
There are several ways to get hold of cryptocurrency – buying it or exchanging it for dollars and other real currency, getting bitcoin as a reward for the work done. But the very first source is mining, which is the generation of coins through mathematical calculations. In theory, the owner of any computer is able to install a mining program to start earning digital currency.
In practice, mining has the following features:
- The level of economic rationality of mining depends on the power of the computer. The PC must have the most powerful gaming card, then you can start mining.
- Before you start round-the-clock mining, you need to measure the mining speed, then it should be compared to the actual electricity consumption with the income brought in.
- It is possible to significantly increase the mining of cryptocurrencies by combining them into a pool with other miners. Then there will be common mining using the computing resources of the entire group.
The high complexity of computational processes slows down cryptocurrency mining, generation is hindered by the limited power of standard personal computers (even in gaming models). Because of this, in order to start professional BTC mining, they buy specialized equipment. It is able to generate coins with higher speed because the hardware and software are made just for this task.
HOW TO START YOUR OWN BITCOIN MINING?
Special equipment is used for one purpose – to increase the speed of computation. Bitcoin is generated during the accumulation of “satoshis” – these are fractions of digital currency that are generated in a shorter period of time. Satoshis have no value on their own, so miners can buy expensive professional equipment or team up with other miners. Combined groups take advantage of the perks of cloud technology, which makes it easy to use remote capacity over the Internet. At times, cryptocurrency mining can reach an industrial scale.
Local cryptocurrency mining farms can be created in several ways:
- Using a motherboard that has multiple slots for video cards. You need to fill all the slots, and you need to buy the best devices that have the maximum computing potential.
- Operation of special boards with video chips. They make it easy to achieve the required speed of computing operations.
- A farm-based on branded ASIC processors designed specifically for fast cryptocurrency mining.
Techniques with a standard video card will come out cheaper, but even this purchase should pay off. This is the reason why more attention is often paid to the potential of cloud pools. These services have a certain commission, but they work around the clock and do not waste electricity at home. There is also no risk of power outages or breakdowns.
HOW TO STORE BITCOINS?
If with simple money everything is clear – you can keep cash in your hands or give it to the bank for deposit to the account and further settlement, then with bitcoin, everything is not so simple. If you leave out all the nuances, bitcoin is a wallet.dat file, which is where all the digital coins are stored. You can keep this file in “cold storage”, which means it doesn’t have to be connected to the network, or you can keep it in another store, which can be disposed of using specialized software.
In order to pay with cryptocurrency, it is necessary to have a digital wallet. It can be an application for your phone or computer, or it can be a third-party virtual service, which will do everything on its own server. After you have your wallet, you can create a bitcoin address. You should know that you need to change this address periodically because it is published in the general list of transactions and can get to third parties. The number of addresses is not limited.