CRYPTOCURRENCY:

BITCOIN, ETHEREUM, BLOCKCHAIN.

HOW TO GUIDE:
INVESTING, TRADING, MINING

Written by Chang Lee

First edition. October 3, 2017.

Copyright ©2017 Chang Lee

Copyright 2017 by Chang Lee - All rights reserved.

No part of this publication or the information in it may be quoted from or reproduced in any form
by means such as printing, scanning, photocopying or otherwise without prior written permission of
the copyright holder.
Contents
Background
Chapter 1. All You Need to Know About Blockchain
How the Blockchain works?
Blockchain technology in different spheres
Blockchain and Cryptocurrency
Chapter 2. Is Cryptocurrency the Future of Money?
First Cryptocurrencies
Pros and Cons
Regulation
Chapter 3. Types of Cryptocurrencies
Bitcoin
Ethereum
Other perspective cryptocurrencies
Chapter 4. Investment and Trading
Investment Tips and Secrets
How to Buy and Sell Bitcoin
How to Buy and Sell Ethereum
Safety
Resources and Tools
Chapter 5. Mining – Money from Air?
Bitcoin Mining Business
What is Ethereum Mining?
Chapter 6. Detail Bitcoin Mining Guide
The mining Ecosystem
Hardware
CPU Mining
GPU Mining
FPGA Mining
ASIC mining
Mining Services (Cloud Mining)
Software
Chapter 7. Detailed Ethereum Mining Guide
Hardware Requirements to Start Mining
Mining Clients
Mining Process
List of Tools
Background
The internet is responsible for the majority of the major changes that have
been experienced in society. These changes have affected human
relationships and commerce as well. Various technologies have risen in
order to cater to the changes that have occurred within society –
cryptocurrency being one of them.
Cryptocurrency, take Bitcoin as an example, depend on the effort of
participating members of a network as opposed to the way traditional
finance systems depend on the work in companies.
Cryptocurrency was designed for the general public, in opposition to the
elite and exclusive traditional systems that often fail to cater to the needs
of the public. Developers of cryptocurrency all have one thing in common
– they were not happy with the fact that society has to depend on high
unreliable, and vulnerable systems in order to make day to day financial
transactions. It is no secret that most banking systems are vulnerable to the
attacks of malicious entities. A swing in the economy could lead to people
losing their entire life savings and there is nothing they can do about it.
People live their daily lives in hope that their finances will remain safe in
these banking structures. Cryptocurrency has offered an alternative that
leads to freedom. Cryptocurrency is based in decentralized systems that
run on peer effort. Peer-to-peer networks are the core of cryptocurrency
and this is what has led to its rise in value and popularity.
When cryptocurrency first emerged, people believed that it was nothing
but a passing phase. Several years later, many critics are being forced to
take another look at the words they initially said. Currencies such as
Bitcoin and Ethereum are on the rise and more people want to be a part of
the phenomenon.
The problem is that there are many misconceptions and rumors
surrounding cryptocurrency that have been pushed as facts. This has
resulted in many members of society turning away from something that
could potentially change their lives for the better.
The purpose of this book is to guide you through the basics of
cryptocurrency, the types of currencies that exist, and the ways in which
one can join the rising phenomenon. The more people who begin to
understand what cryptocurrency, the better.
Chapter 1. All You Need to Know About
Blockchain
How the Blockchain works?

Blockchain technology allows for value exchange to take place without the
presence of trust or a predominant authority. This technology is thought to
be considered as one of the best inventions ever created. Picture this
scenario: You and I bet $100 on a Manchester United match happening at
Old Trafford over the weekend. I bet that Manchester United will win, you
bet that they will lose or draw. We have three options to handle this
transaction:
1. We can put our trust in each other regarding the bet. Win or lose, the
losing party will give the $100 to the winning party. If we are
companions, this would be a good way of handling the bet. However,
when it comes to paying bets, even the closest of friends are capable
of failing to settle.
2. The bet can be converted into a contract. The presence of a contract
will make the bet more official and it will also make both parties
more susceptible to paying. Should one of the two parties decide not
to fulfill their obligation, the winner will have to pay additional
funds in order to cover the legal costs of attaining their money – this
could take a long time, too. For a small amount of cash, like $100,
this does not sound like an advisable way to manage this transaction.
3. We can incorporate a neutral third party into this transaction. Both
parties will give $100 to the third party and they will give the total
sum to the winner of the bet. This is a risky option, though, because
the third party could end up fleeing with the money. This leaves us
with the first to options – to trust each other or to resort to a contract.
From what has been discussed, it can be seen why trust and contract are
not the best options. It is very hard to trust strangers – and friends too –
and the process of enforcing a contract requires time and a lot of money.
Blockchain technology offers an option that is far more secure, efficient,
and affordable, than the other aforementioned options.
Blockchain gives us the chance to write several lines of code – on a
program that is operating on the Blockchain – to which both parties will
send $100. The program will keep the $200 safe until the football match
has been played. Once the result is final (Win or Lose/Draw), the program
will transfer the entire amount of money to the winning party. Both parties
can check the logic behind the contract, and once the program is running
the Blockchain cannot be changed, stopped, or interrupted. Now, this
option might sound too advanced for a $100 bet, but when it comes to
selling a house, a company, or a larger asset, this option is the best one to
consider.
To the layman’s mind, the theory behind Blockchain may appear to be too
advanced to be comprehended simply. The purpose of this chapter is to
simply explain the logic behind this phenomenal technology.
Blockchain technology allows for digital information to be distributed
safely, without the risk of it being stolen or duplicated. As time progresses,
various forms of Blockchain technology are creating the backbone of a
newer kind of internet. Information on a Blockchain exists as a database –
a shared, but continually updated, database. This database is not stored in a
single location, allowing for the kept records to be authentically public and
easily verifiable. It is impossible for an individual or single entity to
control this technology. This is because identical blocks of information is
stored across the crypto network.
Blockchain technology was designed to last; it consists of a built-in
strength (robustness) that makes it reliable and impenetrable. Since it
stores identical blocks of information across its network, this technology
cannot be controlled by a single person or entity, and it cannot fail. The
fact that it is impenetrable and near impossible to penetrate means that it
cannot crash. As mentioned earlier, this technology was designed to last.
The amount of thought and effort put into this technology was to ensure
that no entity, no matter how sophisticated or powerful, would be able to
interfere with the technology. All transactions that occur via this
technology are validated by a network of computers. There is always a
group of users present to ensure that the list of transactions that occur via
the technology are being accounted for. There is no room for anyone to go
rogue; the system was built to prevent that. No one is shut out from
accessing the technology, either. For as long as you have access to the
internet, you will be able to access the Blockchain technology and, after a
bit of learning, you will be able to understand how everything works.
Blockchain technology was not created for a sole set of individuals. It was
created with the intent of making it available to the world – to ensure that
individuals can take control of their transactions without needing to rely on
an unreliable third party.
Blockchain technology in different spheres

Digital Identity
Digital identities are always at risk of being stolen and/or corrupted. Data
breaches are occurring at a more rapid rate and many companies and
systems have been left vulnerable. Take Target for example. An estimated
70 million customers had personal information that included their names,
addresses, phone numbers, and email addresses hacked during the data
breach. Hackers had access to the personal information of millions of users
and there was very little that target could do about it.
Hacked databases and accounts that have been broken into are the major
area of growing problems in a society that is becoming technologically-
advanced at a rapid rate. With every day that passes, users are required to
give their personal information to sites – whether they like it or not. Many
internet users have been left uneasy as they worry about the safety of their
digital identities.
Protecting Digital Identity has become one of the most expensive tasks for
the world. According to a report by Distil Networks, the annual cost of
protecting digital identity and fighting fraud is an estimated $18.5 billion.
Simply broken down, for every $3 that is spent, $1 is going to fraud. The
more protection that is rolled out, to keep individuals’ digital security
secure, the more severe the onslaught from fraudsters becomes.
Blockchain technology has allowed for the tracking and maintaining
digital identities to become far more secure and efficient. This has led to
reduced fraud and an ease in signing on to platforms.
This technology can be used across a number of platforms – banking,
healthcare, online retailing, identity authentication, etc. As the world
advances in technology, the use of physical records dwindles. In order for
digital security to become impenetrable, the use of Blockchain technology
has to be incorporated into systems across the world.
Most security systems make use of password-based systems that can be
cracked very easily. Blockchain-based verification systems are based on an
indisputable identity verification that makes use of digital signatures that
are founded in cryptography – public key cryptography, to be precise.
When it comes to checking Blockchain identity verification, the only
check required is to confirm whether the correct private key was signed or
not. This key cannot be duplicated. In the instances where someone tries to
duplicate the key, or steal it, their attempts will be refuted by the system.
Distributed Cloud Storage
It has been predicted that Blockchain data storage will take over traditional
forms of cloud storage in the next three to five years.
The problem with most cloud storage today is that they are centralized.
Users of these different platforms (iCloud, Dropbox, etc.) have no choice
but to totally depend on a single storage provider. The cloud storage
servers “control” all online assets that are uploaded. In recent times, we
have witnessed the hacking of these cloud storage systems and the
repercussions it has had in the lives of many high profile individuals.
When it comes to using Blockchain technology, the cloud storage system
becomes decentralized. Take Storj – a beta-tested cloud storage system
that makes use of Blockchain technology – for example. This application
has improved security and has relieved the level of dependency users have
on the system. The Blockchain-powered system prevents users’ assets
from being accessed by hackers and other malicious entities. It’s no
wonder that this technology is about to take over the cloud storage sphere.
Smart Contracts
In recent years, the world has seen the use of paper and physical records
dwindle as companies and individuals move to using digital records to
store information – including contractual agreements.
Smart contracts are digitized contracts that are just as legally binding as
hardcopy agreements. These contracts are entered on the Blockchain and
are programmable. Developers implement these contracts as variables –
and statements – that are able to release funds via the bitcoin network. This
is considered as a far more viable option that entrusting such decisions
with single, centralized authorities.
For example, if two people want to exchange funds at a certain time in the
future, when a set of instructions and requirements have been fulfilled, the
payout and details of both parties will be programmed into the smart
contract. Once the requirements have been met, the funds will be released
and received by the relevant parties.
This makes business far more efficient, and the legal system more reliable.
Digital Voting
One of the biggest challenges, when it comes to online voting and other
electoral processes, is security. By using Blockchain technology, a voter
will be able to successfully transmit their vote – while maintaining their
anonymity to the rest of the world. This is a digitalized version of how the
physical voting process takes place. In 2014, a political party in Denmark
became the first political organization to make use of Blockchain
technology during the voting process. Observers have noted that digital
voting, using Blockchain technology, would eliminate various challenges
that the current electoral process experiences – thrown votes, duplicated
votes, etc.
Blockchain and Cryptocurrency

Cryptocurrency is a digital currency that is recorded in a ledger. This

ledger contains information on accounts and transactions that occur
between peer users who using the system. The system that enables the use
of cryptocurrency is the Blockchain technology. Within the context of
cryptocurrency, Blockchain is a ledger of all transactions that occur
between peer users; this ledger also happens to be decentralized. By
making use of this technology, participants are able to confirm transactions
without the need for a central validating authority – a bank, for example.
Cryptocurrency is known as a medium of (financial) exchange. It is
created and stored, digitally, in the Blockchain. Encryption methods are
used to manage the creation of the financial units, and to verify every
transfer of funds.
Cryptocurrency was created in a response to the displeasure with the
current centralized systems. The goal of its creation was to serve as an
improvement to the flawed systems that currently exist. The currency is
based in a decentralized technology, which allows user to make payments
that are far more secure than using a centralized system or an unreliable
third party. Money is able to be transacted and stored in anonymity. Every
transaction is recorded in the ledger – no matter how big or small it may
be.
There are no fees that come with making transactions via cryptocurrency.
All transactions are stored in groups – known as blocks. A new block is
created, processed, and added to the blockchain six times an hour. All
transactions are recorded in the blockchain ledger. The ledger is kept
functioning by users who are known as “miners” – users with powerful
computers that are able to “crunch” transactions that lead to being
rewarded in bitcoins – a form of cryptocurrency.
Cryptocurrency was created by Satoshi Nakamoto – an internet user who
prided in his activities being kept on the low-key. Immensely displeased
with the current centralized systems, Nakamoto resorted to creating a
method of transacting monetary units in a more secure, decentralized
system. He invented bitcoin in 2008, before it went online a year later.
There have been many attempts to identify Satoshi but no investigation has
ever yielded sufficient results.
Money that is free from government control and bank fees is valued by
many people. The fact that the money is secure in the Blockchain system
and transactions are verified and processed in anonymity is what has
drawn many people into the world of cryptocurrency.
Another benefit found in cryptocurrency is the fact that transactions cannot
be faked or reversed – common errors that are seen in the bank systems.
Transactions are airtight, relieving pressure on many users who make use
of the platform. The incredibly low fees for transactions also make
cryptocurrency far more trustworthy than traditional currency. The fact
that the currency is decentralized means that there is open access to
everyone – contrary to the exclusive systems perpetuated by banks.
Transactions run on a peer-to-peer network, adding to the open and
transparent nature of cryptocurrency. There is no single entity that claims
responsibility or control over the system. It is a currency designed for the
people, free from third party restrictions. Once a transaction has gone
through, it cannot be altered by anybody. If you send money, it has been
sent and it cannot be recovered. That is why every transaction that takes
place needs to be done with ample care and attention.
As mentioned earlier, transactions are not connected to real-life identities.
Cryptocurrency is reviewed on “addresses” – which appear as random
chains that contain up to thirty characters. The robust system makes it
nearly impossible for one’s real-life identity to be located through the
Blockchain.
Transactions occur instantly in the network and are usually confirmed
within a couple of minutes. Location does not matter when it comes to
making transactions via cryptocurrency. This is a notable advantage
considering the red tape and complications one has to go through when
they need to transfer funds from one country to another. Cryptocurrency
offers a payment method that requires no permission from any external
entity. Once a party decides to send money to someone situated anywhere
in the world, once the transaction goes through, it’s done. One doesn’t
have to go through a mass amount of red tape in order to access
cryptocurrency. The software is available for anyone to download – freely.
Once it has been installed, cryptocurrency – e.g. Bitcoin – can be sent and
received. There are no gatekeepers to be wary of. Once an individual gains
a grasp of how the system works, they are left to transact as they please.
Users of cryptocurrency often sing its praises, despite the risks that may
surround the system.
As of July 2017, it was reported that there were a little over sixteen million
bitcoins in circulation. The value of one Bitcoin passed the $1000
threshold in March 2017, exceeding the price on an ounce of gold for the
first time. The value of cryptocurrency has soared since then and reports
have shown that it will continue to increase in this fashion.
Chapter 2. Is Cryptocurrency the Future of
Money?
First Cryptocurrencies

The development of cryptocurrency has occurred since the late 1990s, with
Wei Dai publishing an account of something referred to as “b-money” – a
distributed electronic system that was based on anonymity. Not long after,
developer Nick Szabo created “bit gold”.
Bit gold was designed as a decentralized digital currency. In Szabo’s
scheme, a participant was required to use computation power to solve
proof-of-work puzzles (also known as cryptographic puzzles). When these
puzzles were solved, they would be sent to a public registry and the solver
would be assigned with a public key. Every solved puzzle would be
incorporated into the following puzzle, thus creating a growing chain of
new property. This part of the system provided a robust method for the
network to verify new coins and add time-stamps to them. If the majority
of the parties present on the network disagreed to accepting new puzzle
solutions, the next puzzle would not be able to be solved until a consensus
was reached.
The problem with bit gold was in the double-spending problem. This
problem often popped up when users would attempt to design transactions
with digital currency. Once data was created, it would be easy for it to be
copied and pasted. In order to prevent this from becoming a problem, most
cryptocurrencies gave up some control to a central authority. This was to
ensure that all account balances would be tracked and accounted for.
Szabo saw this as an unacceptable solution. Szabo wanted to mimic the
security and reliability of real-life gold and to him, the most important
thing was to never depend on a central authority, regardless of how
trustworthy they appeared to be.
The currency was never implemented, but it was said to set the precedent
for the architecture behind Bitcoin.
Cryptocurrencies go further than the recent 8 year old breakthrough.
Admittedly, Bitcoin is a result of numerous failed attempts at digital cash
in the late 80s due to the involvement of trusted third party systems. These
failures as a result, gave way to varying opinions that have kept a number
of people either for, against or plainly confused about cryptocurrencies.
The Bitcoin is different, in the sense that it is an open ledger in which
information is distributed to all peers without the need for a third party
Overseer, rather, this Peer to Peer system proves trustworthy and
guarantees security because of the fact that each transaction on the block
chain, represented by cryptographic codes, is required to be solved and
verified by the consensus of every member. Basically, Bitcoin offers a
secure and decentralized way of exchanging money via the internet. So the
risks of transactions winding up in the wrong account or double spending
are avoided.

The Emergence of Bitcoin

In 2009, Bitcoin was the first successfully decentralized cryptocurrency to
emerge. The currency made use of a cryptographic hash function that went
by the name SHA-256 – this was the puzzle-solving/proof-of-work scheme
that it made use of.
Bitcoin is more than a currency, it is a commodity too. While the digital
currency can be used to purchase products from major retailers.
Government authorities, the IRS for example, treats Bitcoin as property.
The IRS released a guide on Bitcoin for the sake of tax, stating that it will
treat digital currency as property.
When Bitcoin first came onto the scene, it was met with a great amount of
skepticism. Critics rushed to give reasons as to why the digital currency
would not last. Information on the digital currency was limited and many
people were left in the dark. But as time went by, Bitcoin’s value started to
rise and it received more attention. Computer retail giant, Dell, was
became one of the largest companies to adopt Bitcoin in their system.
Soon, other companies such as airBaltic, Expedia, and even Microsoft,
started to accept Bitcoin as a form of payment. The value of the digital
currency has shot up within the last year, having shot past the $4000
threshold in August 2017.
The thing that astonished people the most is the fact that everything about
Bitcoin is open and accessible to anyone. Bitcoin was not created for a
select group of people. If anything, it appears that Nakamoto designed
Bitcoin for the people. Bitcoin is completely contrary to the classist,
centralized authorities that exist in the “real world”. Its protocol and
software are published for all users to see. Anywhere in the world, a
developer can review the code and create their own version of Bitcoin
software. Bitcoin is not the only kind of cryptocurrency, and this will be
further discussed in later sections and chapters.
There is no single authority of the Bitcoin network. Bitcoin is controlled
by global Bitcoin users. Developers may work at improving the software,
but they are unable to effect a forceful change to the software’s protocol.
Users have the freedom to choose the software and edition of Bitcoin that
they would like to utilize. The Bitcoin software has a set of rules that every
other Bitcoin version must comply with in order for everything to remain
compatible. A general agreement among all the users must be present in
order for the network to work properly. This is why users – and developers
– have a strong desire to keep the agreement intact. If they don’t, everyone
will lose
Over the years, interest in Bitcoins has increased both among individuals
and governments. In countries such as Germany, it is 100% legal to use
Bitcoin and the German tax authority even has a website offering useful
information such as articles on how to tax one’s bitcoin. Also, in Africa,
Kenya, along with South Africa, Ghana and Nigeria are the four main
African countries to have embraced the use of Bitcoin and offer conducive
environments and sufficient provision to ensure that this movement thrives
among people willing to start up their own private businesses.

Birth of Altcoins
It can be said that Bitcoin gave birth to a number of other digital currencies
– altcoins. The term “altcoin” refers to existing cryptocurrencies that were
derived from Bitcoin. Some of them, like Ethereum and Litecoin, have
risen to be successfully traded currencies.
4 years after the creation of Bitcoin, another system platform promising a
brighter future emerged. Ethereum, the brainchild and creation of the 19-
year-old programmer from Toronto, Vitalik Buterin, stepped into the scene
offering a wider platform for all developers pursuing the construction of
any kind of decentralized application such as smart contracts.
While Bitcoin aims to displace the centralized electronic transfer of money
over the internet, Ethereum seeks to decentralize the whole sphere of
influence of servers and clouds on the internet and hands the “power”, so
to speak, to volunteers from anywhere around the world that run the
blocks. This, in a way, ultimately fulfils the true essence of the “world
wide web”.
In the Ethereum blockchain, Miners earn Ether, a type of crypto token
which is used to run the blockchain, but more importantly, the idea behind
Ethereum goes beyond transactional activities unlike Bitcoin, and goes
further by having the ability to run the codes of decentralized applications
on the platform.
Observers have noted that within the next few years, Bitcoin’s dominance
will have dwindled as other currencies continue to gain traction. Every
digital currency, like Bitcoin, is designed with the intent of being traded.
But cryptocurrencies such as Ethereum and Litecoin have added their own
unique features in order to provide other services for users. Bitcoin was
not developed with the intent of becoming a monopoly. It was created to
inspire the birth of a community of decentralized currencies.
Pros and Cons

Pros:
Transparency
With Bitcoin, and other cryptocurrencies, an open ledger, known as a
blockchain, is where all transactions are accounted for and monitored.
Once a transaction has been processed, confirmed, it cannot be altered.
Transactions cannot be revised or reversed once they have entered the
ledger. No one within the network is able to manipulate a transaction, thus
giving cryptocurrency one of its biggest security features. All transaction
information is available for any user to see – unlike in a bank system
where transaction information is kept confidential. Many malicious entities
have taken advantage of the bank systems and have manipulated
transactions on many occasions. Cryptocurrency offers technology that has
lowered the risk of such occurring.

The Chances of Inflation are highly unlikely

When it comes to traditional currencies, inflation is inevitable. Economies
lead to shifts in prices, governments print out more money to meet
demands, and many other factors contribute to the inflation of traditional
currency. With Bitcoin and other cryptocurrency, inflation is not
experienced on such a wide scale because of a definitive number of
minable Bitcoin (and other cryptocurrencies). Bitcoin, for example, was
programmed to have an estimated 21 million Bitcoins to ever be mined.
The last Bitcoins are estimated to be mined in 2050, with none being
introduced to the market afterwards.
Users control their money
The purpose of cryptocurrency is to give users the freedom to control their
transactions without having to depend on a central authority or a third
party. Transactions are conducted independent of the identities of the
people or companies who are making them. This bumps up protection
from identity theft and allows users to make transactions without any
worry. Cryptocurrency offers users an opportunity to make seamless
transactions without the hassles of having to go through third party
individuals or entities. Transaction fees are much cheaper than using
traditional bank systems too, because the transaction is going directly from
one party to the next.
Transactions cannot be traced
This can be considered as a good and bad thing. In the light of good,
untraceable transactions means that users can send and receive money
without the fear of being monitored by external authorities. Cases of theft
and fraud are lowered because hackers and other malicious entities will not
be able to intercept transactions with ease. Applications that assist with
“blurring” transactions, also known as mixing services, are available for
users to patronize in the event that they want to eradicate the chances of
their transactions being observed and breached.
Security
There is definite security with Bitcoin. All Users are in control of their
transactions and codes are not able to be misused or exploited by people,
organizations or the government because of the intricate cryptography.
Private information remains hidden and personal information is not
attached to the transactions, meaning that chances of identity theft is
completely narrowed down to zero.

Cons
Many people do not understand cryptocurrency and because of this,
they do not trust it.
Cryptocurrency is not as widely known as it should be. Information on
Bitcoin and other digital currencies entered the public sphere very
recently, but many people are still uninformed on what cryptocurrency is
all about. Some individuals have also taken it upon themselves to criticize
cryptocurrency with the little knowledge that they have, and spread this
information to the masses in order to keep them from becoming interested
in the topic of digital currency. The lack of informed individuals has led to
even fewer people understanding what cryptocurrency is and how it works.
People have developed a mistrust for digital currency without taking time
to understand it. Many corporations have refused to accept Bitcoin as a
form of payment, which has not helped the cause either. People who desire
to use Bitcoins as a method of payment for their day to day transactions
are limited because of this. There are still levels of knowledge and
understanding that have not yet been reached, therefore people need to be
educated about Bitcoin in order to use it to its full potential and apply it to
their daily lives. Companies that are interested in Bitcoin need to also
educate their staff members which might be time consuming or possibly
expensive.

If lost, an individual’s cryptocurrency cannot be recovered

In the traditional transactional system, if someone’s account is hacked or
they fall victim to fraud, measures can be taken for the money to be
recovered. Bitcoin, and other cryptocurrencies, however, cannot be
retrieved once they are lost. There is no mechanism that is able to recover
lost Bitcoins, once a transaction has gone through it cannot be reversed. If
someone’s wallet is hacked and their digital currency is stolen, there is no
network authority they can report the matter to. This is why users need to
be wary of the people they send transactions to, if you fall victim to a
fraud, no one will be able to help you. Care must be taken when saving
money in a wallet application. Users have been advised to avoid using
web-based wallets to save their digital currency. Storing digital currency
on a drive that is disconnected from the internet is one of the best options
one can consider; such drives are encrypted for the sake of security.
Transactions cannot be traced
As mentioned in the “Pros” section, there is a good and bad side to the fact
that transactions made with cryptocurrency cannot be traced. The negative
side to this fact is that many criminals have resorted to making use of
cryptocurrency to facilitate their transactions. Criminals are able to send
and receive digital currency freely because their identities are not attached
to the transactions that are made. This is one of the major reasons why
several governments have declared the use of cryptocurrency as illegal.
Cryptocurrency is not stable
When it comes to trading cryptocurrency like a commodity, users should
be aware that all cryptocurrencies are subject to dramatic fluctuations. The
value of Bitcoin could soar today and dive tomorrow. Trading and mining
cryptocurrency is not an activity people should consider if all they are sent
on is making money. The market is volatile and can lead to causing a lot of
anxiety – especially in inexperienced traders and miners. The predictions
of cryptocurrency is always changing. No one knows what the future holds
for digital currency, the best that can be done is to embrace the present and
make the most of it. One needs to be very careful when it comes to
investing in cryptocurrency, especially altcoins that have newly emerged.
Some currencies show promise in their early stages and end up crashing
days, weeks, or months later. Cryptocurrency isn’t something one just
jumps in. Interested traders need to do their research, so that they are fully
aware of what they are dealing with. Cryptocurrency comes with great
advantages, but it has its risks too, and they need to be noted.
Limitations with Ethereum
The amount of understanding and teachings available on the web of
Ethereum is still meagre and insufficient for the upbringing of any new
developer. The information present on the internet is either out of date or
just too basic to move further into the deeper knowledge of the developer
of Ethereum.
And, due to the broad spectra that is the Ethereum platform, which is
designed to be able to withstand and accommodate all kinds of programs
for a large number of people, there is a limitation when it comes to making
it better for any of the programs being built despite its flexibility. This is
why it might not be as effective as Bitcoin. Ethereum is also really
complicated to handle.
Ethereum is still quite unstable. If the Ethereum system crashes because of
failed updates, all the work of a developer stands at risk of being dragged
along too. Every saved project or code will be stored in the blockchain,
and this is very risky for the people creating complex programs.
People are still trying to understand this new currency, therefore, progress
will be slow, but none the less, with time, people won’t have to rely on
preconceptions and will instead move forward with the accurate mentality.
Regulation

There are no standards or norms regarding the use of cryptocurrencies

when it comes to international trade. Regulation is something that needs to
be discussed. Some countries have gone to the lengths of deeming
cryptocurrency as illegal but this is not a feasible solution. Cryptocurrency
holds the potential to benefit the world in a major way. This idea cannot be
thrown out because of the bad seeds that have decided to use
cryptocurrency for illegal dealings. It is imperative that international
entities – countries, institutions, etc. work towards finding a way to
incorporate the benefits of cryptocurrency for the public. Whether people
like it or not, a time will come where the flaws in the banking system and
traditional payment methods will be too blatant to excuse. Credit card
fraud is a serious problem in the world today. Bank accounts are
continuously infiltrated. More people are subjected to identity theft and
fraud on a daily basis. Cryptocurrency offers solutions to the problems that
many people are experiencing.
Bitcoin creator, Nakamoto, argued that the creation of cryptocurrency was
for a clear purpose: to insure that transactions between parties occur
independently, with limited risks, and a high level of efficiency. The
system was built in such a way that trust would not be required in order for
the system to be utilized. The current traditional systems are built on
trusting intermediary parties to carry out what they intend on doing. Many
times, this “trust” has been broken. A number of people do not believe in
the traditional systems and currencies but they use them because they have
no choice.
Cryptocurrency aims to function in the same way the traditional systems
function – just without the red tape, mistrust, and high charges. The impact
created by this innovative technology stems from the fact that digital
currency meets the needs of the modern generation.
It is true that cryptocurrency poses various challenges to regulatory bodies
– on a national and international scale. Many of these issues revolve
around the issuing of cryptocurrency and how it operates. It’s
understandable. How does the world’s authorities manage a system that is
designed to operate without relying on them?
Cryptocurrency is founded in operating independently and a lot of
institutions are threatened by this. But as much as they have tried to ignore
cryptocurrency, they cannot afford to do so anymore. It appears that
cryptocurrency is here to stay.
In the United States, the IRS treats digital currency as property. This
means that anyone who makes use of digital currency needs to keep a
record of every transaction that they make. This is the only way that they
will be able to comply with IRS regulations. Some beg to differ with the
IRS and believe that they should not have categorized digital currency as
property. The Tax Foundation has encouraged the IRS to pay attention to
what the digital currency is used for – mainly, sending and receiving
“money”. The anonymity of digital currency accounts gives users a chance
to hide their funds and also evade their taxes – both are major criminal
offences. If the IRS continues to treat digital currency as property, they
might end up failing to keep track of all transactions that take place.
The Financial Crimes and Enforcement Network, FinCen, issued a
Guidance paper in 2013. The guidance paper stated that exchange
platforms and overseers of digital currency needed to subject themselves to
the Bank Secrecy Act. The paper also informed them that they were
required to register as a Money Services Business (MSB). These measures
were taken in order for any illicit activities (drugs, money laundering,
terrorism, etc.) from being funded via digital currency.
Institutions are well aware of the fact that criminals make use of
cryptocurrency to fund their illicit activities. Developers are trying to find
middle ground with institutions in order to curb this problem.
Money laundering is another prevalent problem – especially in the Bitcoin
network. A company called bitlaunder.com exists for the sole purpose of
laundering Bitcoin. This is the tricky part of the anonymity that
cryptocurrency offers – it leaves room for many people to get away with
laundering money and covering up their dirty tracks.
Countries like China have legalized the use of cryptocurrency – mainly
bitcoin – for private parties but they have banned financial firms – e.g.
banks – from doing the same thing. In early 2017, it was found that China
have set out to find reliable regulatory methods in order to curb any illegal
activities from occurring as a result of using cryptocurrency. Furthermore,
The People’s Bank of China made it known that cryptocurrencies would
be investigated on and will still fall under anti-money laundering
regulations, consequences being that they get closed should these
regulations be violated. As a result, these businesses that facilitate the
exchange of digital currencies have improved their systems.
In Australia, the use of bitcoin as a form of money was legalized. People
who make use of bitcoin will no longer be subjected to double taxation.
The governor of the Reserve Bank of Australia noted that there would be
no point in trying to stop people from transacting with a different currency
in a shop if they desired to. They have accepted the presence of competing
currencies and have chosen to accept bitcoin, instead of trying to rule it
out. New Zealand issued a similar ruling as well.
As time continues, cryptocurrencies are gradually being accepted by the
world, but while they’re still new and based on the uncertain ground of
investments, regulations will be put in play in order to protect the interests
of either the people, or those that had central control.
At this present moment, organizations like the Securities and Exchange
Commission, which oversees New York financial markets, are observing
cryptocurrencies, and as a result, have sent warnings stating that there is
great need to be cautious when handling the sales of digital assets by
virtual organizations.
In fact, the stance of the law when assessing cryptocurrencies like Bitcoin
varies from country to country, meaning that it has faced either banning or
just plain restrictions.
With the absolute privacy of all users, there lies the very grim possibility
of criminal activities. So to combat this threat of financial crime evolving,
The Australian government has decided to bring people that deal with the
exchange of the digital currency under the authority of the Australian
Transactions and Reporting Analysis Centre (AUSTRAC), this way,
digital currencies can be bought and sold using fiat currencies like the
Dollar. By doing so, money laundering and terrorism is able to be fought
against.
Japan’s new law now recognizes bitcoin as a legal currency. Not only has
this increased the demand from investors, but it is now being accepted as
payment by major retailers. As a result, the regulatory requirements will be
complied with.
Bitcoin has not been passed as an actual currency as of yet by the
European Union, but VAT/GST is not applied when converting bitcoin to
fiat currency or vice versa. However tax does apply to transactions made
using bitcoins for goods and services.
The European parliament came up with a proposal to set up a monitoring
taskforce in order to combat money laundering and potential terrorism
which has been passed by 542 votes to 51. The European Commission is
considering this and actually have presented methods on how to prevent
tax evasion.
The U.S Treasury defined bitcoin as a changeable digital currency. Also,
the Internal Revenue Service stated that “an individual who mines virtual
currency as a trade or business is subject to employment tax”.
Mankind has always taken it upon itself to make life as easy as possible,
this mantra has transcended from the physical aspect to the cyber world we
now live in, where almost everything is leading to the control of codes that
form programs.
Is it then too far-fetched to believe that cryptocurrencies are most likely to
become the future of not only e-money but all programs? The paradigm
shift from the centralized control and its regulations to the decentralized
system which aims to put an end to the regulations placed by third party
authorities and incompatibilities is only the tip of the iceberg.
Chapter 3. Types of Cryptocurrencies
Bitcoin

Bitcoin was the first form of cryptocurrency to emerge; it is also the most
widely used cryptocurrency to date. This currency was developed by
Satoshi Nakamoto and went public (online) in 2009. It is often referred to
as the “people’s currency” due to the leaps and bounds it has made since
its introduction to the internet. The payment network is powered by its
users, as the decentralized peer-to-peer payment network that it is meant to
be. There are no higher authorities or middlemen when it comes to
transactions that occur in Bitcoin. Users perceive Bitcoin as money for the
Internet, due to the fact that this is where it is “mined” and transacted.
Satoshi left the project towards the end of 2010, leaving it to be developed
by many developers. The open-source characteristics of Bitcoin are often
misunderstood by many people who are still trying to understand the
intricacies of cryptocurrency. Everything about Bitcoin is open and
accessible. Bitcoin’s protocol and software is available for anyone to see.
Any developer can take a look at the code behind the software and develop
their own version if they desire to. Bitcoin is not the only kind of
cryptocurrency, and this will be further discussed in later sections and
chapters.
There is no specific controller of the Bitcoin network – similar to the way
no individual possesses sole ownership of the technology behind email.
Bitcoin is controlled by global Bitcoin users. Developers may work at
improving the software, but they are unable to effect a forceful change to
the software’s protocol. Users have the choice to pick a version of Bitcoin
that they would like to use – as long as it complies with the necessary rules
affiliated with the original software. It is because of this, all users and
developers possess a strong desire to protect this agreement.
From a user’s perspective, Bitcoin is simply an application or program that
provides users with an opportunity to perform transactions between their
wallets. The only difference is instead of sending and receiving traditional
currency, users are making transactions with cryptocurrency. There isn’t
much expertise that is required to do so. For most users, this is how
cryptocurrency works for them.
The Bitcoin network is rooted in a public ledger – known as the
Blockchain – where every bitcoin transaction is confirmed and recorded to
be seen by every user within the network. Every transaction is protected
and authenticated by digital signatures that are linked to sending addresses.
Therefore, all users have total control over sending bitcoins from their
particular addresses. If the digital signature does not correlate with the
address, the transaction is not validated – thus preventing fraudulent
transactions from taking place. Transactions are processed by users known
as “miners”. In order for a user to process transactions, they need to have
sophisticated hardware and a significant amount of computing power.
Mining is not for the regular PC. Miners are rewarded with bitcoins for
their service. It takes a level of studying and understanding the Bitcoin
system to go into mining – as well as the right kind of hardware.
People tend to think that Bitcoin payments are hard to make but this is
quite far from the truth. Bitcoin payments are easier to make, as opposed
to making purchases with a credit or debit card. It is also much cheaper to
do so. A computer or a regular smartphone can be used to make Bitcoin
payments – provided one has the appropriate wallet application. When
making a payment, simply enter the recipient’s address, the amount to be
paid, and send the transaction. Wallets are able to receive recipient
addresses via QR code or making use of NFC technology – technology
that is widely available on most smartphones.
The reason why people trust Bitcoin so much because of the fact that it
does not demand trust at all. The software is totally devoid of any
centralized authority – and it is open-source. Anyone has access to the
whole source code at any given time. Any developer, regardless of their
skills and location, has the opportunity to verify how the Bitcoin network
works. There is total transparency when it comes to transactions and the
issuing of bitcoins because of the Blockchain ledger that stores every
transaction made. In real-time, any user can access the ledger and observe
the transactions that have been made. There is no need to rely on a third
party and the entire system is guarded by a heavily-enforced cryptographic
algorithm – one that is considered to be stronger than those used for online
banking systems. The network remains secure, regardless of whether the
users can be trusted or not. Bitcoin was created to be impenetrable.
The number of individuals and businesses that are resorting to using
Bitcoin is increasing with every day that passes. From restaurants, to law
firms, and even popular online services, many are seeking to become a part
of those who have tapped into the cryptocurrency field. While Bitcoin may
be a relatively new phenomenon, it’s growth has become exponential. As
of the end of April 2017, the sum total value of every existing bitcoin went
beyond US$ 20 billion.
Ethereum

Blockchain technology isn’t just associated with Bitcoin. It would be

erroneous for one to think that Bitcoin is the only form of cryptocurrency
in existence. Bitcoin is actually one of several hundreds of applications
that make use of Blockchain technology in the present day.
Ethereum is another open software platform that is founded in Blockchain
technology. It allows developers to create and deploy applications that are
also decentralized in nature.
People tend to think that Ethereum and Bitcoin are completely alike – this
is not true. Ethereum and Bitcoin do share the fact that they both public,
distributed Blockchain networks. But it must be noted that their major
difference lies within their purpose and ability. Bitcoin provides one
precise application of Blockchain technology, based in a peer-to-peer
digital cash system. This system allows online Bitcoin transactions to take
place. The Bitcoin blockchain is used to keep track of all bitcoin
transactions that are made on the platform. When it comes to the Ethereum
blockchain, it is used to focus on running the program code of any
decentralized application that has been developed on the platform.
In the Bitcoin network, miners are mining for bitcoin. The crypto token for
Ethereum is known as Ether. This is what miners work towards attaining.
Ether keeps the network running. Developers use the tokens to pay for any
services or fees on the Ethereum platform. People can also use the token as
a tradable digital currency.
In order for Ethereum to work, the platform requires at least several
thousands of people to run the software on their computers – this powers
the network. Every computer, also known as a node, in the network runs
something known as the EVM (Ethereum Virtual Machine). The EVM can
be thought of as an operating system that comprehends and executes the
software written in programming language that is specific to Ethereum.

Smart Contracts and applications known as DApps are created on the

Ethereum platform. Developers prefer to use this platform because they
are free to develop without worrying about third party interferences,
fraudulent entities, and a range of other setbacks. Ethereum, however, is
not a free platform. There are transaction services and fees that need to be
paid for. Instead of using traditional currencies such as dollars, pounds,
etc. the platform makes use of a cryptocurrency that is native to its
network – ether. Ether is what keeps everything moving. The
cryptographic token can be viewed as a vehicle that is moving from place
to place on the Ethereum software platform. Ether is similar to Bitcoin in
the sense that it is another type of cryptocurrency, but it can also be used to
pay for the process of setting up and executing smart contracts on the
platform. Transactions of ether occur in a similar manner to the way
bitcoin is transferred. A transfer can be made to another user or it can be
made to “no one”. When a transaction is made without a specific recipient
being named, it means that the transaction’s purpose is to create a smart
contract in the network. The contents present in the designated data field
will contain the code required to set up the contract. A transfer can also be
made from a user directly to a smart contract. Instructions often
accompany this transfer, in order for the release of funds to occur once the
contract’s requirements have been fulfilled.
Transparency is still a major part of the platform – just like other
blockchains. When any of the aforementioned transfers occur, the event is
announced to the entire network and every user takes note of it. Every
node will also execute the smart contract in order for the state of their
EVM to be in sync with the rest of the Ethereum network. Synchronicity is
key in order for the platform to work perfectly. One can think of the
network as a large – but rather slow – distributed computer. Every
transaction, big and small, is stored in the blockchain in order to make it
permanent.
Developers tend to be the main users who desire to build, develop, and run
applications within the decentralized software platform. In order for such
actions to take place, users need ether to make the required transactions
across the platform. In 2016, the platform experienced a cyberattack. A
decision was made for the platform to be split into two. The first platform
is simply known as Ethereum. The second platform is known as Ethereum
Classic. Ethereum’s market value reached 4.6 billion US dollars – second
to the market value of Bitcoin.
Ethereum’s true value is found in its purpose. It does not just function as a
cryptocurrency that is to be traded. The purpose of this platform enables
the owner to use the “distributed global computer” that is powered by
thousands of nodes across the world. Transparency and security are critical
elements of this system, giving power over to users so that they do not
have to rely on centralized systems or unreliable third parties.
Like Bitcoin, Ethereum was built to last. In order for the system to go
down, every node has to go down at the same time. This is impossible,
which also makes the chances of Ethereum collapsing near impossible.
The platform is here to stay.
Other perspective cryptocurrencies

People tend to believe that Bitcoin is the only legitimate cryptocurrency

because of the great amount of exposure it has received, but in actuality
this is not so. Bitcoin simply ushered in a new wave of cryptocurrencies
that were also built on decentralized peer-to-peer networks. You can think
of Bitcoin as an inspiration to other cryptocurrencies that have sprung up.
Bitcoin’s open source software offered developers the opportunity to build
and develop other platforms that are similar to Bitcoin, or different in
terms of purpose. Some of these currencies are far easier to mine that
Bitcoin, but some also come with greater risk, less value, etc. These are
four of the many currencies that are in existence:
Litecoin (LTC)
Litecoin, created by MIT Graduate Charlie Lee, was among the first
cryptocurrencies to emerge after the release of bitcoin. Litecoin was
created with the intent of becoming known as the “silver” to Bitcoin’s
“gold”. The developers sought to make an improved version of the initial
cryptocurrency. Litecoin is generated by mining – just like bitcoin. A key
difference between bitcoin and Litecoin lies in the time it takes to generate
a block – 2.5 minutes for Litecoin and ten minutes for bitcoin.
Bitcoin and Litecoin possess two different algorithms. Bitcoin uses an
algorithm known as SHA-256 – a hashing algorithm that involves
calculations that can be sped up in a term known as parallel processing.
This is one of the leading reasons for the great increase in the difficulty
level of bitcoin.
Litecoin, on the other hand, uses an algorithm known as “scrypt”. The
algorithm also makes use of the SHA-256 algorithm but its calculations
differ to those of the SHA-256 found in bitcoin. Scrypt requires great
amounts of high-speed RAM, and not just raw processing power.
Litecoin is able to confirm transactions at a faster rate than bitcoin. This
means that Litecoin is able to manage a high volume of transactions
without any hitches. This fast block time also reduces the risk of double
spending attacks taking place – a major concern for many cryptocurrency
users.
Dash
In 2014, Evan Duffield created a cryptocurrency that was initially known
as XCoin. A couple of name changes later, the currency was finally known
as Dash. In March 2015, the cryptocurrency underwent rebranding is now
known as “Dash”. Evan Duffield’s reason for creating Dash was because
of what he noticed when he studied Bitcoin. He was impressed with the
technology but he realized that Bitcoin was not fast or private enough.
Instead of trying to convince Bitcoin developers to make the platform
more anonymous, he resorted to developing his own cryptocurrency. Dash
also operates on a decentralized peer-to-peer network but the transactions
that occur on the network are almost untraceable.
Dash is said to have designed a total of eighteen million coins in its
supply. Presently, the circulating supply of the cryptocurrency is 7.4
million and is projected to reach eighteen million a couple of centuries
from now. Dash transactions also take place at an incredibly rapid speed in
comparison to Bitcoin. Dash can be purchased through an exchange
platform known as Changelly. The platform presently supports 55
cryptocurrencies. The only things required are your Dash address and
some BTC or LTC (or any other supported cryptocurrency) to be
exchanged for Dash.
Dash also comes with its own unique features such as
Private send – A feature that allows you to send your funds privately,
making it hard to identify any of your specific transactions.
Instant send – Dash transactions are performed within a second – this
feature comes with higher fees for processing such transactions.
Masternodes – Dash has special nodes known as Masternodes. These
nodes possess privileges that allow them to perform Private Send and
Instant Send functions, as well as earn large percentage block rewards.
Ripple (XRP)
Like the aforementioned cryptocurrencies and platforms, Ripple functions
on an open source, decentralized, peer-to-peer platform that enables the
ease of money transactions in various currencies – USD, Litecoin, bitcoin,
etc.
In order to understand how this system works, think of a money transfer
setup where the two parties on either side of the transaction are using
middlemen to send and receive the money. The Ripple system makes use
of a medium widely known as Gateway. This medium serves as a
connection between two parties that are looking to make a transaction.
Gateway acts as the “middleman” in the situation. Currencies are sent and
received to the involved addresses over the Ripple network. XRP is the
digital currency that acts as the bridge currency for other currencies being
exchanged within the Ripple platform. Every currency in the platform has
its own gateway – to allow for transactions to occur seamlessly. For
example, if Max wants to receive his payment in bitcoins, David, the other
party, does not have to have bitcoins in order to make the transfer happen.
He can send his payment to his gateway in US Dollars and Max can
receive bitcoins from his gateway.
On the Ripple network, transactions occur within seconds. This makes the
Ripple network a much more viable option that traditional bank systems
which take long amounts of time to clear transfers.
Chapter 4. Investment and Trading
Investment Tips and Secrets

1. Do not rush to diversify

When it comes to trading cryptocurrency, there is such a thing as

having too much diversification – especially if it is done much too
soon. The temptation many aspiring traders face is to invest in
multiple cryptocurrencies in order to increase the value of their
returns. In the world of cryptocurrency trading, this could end up
being a terrible mistake with lasting consequences. In the last year or
so, we have seen cryptocurrency receive more exposure. Not a day
goes by without a media outlet mentioning bitcoin and the constant
rise of blockchain technology. The number of users who are
resorting to making use of cryptocurrency is increasing with every
day that passes. These are signs that cryptocurrency is something
that should be invested in. But before one can consider investing,
one needs to do one’s research. There are hundreds of
cryptocurrencies that are in the digital currency landscape. Before
you start investing, you need to determine which altcoins
(alternatives to bitcoin) are legitimate. In your research, identify the
coins that are being distributed widely, possess high market
capitalization, and trading volumes that indicate that there are long-
term prospects. The best cryptocurrency to start with is Bitcoin, for
obvious reasons, and then choose one or two altcoins until you’ve
developed enough experience to branch out further.

2. Do not panic

The altcoin scene is known to be extremely unpredictable/volatile.

This can trigger anxiety in the heart of a new trader, which leads to
feelings of fear and panic. These feelings will lead to making terrible
trading decisions.

The same way trading while you’re tired, after hours of observing
the markets, can lead to disastrous decisions, trading while you are
anxious or panicked will yield the same results. You need to come to
terms with the fact that cryptocurrency involves risk and a level of
volatility. Once you accept that, you will be able to make calmer –
 and wiser - trading decisions. Investing in cryptocurrency is not for
the faint-hearted. If you are not a fan of high-risk situations,
cryptocurrency trading is definitely not the area for you.

3. Stay away from scams

It’s normal for crypto investors to observe new altcoins and note that
they have potential for growth. Investing in them isn’t hard due to
them being inexpensive, and investors reap the rewards as the value
of the altcoin increases. The altcoin market is growing at such a rapid
rate, many emerging digital currencies may not have good long-term
prospects. It is vital that you take note of tis. The last thing you want
to do is pump your money into something that seems to be
prospective, only for you to lose all your money in the process. Be
very cautious when it comes to investing in altcoins – do your
research.

4. Try not to spend too much time trading.

This may sound like this is counterproductive, but you need to be

aware of the fact that it is very possible to make less profit by trading
on a constant basis. Crypto traders who are new to the scene tend to
become very involved in trading and they dedicate every waking
moment to observing price fluctuations and trying to locate the
perfect trade. This only leads to fatigue and frustration.
Balance your passion with wisdom. Trading is about timing. Your
mind also needs to be in the most stable mind possible in order to
make the right trading decisions.
How to Buy and Sell Bitcoin

In August 2017, Bitcoin surpassed a value of $4000 – reaching another all-

time high. Less than two years ago, the thought of buying the digital
currency at such a price would be laughable. But the world has witnessed
the rapid rise of bitcoin’s value and more people are starting to believe in
it. Most people are still trying to understand what bitcoin is all about and
how they can purchase and sell it.
The easiest – and most user-friendly – way to purchase bitcoin is using an
application called Coinbase. Coinbase is a hosted wallet application. If you
aren’t interested in using a third-party application like Coinbase, you can
consider using Blockchain or Mycelium – these are user-controlled wallets.

Creating a Coinbase Account

1. Download the application on your mobile phone.

2. When you open the application, you will be presented with the
most current price of bitcoin and its changes within a certain
period of time. You will also see a chart that will display the
currency’s moves within a certain timeframe.
3. To sign up you will need to fill in your name, surname, email
address, and a safe password.
4. Coinbase’s interface makes it easy for a new user to enter their
information. You will also be asked to enter your location. You
might need to enter your address a couple of times before the
application accepts it. If your mobile application gives you more
trouble, switch to the desktop app.
5. The desktop application might be easier to use, especially if you
aren’t a tech savvy person.
6. The final step of the account creation process is to verify your
account. A code will be sent to your phone. Once you receive it,
enter the code online and verify your phone number.
7. The application will require you to add a payment method. You
can choose between adding a bank account, and using a
credit/debit card. Using a card will come with lower limits in
comparison to using a bank account.
8. Entering the rest of your information should happen smoothly
 once you’ve verified your payment method.

How to buy Bitcoin

Once your account has been created and verified, the application will give
you the option to buy bitcoin for a certain amount of US dollars (or any
other desired currency). Please be mindful that the price of bitcoin rises
and falls and incredibly volatile rates. Do not panic buy when you notice
that the price is falling.
Congratulations, you’ve purchased bitcoin – regardless of whether it is a
small fraction or a large amount.
How to sell Bitcoin
When it comes to selling bitcoin, simply select the sell option on your
Coinbase screen. Coinbase will only allow users to pair their account with
their bank if they desire to sell – a credit or debit card will not be allowed.
Select your bank on the Coinbase application. For a smoother process, it
would be better if you use the desktop application. You select how much
of the bitcoin you’d like to sell, enter the relevant details, and confirm the
transaction.
How to Buy and Sell Ethereum

Ethereum is another cryptocurrency that has experienced exponential

growth. While Bitcoin may be leading within the sphere of digital
currency, but Ethereum is steadily behind it. Ethereum has gone from
being worth $12 to being worth hundreds of dollars. Investors have made
serious amounts of money in the past years, thanks to Ethereum. Ethereum
might not be the only “new” coin on the block but it has definitely become
one of the most promising currencies.
People tend to believe that buying cryptocurrency is not an easy task to
execute. It’s not like purchasing stock or a traditional “investment”. People
aren’t sure how to purchase it because cryptocurrency is something people
are still trying to wrap their minds around.
When it comes to purchasing Ethereum, like Bitcoin, the easiest way to
buy is through Coinbase. Once you have verified your account on the
platform – which occurs in a simple step-by-step process – you will have
the opportunity to add a number of payment methods – bank account,
credit cards, debit cards, etc. Wire transfers are also an option. For
exchanging US Dollars for coins, platforms like Gemini or Kraken are the
best ones to use – especially if you are based in the US. You will need to
verify your account by using your driver’s license or any other identity
document, in order to expand your buying limits.
Using Coinbase
After setting up your account and verifying your payment method, go to
the Buy/Sell page and set the currency to Ethereum. Your screen should
show you the present price of Ethereum and its performance within a
certain period of time. Enter the amount of ETH that you would like to
buy. Take note that what you are actually purchasing is ether – the value
token of Ethereum. Once you have selected your desired payment method,
confirm that the order is correct and opt to “Buy Ethereum”. If you are
using an IOS or Android application, the process may vary due to the
interface of the application.
Ethereum can also be purchased through exchange platforms. Trade your
bitcoins or other currencies (digital or traditional) for the desired amount
of ETH you would like to purchase.
Selling Ethereum
Selling Ethereum can also take place on Coinbase. If you are using a web
browser, simply got to the Buy/Sell page. Make sure that you have
selected the “Sell” option at the top of the page. Once you have confirmed
this, set your desired currency to Ethereum and enter the amount of ETH
(or your local currency) that you intend on selling. After doing this,
selected your desired payout method – you will be presented with various
payout methods to choose from. Take time to confirm that your order is
correct and select “Sell Ethereum”.
If you are using an iOS or Android application, tap the menu icon at the
top left of the screen in order to access the Navbar. Select the sell option
and set your currency to “Ethereum”. Enter the amount you desire to sell,
pick your payment method, and once you have reviewed the order select
“Sell Ethereum”.
Safety

The rise in value of cryptocurrency does come with a downside. As

cryptocurrency gains more traction, it attracts the attention of malicious
entities – hackers to be exact. It is important that all crypto traders
incorporate safety and precautionary measures as they buy and sell
cryptocurrency. The peer-to-peer networks may be safe but vulnerability
comes into play when users withdraw their money and store it in various
wallets and accounts. You cannot afford to be lax with your security when
it comes to cryptocurrency. Little protection is offered to crypto traders
due to the formal sector’s disdain for the digital system. You will not be
able to rely on the authorities or banks if something happens to your
cryptocurrency or any money that you received via crypto transactions.
These are a few steps you can carry out to ensure the safety of your
currencies:
1. Do not keep your savings in a web wallet

Recent times have seen several cases of hackers attempting to

infiltrate web wallets. Some people have experienced the misfortune
of logging in and finding their earnings all gone.
Web wallets may be convenient to use, but they should only be used
like a current (checking) account. Use your web wallet to store funds
that you intend on using in the near future. Do not attempt to treat a
web wallet like a savings account, there are too many risks involved.
If you keep small amounts of money in your wallet, in the event that
a breach occurs, your losses will be minimal. As mentioned above,
when it comes to cryptocurrency, it does not work the same way as a
credit card. If you lose money to fraud, there is no one you can turn
to. You will not be able to send a refund claim. You could try to
involve the authorities, but this may be a futile option.

2. Make use of separate wallets

You need to make use of more than one wallet when it comes to
storing your cryptocurrency. For example, if you use one wallet to
spend your bitcoin and save your entire bitcoin savings, you will
become an easy target for all kinds of abuse.
 Take advantage of the fact that there is no limit to the number bitcoin
addresses (and wallets) that an individual can possess. This means
that you can have an address for saving your money, an address for
spending your money, and an address for receiving payments. This
reduces the chances of incurring any major losses in the event of a
breach taking place.

3. Take your privacy seriously

Do not share your private keys with anyone. Treat your private
key the same way you would treat the pin for your credit and/or debit
cards. This is not information that you leave lying around for anyone
to see. Technology exists that allows corrupt entities to figure out
which wallets are owned by the same person – all because of their
transaction history. If you have a wallet for spending and a wallet for
receiving, regular transactions between the two will provide a rather
clear indication to hackers of which wallet contains your savings. Be
wary with your transactions and be as subtle as you can be. The best
way to blur the relationship between your wallets is to make use of a
mixing service – this will be spoken about in the next section of this
chapter.

4. Backup

Backup your passwords, private keys, and any other necessary

information in an external device – flash drive, disk, hard drive, on
paper, etc. – and store it in a safe place. This is in the event that
something happens to your computer or your mobile device. Do not
store everything in your mind. Avoid storing your private
information on cloud devices – they have are not 100% safe. It
would be advisable for you to encrypt your data before uploading it.
Resources and Tools

These are a few reliable resources and tools users can make use of in order
to have a safe, and relatively easy trading experience.

Wallets

Coinbase

Coinbase is a web-based wallet that is known for its user-friendly

interface. It is a great platform for first time traders and users who
desire a quick and efficient way to perform their transactions. The
platform also offers exchange services, meaning a user can convert
their currencies in one place without any hassles. Two-step
verification and Google Authentication were incorporated into the
application, allowing for added protection. If you wish to have an
extra layer of security, you can make use of the application’s vault.
The only downside of Coinbase is the fact that it only offers wallets
for Bitcoin and Ethereum. If you deal with other altcoins, this might
not be the platform for you.

Trezor

Trezor is known to be a hardware wallet. A hardware wallet is a kind

of bitcoin wallet that stores users’ private keys in a safe hardware
device, making it harder for hackers to infiltrate the system and
access users’ private information. Trezor is known as one of the top
wallets when it comes to crypto security. The wallet has a reputation
for providing first class security – protecting users from physical and
virtual attacks. Some users have complained of the wallet’s lack of
aesthetics but what the wallet lacks in appearance, it definitely makes
up for its security. At the end of the day, security is what matters.
One can think of Trezor as a heavy-duty vault, instead of a wallet.

Exchange Platforms
Kraken

Kraken is known as the largest exchange for Bitcoin. Created in

2011, the application soon became one of the popular exchange
platforms due to the fact that it caters to various currencies –
traditional and digital. The platform allows you to purchase and sell
bitcoins and also trade between other currencies such as Euros,
British Pounds, US Dollars, Japanese Yen, Ethereum, Monero,
Litecoin, Rippler, and many, many more. The platform also provides
an opportunity for experienced users to margin trade among other
trading features. This is the perfect platform for experienced traders.
The platform has a great reputation and very low transaction fees. Its
only drawbacks are its limited payment methods and user-unfriendly
features. If you are a beginner, this might not be the platform for
you.

Cex.io

This platform offers a large range of services for users who make use
of bitcoin, Ethereum, and other cryptocurrencies. The exchange
platform permits users to trade money with cryptocurrencies, and
vice versa, with a great amount of ease. For those who are looking to
trade bitcoins on a professional scale, the platform provides user-
friendly trading dashboards that can be personalized. Margin trading
is also offered by Cex.io. It does not end there. The platform also
offers brokerage services, allowing novice traders to use a much
simpler way to buy bitcoin at prices that are in sync with the market
rate. The website is securely built and a safe cold storage is present
for users to store their cryptocurrencies.

Mixing Services

Mixing services are mainly used by bitcoin traders to ensure that

their transactions are not able to be traced by malicious entities.
These are two of the most recommended services:

Helix by Grams
This mixing service is considered as one of the most reputable
services in existence. The service provider can be accessed via Tor
(an anonymous browser) or it can be visited via a regular browser.
Users are not required to register in order to make use of the service,
and there is no entry fee.
Transactions can be as large as 21 bitcoin – which is a significant
amount. Users can send their “tainted” coins to the address provided
by the platform and they will receive their “new” or “fresh” coins
once the initial transaction receives both network confirmations.
There is a 2.5% fee affiliated with the mixing process, one should
keep this in mind.

Bitmixer

Bitmixer is one of the more popular mixing services. It can be

accessed without having to use a Tor browser. The mixing service
maintains a reliable supply of coins in order to make sure that users
do not experience any delays. A minimal fee of 0.5% - in addition to
transaction costs – should be noted by interested users. This is much
cheaper than more robust solutions, e.g. Helix by Grams.
Chapter 5. Mining – Money from Air?
Bitcoin Mining Business

What is Bitcoin Mining?

Earlier in this book, I discussed the technology behind cryptocurrency.

Every transaction that occurs is recorded in a ledger that is available to
every user on the network. The ledger, also known as the blockchain,
operates at a rapid rate, with transactions appearing on it within minutes.
The release of new bitcoin is also recorded on the blockchain. These
transactions are processed through a process that is known as “mining”.
The mining process involves the compiling of recent transactions into
groups known as blocks. Blocks are added to the blockchain through a
difficult puzzle that needs to be solved. The puzzles are solved by
participants who are known as miners. The user who solves the puzzle first
will receive a rewarded after they have added the block to the ledger. The
rewards include the transaction fees that are affiliated with transactions
complied in the blocks, and new bitcoin, too. The mining process is not
exclusive to a certain group of people. If you have access to the internet
and hardware that is suitable enough for mining, you can become a miner
too.

The difficulty level of the puzzles that are involved in mining is often
questioned. It is all dependent on how much effort is being channeled into
mining across the entire network. The difficulty of mining is adjustable –
the protocol adjusts it every two weeks. The reason why the difficulty
adjusts itself is to ensure that the rate at which blocks are discovered is
consistent. If more power is deployed into mining efforts, the difficulty of
mining will adjust and become much harder. If the power decreases or is
taken off the network, the difficulty will adjust and mining will become
much easier.

In the initial days of Bitcoin, mining was operated from regular desktop
computers. As Bitcoin’s popularity increased, graphics processing units
were found to be more effective at mining. The use of GPUs became more
common and nowadays, the mining process is hard to accomplish without
the use of a GPU or a CPU with a very reliable graphics card. ASIC
(Application-Specific Integrated Circuit) is hardware that has been
developed for mining bitcoin. The first versions of ASIC were released in
2013. Since then, many improvements have been made to the hardware.
Mining has become an extremely competitive activity, with miners going
to great lengths to access the best hardware they can find to ensure that
they can mine as fast as possible.

If you are interested in mining bitcoin, these are some of the terms you
need to become familiar with:
Miner

The computer used to mine the Bitcoin.

Hash Rate

A Hash is known as the mathematical puzzle – or problem – that the

miner is required to solve. The rate at which these problems are
resolved is known as the Hash Rate. When the number of miners on
the Bitcoin network increases, the network’s Hash rate will increase
too.

One can also use the Hash Rate to quantify their miner’s
performance. Bitcoin miners come with different Hash rates. The
measurements for Miners are known as:
- MH/s (Mega hash per second)
- GH/s (Giga hash per second)
- TH/s (Terra hash per second)
- and PH/s (Peta hash per second).

Bitcoins per Block

Every time a puzzle is solved, a continual amount of Bitcoin is

generated. The number of Bitcoin created per block started at 50, but
the amount halves every 210 000 blocks – which is an estimated four
years. The current number of Bitcoins that miners are awarded after
processing a block is 12.5. In 2016, the last block halving occurred.
The next one is predicted to occur in 2020.
Bitcoin Difficulty

The Bitcoin network was crafted to generate a continual amount of

Bitcoin at after a set period of time – ten minutes. In order for the
Hash Rate to increase, the difficulty of solving the puzzles must
increase. Simply put, the more miners that join the network, the more
difficult it becomes to mine Bitcoin.

Power Consumption

Every miner guzzles a different amount of energy. When calculating

profitability, you need to ensure that you are aware of the exact
power consumption of your miner. In some instances, the power
consumption far exceeds profitability, nullifying the benefits of
mining. If you are unsure of the power consumption your miner
possesses, simply look it up on the Internet. There are many lists that
can assist you with finding the information you need. The unit of
measurement is Watts.
Rate of Electricity/Electricity Rate

It takes a lot of electricity to operate a miner. It is imperative that you

calculate your electricity rate when you are trying to determine the
profitability of your mining efforts. If your electricity rate far
exceeds the profitability, you may need to source alternative
solutions. To find your electricity rate, you can simply refer to your
monthly utility bill.

Pool Fees

You have to join a mining pool in order to be able to mine. A mining

pool can be defined as a group of miners who have come together to
mine effectively. A fee is required in order for the mining pool to
maintain operations and every member is required to pay their part.
Once the mining pool manages to mine Bitcoin, the profit is divided
among the members of the pool. The division of profit is done
according to how much work every miner has done. The miner’s
hash rate is a clear indication of how much work that they have done.
Rate of Conversion/Conversion Rate

It is almost impossible to attempt to predict future BTC/USD rates.

Since no one knows what the future may hold for Bitcoin, it is very
hard to deduce how profitable mining will be and how long its
profitability may last for. This will play a major role in your reasons
for choosing to mine. If your reasons for mining is to accumulate as
many Bitcoins as you can, this new should not worry you. But if you
intend on converting your Bitcoins into a traditional currency
(Dollars, Euro, etc.) you will need to be wary of the fact that Bitcoin
mining is a very risky area to venture into. You need to ensure that
you are fully convinced of what you have set out to do. Bitcoin
mining is costly and time consuming, you need to do as much
research as you can to ensure that this venture will be profitable for
you. You also need to make sure that you keep track of all news
regarding cryptocurrency to ensure that you will be able to cash in on
your mined Bitcoins at a good time.

Bitcoin can also be mined via a new concept known as “cloud

mining”. With cloud mining, you do not have to purchase a physical
mining system. You can simply rent the required computing
company from a company that provides the services. This may sound
like a good idea, at first hearing, since you won’t have to spend
money on tons of equipment. But you do need to consider the fact
that none of the available cloud mining sites have long-term
profitability.
You also need to be wary of who you listen to. Some of these cloud
mining services are scams in disguise.

When it comes to Bitcoin mining, research is important. It is not

something that you just jump into. There are many things involved
and you need to take them into consideration. If you calculate that
the cost of mining outweighs profitability, do not venture into bitcoin
mining. It will save you a great deal of stress.
What is Ethereum Mining?

Miners play a vital role in ensuring that Ethereum functions properly.

Their role, however, isn’t as obvious as some may think. Most new users
believe that the only purpose of mining is to simply generate ethers. Ether
is generated through the mining process. One mined block is said to
comprise of five units of ether per mined block. Like the Bitcoin
blockchain, Ethereum makes use of its own blockchain ledger to keep a
precise record of every transaction that takes place on the platform. The
entire network is responsible for verifying every ether transaction and
ensuring that they are added to the ledger. Mining is what keeps the
decentralized method of record-keeping functioning.
Miners come to an agreement regarding the ether transaction history. They
also need to make sure that any form of fraud is prevented from taking
place – the most common form of fraud being the double spending of
ethers.
The Ethereum mining process is almost identical to the Bitcoin mining
process. For every block of transactions, miners make use of high-powered
computers to repeatedly and rapidly figure out the solutions to the
computational puzzles. If a miner manages to solve the puzzle and process
the transactions, they will be rewarded with ether. The processed block
will be shown across the Ethereum network for every user to review,
validate, and add to their copy of the ledger. Once a block has been added
to the ledger, other miners have to shift their focus from that block to
processing the next one.
There are no shortcuts when it comes to mining. It is very hard for miners
to try and cheat the process. Puzzle-solving is also known as “proof-of-
work” – this is because a miner’s solved puzzle is proof of the work they
have managed to accomplish.
Miners locate blocks every twelve to fifteen seconds. Like bitcoin,
Ethereum’s algorithm adjusts the difficulty of the puzzle problems. The
more miners that work on the problems, the more difficult the problems
become.
The profitability of mining ether is dependent on fortune and the amount
of (computing) power that is dedicated to the mining process. “Ethash” is
the term given to the proof-of-work algorithm that is used on the Ethereum
platform. While access to mining Ether is open to anyone who has internet
access and a CPU, the process is not that simple. In order to mine on major
blockchains, a large amount of computing power is required. This means
that users need to ensure that they have powerful hardware in order to be
able to mine ether. Miners who make use of low-powered systems are
highly unlikely to gain any profits.
GPUs are the best option when it comes to choosing mining hardware.
They have a higher hash rate than most CPUs, which means that puzzles
will be able to be solved at a faster speed. GPUs have become the only
option for ether miners who are determined to be successful on the
platform.
In order to find the right GPU for you, you will need to conduct a lot of
research. The factors that you need to take into consideration are the
device’s hash rate performance, the amount of power they consume, and
the initial cost of the card. Make use of a mining profitability calculator to
determine whether the amount of ether that you will earn will be enough to
make you a profit.
Once you have selected the mining hardware of your choice, you need to
install the Ethereum mining software. A client needs to be installed in
order to be connected to the network. Geth is known to run an Ethereum
node that is written in the scripting language “Go” – programmers who are
familiar with the command line can opt for installing this client. There are
a number of other clients that miners can resort to installing.
Once you have installed your software, your node (computer) is able to
communicate with other nodes, thus connecting it to the Ethereum
network. Mining ether is not the only thing that the platform gives you an
opportunity to do. This software also gives you the interface to deploy
smart contracts and send transactions using the given command line.
If you are not ready to mine publicly, that is okay. You can resort to
mining “test” ether on your personal private network. This is a good way
to experiment with smart contracts or other decentralized applications –
these are activities that require the use of ether.
You don’t need to have advanced software in order to mine on a test
network. Your home PC, with geth or another client installed, will be just
fine. Mining fake ether, however, is not a lucrative activity – keep this in
mind.
After you’ve tested your mining skills and you feel confident enough to
mine real ether, you can proceed with installing mining software – if you
have not done so before.
Now that you have already downloaded a client and your computer has
become another node in the network, you can download the mining
software – Ethminer. The software is available for free download on the
internet, simply search for it and include your hardware model in the
search option so that the results will give you the appropriate version for
your hardware.
Once you have installed the software, your node will play a part in keeping
the Ethereum network up and running.
It is imperative that you join a mining pool. As a miner, it is not likely for
you to successfully mine ether on your own.
Miners tend to come together in order to combine their computational
power, improving the chances of solving the network’s puzzles and
earning ether. The ether is split according to how much power every miner
contributed to the pool.
There are many things that need to be taken into consideration when it
comes to joining a mining pool. The lifespan of a mining pool might not
be long-term and the computational power that every pool contains is
always changing. You need to be wary of the pools you join in order to
avoid wasting time and/or missing out on earning ether.
Every mining pool has a different payout structure. Before you join a
mining pool, try and get as much information on the prospective pool.
Research as much as you can and take all the factors into consideration.
Every mining pool has a registration process on the network so that miners
can connect and commence with mining.
You need to realize that the mining sphere is always changing. The tools
that you develop today might become irrelevant in a couple of months or
years. Some mining pools will fall away as a result of this, and there will
also be mining pools that will emerge. The best thing that you can do, in
order to stay afloat, is observe industry shifts. Put in as much effort as
possible to avoid being caught off guard.
Lastly, keep in mind that the profitability of mining Ether could change
any day. Cryptocurrency is an unpredictable field and it would be wise for
you to keep that in mind. Before you dive into mining ether, take the time
required to ensure that it is worth your time. Mining is not for everyone –
especially if all you are focused on is making profit. What works today
could fail tomorrow. There are many risks affiliated with mining and
managing cryptocurrency, and this includes Ether. Makes use of the
internet and a mining calculator to deduce the effect mining will have on
your cost of living. If the expenses outweigh the profits, put your mining
ambitions aside until you can find a financially feasible option.
Chapter 6. Detail Bitcoin Mining Guide
The mining Ecosystem

Every bitcoin transaction that occurs is recorded in a ledger that is

available to every user on the network. The ledger, also known as the
blockchain, operates at a rapid rate, with transactions appearing on it
within minutes. The release of new bitcoin is also recorded on the
blockchain. These transactions are processed through a process that is
known as “mining”. The mining process involves the processing,
producing, and confirming of recent transactions into groups known as
blocks. Blocks are added to the blockchain through a difficult puzzle that
needs to be solved. The puzzles are solved by participants who are known
as miners. The user who solves the puzzle first will receive a rewarded
after they have added the block to the ledger. The rewards include the
transaction fees that are affiliated with transactions complied in the blocks,
and new bitcoin, too. The mining process is not exclusive to a certain
group of people. If you have access to the internet and hardware that is
suitable enough for mining, you can become a miner too.
In the context of Bitcoin mining, it is important that interested miners do
as much research as they can. Mining is not something that you just jump
into. There are many things involved and you need to take them into
consideration. If you calculate that the cost of mining outweighs
profitability, do not venture into bitcoin mining. It will save you a great
deal of stress. Profitability is key when it comes to Bitcoin mining.
Profitability is what makes the entire process worthwhile. If you are not
generating a substantial amount of profit from your attempts to mine, then
you are honestly wasting your time.
Bitcoin, as reputable as it may be, is also very unpredictable. One cannot
predict what the BTC/USD rates are going to look like in the future. It is
impossible. This volatility is what makes cryptocurrency such a risk. Since
no one knows what the future may hold for Bitcoin, it is very hard to
deduce how profitable mining will be and how long its profitability may
last for. If you want to go into mining, you need to be aware of the risks.
Considering risks plays a major role in your reasons for choosing to mine.
If your reasons for mining is to accumulate as many Bitcoins as you can,
this news should not rouse any concern within you. But if you intend on
converting your Bitcoins into a traditional currency (Dollars, Euro, etc.)
you will need to be wary of the fact that Bitcoin mining is a very risky area
to venture into. Mining for profit is a tedious venture that requires
endurance. There is a high volume of miners who are present on the
Bitcoin network, which means that the mining process will be slow. You
need to ensure that you are fully convinced of what you have set out to do.
Bitcoin mining is costly and time consuming, you need to do as much
research as you can to ensure that this venture will be profitable for you.
You also need to make sure that you keep track of all news regarding
cryptocurrency to ensure that you will be able to cash in on your mined
Bitcoins at a good time.
Before you jump into mining, there are a few things that you need to
understand completely. The rest of these chapters will guide you through
the technical aspect of mining Bitcoin, Ethereum, and the different tools
and resources that will help you along the way.
Proof of Work Mining
Proof of Work can be defined as a sort of proof required for a miner to
prove that they have performed an action that warrants payment. This is
usually done through calculating mathematical operations,
computationally, that will lead to the production of cryptocurrency. A
miner is also responsible for preventing attacks such as spam, fraud, or
service denial from occurring in the network.
With Bitcoin, for example, Proof of work is found in the calculations that
are carried out by the computers (nodes) within the digital currency’s
network. The nodes are the computers that play a role in keeping the
network’s consensus up and running. The nodes are also known as the
miners.
Miners are given newly produced coins, and the relevant transaction fees,
by the network as a reward for the services they render as miners.
The extent of a miner’s influence, and the size of their rewards, is largely
dependent on the number of transactions they carry out. These transactions
are measured in hashes. The unit of measurement for these transactions is
hashes per second.
The presence of dedicated miners, and a proof of work system, prevents
and false information from being fed into the network. The network’s
consensus cannot be shifted, thus making the cryptocurrency network
much safer than traditional centralized banking systems.
Algorithms
There are a vast number of algorithms that can be used for Proof of Work.
Most people are familiar with SHA-256, the algorithm associated with
Bitcoin and a number of altcoins similar to it. ASIC computers that have
been specially designed, were built to mine more effectively than regular
CPU units. Trying to mine cryptocurrencies using the SHA-256, on a
regular computer will not be wise. There are newer algorithms that have
been developed to accommodate personal computers – algorithms such as
Scrypt, CryptoNote, and X11.
A Proof of Work algorithm has to be computationally complex – in order
for the network to run efficiently – but one should not have to struggle to
determine whether a calculation has been performed or not.
Blocks, Rewards, and Mining Difficulty
When it comes to cryptocurrencies like Bitcoin, the network’s transaction
history is split up into blocks that span for a certain amount of time. This
amount of time remains constant for every block – for Bitcoin, it is ten
minutes. Every time a miner successfully manages to perform a proof of
work calculation, also known as a hash, the chances of them mining the
next block and reaping the rewards is minimal. This can also be defined as
the mining difficulty. The difficulty of mining changes after every
successful computation. It is automatically adjusted by the network so that
the average time for mining and processing a block remains at ten minutes.
Predicting who will mine any block is not an easy task due to the ease of
performing a hash, and the low probability of successfully mining a block.
The target value is what is changed when the mining difficulty is adjusted.
Lowering the target value results in the difficulty increasing; raising the
value will decrease the difficulty.
Alternatives to Proof of Work
Proof of work is simply just a way to attach cost/value to the participation
miners partake in to maintain the agreement forming. There is no specific
useful work that is performed by the calculating of proof of work. The
majority of these calculations are needed in order to keep a network, like
Bitcoin, secure all the time. These calculations burn a large load of
electricity. This is another aspect that newer cryptocurrency networks are
trying to make improvements on. They are aware of the wasteful nature of
PoW and they are seeking to eliminate that burned. Some cryptocurrencies
have tried to develop useful work that can be utilized for this function,
whereas other currencies have completely done away with the Proof of
work algorithm, seeking to use alternatives like one known as “Proof of
Stake”.
Proof of Stake
This is a method used in the cryptocurrency system to ensure that the
distributed consensus is achieved while the network remains secure from
all malicious entities. It was created as an alternative to the often
burdensome Proof of Work (PoW) system – often affiliated with Bitcoin –
which requires a great number of calculation to be performed in order for
results to be produced, thus making the method unprofitable due to its
extremely costly and highly inefficient nature.
Peercoin was the first cryptocurrency to successfully implement the Proof
of Stake system.
Where Proof of Work system requires miners to exhibit their proof of
computationally calculating the Proof of Work problems, Proof of Stake
requires that the person possesses some of the mined cryptocurrency in
their wallet. The more coins said to be in a wallet, the more influence the
wallet holder possesses. The wallet holder can cast votes as to what they
think is the correct state of the network. The standard principle behind this
is that in order for one to be able to take control of the network, they must
have enough coins to do so; in order to get the consensus in your favor,
you would need to own half of the network yourself which would actually
be an attack on yourself – a highly illogical and unprofitable thing to do.
The owner is rewarded with coins for keeping a wallet that contains coins
that are open for “staking”. The coins are generated via the inflated coin
supply and may or may not be from fees of transactions that have already
gone through. This efficient equivalent of Bitcoin’s mining method of
generating new coins is known as “mining” or forging. Newer
cryptocurrencies are finding ways to incorporate this lighter system into
their network, in order to avoid the heavy costs that come with using a
Proof of work system instead. One should note that while the Proof of
Stake system is easier to use, it is a more vulnerable system than the Proof
of Work cryptocurrencies.
But for the rest of the following chapters we will be focusing on the
different kinds of mining and the hardware required to mine various
cryptocurrencies efficiently.
Hardware
CPU Mining

The CPU is responsible for performing the instructions produced by the

software that is loaded on the computer. The CPU can be defined as the
focal executive of the entire device. It is the frontrunner (also known as the
leader or the master) that tells all parts of the computer what they should
be doing – as long as it is in line with the program code of the loaded
software, and what the user wants as well.
Nowadays, most computers possess CPUs that contain multiple cores.
Some computers are known to have more than one CPU that is located
within the hardware. A CPU is a component that is removable (it can be
taken out and placed back in), in usual circumstances, that is plugged into
the computer’s motherboard. The motherboard is also known as the main
circuit board of the computer. The CPU is found under a heat sink that is
fairly large and metallic, in the computer’s hardware, which usually has a
fan.
CPU Mining is defined as the use of a normal computer’s CPU to perform
the proof of work mining for a cryptocurrency, in this context the
cryptocurrency is Bitcoin.
Cryptocurrency mining requires a processor that is able to solve
calculations.
These calculations are known as hashes. A regular Central Processing Unit
(CPU) can be used to perform these calculations.
You can find a CPU in any normal computer. Slightly more specialized
processors such as the Graphics Processing Unit (GPU), or the highly
specialized ASIC chip have been specifically designed for efficient
performance.
The rewards and benefits that come with a particular method mainly
depends on the algorithm used by the cryptocurrency at hand – Bitcoin,
Litecoin, etc. There is no set reward or merit system when it comes to
mining cryptocurrency. The principle for one network might vary from the
principles behind another network.
CPU mining is usually seen as the least effect form of mining due to its
lack of specialized hardware, the amount of computational power required
from it, the consequent electricity usage, etc. The CPU miner cannot work
as effectively as the ASIC miner or the GPU miner and this in itself can be
problematic because not everyone can afford the more specialized
hardware. The fact of the matter is, the more specialized and expensive the
hardware, the higher the chances of profitable mining occurring. These
unites are able to produce solutions to the proof of work calculations at
much faster rates than the CPU miner. Some consider CPU mining as a
waste of time when it comes to Bitcoin. The high standards required for
profitable mining can be considered as an advantage for some because it
means there are fewer people getting involved in the mining. The fewer
people involved, the more profitable mining becomes for the miners who
are already involved.
Many people would prefer that the ideal mining situation would be that
anyone would be able to join the mining process. Many users hope that a
time will come where everyone will have an equal chance to mine and
reap rewards– regardless of how sophisticated their computers. This makes
the notion of decentralization surrounding cryptocurrency far more
realistic and it also creates a far more secure network for users. Bitcoin is
defined as the currency for the people, many believe that this should also
apply to the mining process. The fact that someone is using a CPU in order
to mine, should not feel as if they are disadvantage. There are other
cryptocurrencies that have taken note of this problem and have moved
forward to ensure that all users have an equal chance at gaining the
rewards of mining.
Some cryptocurrencies have deliberately designed their networks to be
resistant to ASIC chips, thus eradicating the advantage that users of
sophisticated hardware will have. This ultimately levels out the playing
field and gives every user an equal chance to reap the fruits of their mining
labor. Other coins have gone as far as seeking to minimize or remove the
advantage presented to users of highly complex GPU units – these chips
are not fitted as standard to most computers. These kind of GPU-resistant
coins are known as CPU mined coins and offer more opportunities to
miners who make use of regular computers.
At some point, it was possible to make use of a regular computer to mine
thousands of coins on the Bitcoin network. Early versions of Bitcoin gave
users a chance to use their normal CPUs for the mining process. But today,
due to the sophistication of most specialized devices, it became financially
unwise for users to make use of CPUs for mining. Regular computers were
losing the opportunity mine as many bitcoins as they were able to before.
One soon became unable to produce as many bitcoins through CPU
mining that would be able to make up for the cost of powering the CPU for
the mining process. This is one of the reasons why they decided to remove
the CPU mining option from the network’s interface. That’s the reality of
the situation, though. When it comes to mining bitcoin, CPU mining will
not cut it. It doesn’t matter how good your personal computer may be, if it
isn’t a GPU or an ASIC, you won’t have much of a winning chance.
There is hope that this might change in the near future. The whole idea of
Bitcoin was to make it a decentralized platform, for users across the world
to make purchases, trade, and transact without having to rely on
centralized third-parties. Allowing users with higher standard hardware to
dominate the mining process would go against everything that Bitcoin was
intended to stand for. Personal profit/gain is not what cryptocurrency is
meant to be about – especially when it comes to the mining process. More
miners would mean added security for the Bitcoin network because it
would lower the chances of the consensus ever being tampered with.
Bitcoin and other cryptocurrencies depend on the peer-to-peer system. In
order for the network to be successful, there needs to be collaborative
effort that goes beyond mining pools.
While there might not be any solid solutions now, CPU users who cannot
afford to upgrade their hardware should not lose hope or their passion for
mining. There are alternative currencies that can be mined with regular
computers instead. Some of these currencies are CryptoNote coins and
X11 coins.
It would be wise for Bitcoin developers to learn from the cryptocurrencies
that have made changes for regular computer users, and incorporate this
ease into their system. The network will not lose out if more miners join
the network. As mentioned above, such a move might actually improve the
network’s security as opposed to depleting the network’s services.
Mining should not be about how hi-tech one’s hardware is; it should be
about the collective effort miners put in for the sake of keeping the
network up and running.
GPU Mining

The GPU is also known as the Graphics processing unit. It is the part of
the computer that is responsible for processing high quality videos,
gaming, etc. – all labor-intensive tasks. The typical function of a GPU is to
assist with processing complex graphics, labor intensive visuals, and
complicated visual effects, in order to prevent the CPU from having to do
so.
The majority of mainstream computers have graphics processors that are
much slower, less power consuming, and much cheaper than advanced
graphics processors. These economical processors are known as Integrated
Graphics Processors – they are GPUs to but they are incorporated directly
into the hardware’s chipset and soldered onto the motherboard. Users often
require powerful GPUs in order to efficiently complete tasks that are
graphically intensive – gaming, video editing, etc.
A GPU is similar to a CPU, but there are significant differences, internally,
that make them the preferable option for special tasks. There are major
differences between the two units that make GPUs the more favored
device for mining Bitcoin.
A visual example
This example might help you visualize the significant differences better. A
CPU can be seen as a small group of extremely intelligent people who are
able to complete any given task in a very short space of time. A GPU can
be viewed as a big group of relatively unintelligent people who do not
possess any individual talent when it comes to being quick or intelligent,
but have been trained to complete repetitive tasks. Collectively, this bigger
group is able to be far more productive due to the larger group of people
who are focusing on the task.
It is not as if the CPU lacks efficiency, no. CPUs and GPUs are created
from millions – even billions – of tiny transistors that have been squashed
onto a small piece of silicon. Size can cost a lot of money when it comes to
silicon chips – hence the cramming. The structures that make CPUs able to
do what they do efficiently tend to consume a great amount of space on the
silicon chips. When those structures are left out, it leaves space for the
“unintelligent” structures (ALUs) – which are much smaller.
The ALUs (Arithmetic/Logic Units) that make up the GPU are divided
into groups; every group shares the management of the tasks. This means
that “members” of the group will not be able to carry out separate tasks –
they were designed to work together. The members can work together on
similar variations of an individual task, whilst at an ideal stage of syncing
with one another, or they do nothing at all.
In the context of mining Bitcoin, trying to solve different hashes, one after
the other, is seen as a repetitive task that the GPU can successfully
complete. Every attempt varies by changing a digit in the data that is being
hashed. This digit is known as a nonce.
A popular card, often used for video editing, that is preferred by Bitcoin
miners is the ATI Radeon 5970. The card offers the best performance in
comparison to all other video cards.
This card possesses 3200 stream processors. These processors can be seen
as 3200 extremely unintelligent units that are in charge of the execution.
They have been taught how to do the same repetitive tasks together as long
as they do not have any other decisions that will interrupt with the flow of
their work. Programming is the “teaching” in this context. These units are
kept in blocks.
The 5970 makes use of architecture that is known as VLIW-5, which
partitions the 3200 processors into 640 cores. Every core is able to process
five instructions per cycle – clock cycle. If one were using an NVidia card,
these cores would be referred to as “Cuda Cores”, but they do not possess
the VLIW technology that will allow them to perform as much work
within a cycle. This is why users are often encouraged not to depend on
observing the core count when trying to determine the best graphics card
to use. Relying on this method alone is highly unreliable and may lead to
irreversible mistakes.
Since ALUs are responsible for doing the total work during the mining of
Bitcoin, the output of the solved calculations is directly proportional to the
number of ALUs that are available for processing. In order to complete a
single hash, using the SHA-256 algorithm, when mining Bitcoin, an
estimated 1000 mathematical steps need to be carried out completely by
the ALUs.
This, in short, is why GPUs are able to mine Bitcoins at a much quicker
pace than CPUs. Bitcoin mining does not require complex decision
making – it is simply repetitively calculating mathematical problems. The
only decision making that is involves would be “Is this a valid block or
not?” It doesn’t become more complicated than that.
Briefly speaking
A CPU is designed to make decisions, under the directions of the loaded
software. If you create a document and save it, it is your CPUs
responsibility to convert the document into the correct file type. Your unit
also needs to ensure that the hard disk writes the document as a file. CPUs
are designed to do sophisticated work.
GPUs, on the other hand, are not. GPUs can be viewed as laborers. Yes,
they are able to do math, and fulfill certain decisions, but GPUs have been
designed to do labor-intensive work that does not require as much complex
decision making.
Video processing, for example, consists of a lot of repetitive work. GPUs
cannot afford to switch between tasks the way a CPU would.
GPUs also possess more ALUs than CPUs, thus making them able to
complete great amounts of mathematical work in comparison to CPUs.
AMD GPUs vs NVidia GPUs
As mentioned earlier, not every GPU works the same way. There are some
GPUs that are far more powerful than others. Miners who are interested in
reaping maximum results need to pay special attention to the GPUs they
settle on using for their mining.
AMD GPUs tend to be more preferred than NVidia GPUs due to the fact
that they are more powerful. Here’s the breakdown:
Structure
AMD creates its GPUS with many basic ALUs (using the VLIW design)
that run at a relatively low frequency (around 1120 – 3200 ALUs that run
anywhere from 625 to 900 MHz).
NVidia, on the other hand, possesses a microarchitecture that contains
fewer ALUs that are more complex than AMD’s. These try to compensate
with their higher (shader) clock that typically contains 448 to 1020 ALUs
that run at 1150 – 1544 MHz. The difference in architecture (VLIW vs.
non-VLIW) NVidia takes up more space per ALU, which restricts them
from putting a large number of ALUs on the chip. They hit their maximum
frequency long before AMD does saw.
AMD’s performance is two to three times greater than NVidia’s
performance, further reinforcing why it is the more superior processing
unit. Serious Bitcoin miners would prefer to
A second difference lies in the way the processors function on the Bitcoin
network’s SHA-256 algorithm. The algorithm requires a particular
operation that can be implemented as a single instruction on AMD GPUs.
NVidia GPUs need to form three separate instructions in order for them to
do the same operation. This, on its own, gives AMD two times the
performance advantage over NVidia.
NVidia has released newer GPU Cards that have been beefed up to close
the performance gap between them and their competitor. The new card
“GeForce GTX 690” is said to work far more efficiently than its
predecessors, but there is still a bit of work that needs to be done before
the card can surpass AMD’s own.
FPGA Mining

Field-Programmable Gate Arrays or FPGA mining is another

microprocessor that can be used for the sake of mining. In the context of
bitcoin mining, these microprocessors are configured to carry out the
SHA-256 function. At one point, the FGPA mining was known to be the
fastest one but this was short-lived due to the emergence of faster
machines. Miners are not advised to follow this option, but it does come
with information that is worth knowing.
Pros and Cons
Mining with an FPGA comes with it’s a select number of advantages and
disadvantages – both contributing to the microprocessor’s rise and fall in
the mining world. These pros and cons will help Bitcoin miners determine
whether using FPGAs will be advisable for their mining or not.
Mining started with CPUs. When people discovered the more advanced
GPUs they chose to go in that direction. After some time, FPGAs were
discovered and used for a certain amount of time. FPGA mining can be
seen as the third phase in the evolution of mining hardware. They are
much faster, and far more efficient, than GPUs.
These were the advantages that come with FPGAs:
 - They are able to mine at a much faster pace than GPUs and
CPUs
- They are far more efficient when it comes to the amount of
electricity that is required for hashing
But FPGAs are not easy to source and there are difficulties with
programming them. One cannot walk into a normal store and purchase
them. Their downside come with:
- Electricity costs. Even though they are more efficient than GPUs
and CPUs, FPGAs still take up a great amount of electricity.
- Hardware costs. As mentioned above, FPGAs are not easy to
find and they are not cheap either. This would become inconvenient
for a miner should they need spare parts in the event of a
malfunction.
- There are better miners.
The best things you can do when you are using FPGAs to mine
Mining is a fun exercise – many tech fans enjoy it. It can also be very
profitable if one takes several factors into account.
You need to ensure that your FPGAs have a cooling system that is reliable
and dependable. You will need to purchase additional fans, more than the
ones that have been provided by the manufacturer, in order to ensure that
your FPGAs do not overheat or malfunction. You also need to make sure
that you clear up all the dust on a frequent basis. Dust build-up will have a
terrible effect on the cooling of the systems. Overheated FPGAs will not
be able to mine efficiently and irreversible damage might occur if care is
not taken.
You need to research all the ways in which you can optimize your
particular mining device. Every device is different and if you want to gain
maximum profitability, you will need to roll out those tweaks.
Electricity costs will contribute largely to your total costs – keep that in
mind. When setting up your mining operation, you need to take these costs
into consideration. Look for a location that will give you the least burden
when it comes to electricity costs. Cooling costs will also be a part of your
electricity and overall costs. Mining in a cooler climate will alleviate some
of this pressure on your finances.
The second biggest cost after the hardware, is electricity and the type of
hardware you purchase will determine the amount of electricity that is
used to power your mining. Try not to purchase all of your hardware all at
once – especially if you are running on a tight budget. Hardware costs
decrease with time. This will give you a little breathing room.
To summarize, these are the things that you need to be wary of when
considering to mine with FPGAS:
- Ensure that you have an adequate cooling system
- Optimize your hardware to the best of your ability
- Take electricity costs into consideration
- Take hardware costs into consideration too
Mining Speeds
The Bitcoin mining network has increased greatly since the release of the
first version. Mining with FPGAs does not guarantee profits anymore. This
is because of the heavy competition that exists within the mining process.
While you are trying to solve a block, there are dozens of miners who are
trying to solve that block too. If those miners are running a greater
percentage of mining power, compared to yours, you will be
disadvantaged and the chances of you solving any blocks will become
minimal.
The Profitability of FPGA Mining
When you are calculating the profitability of mining with an FPGA, you
need to take all costs into consideration. Some of these costs were
mentioned in previous paragraphs.
One of the ways in which expected mining rewards can be calculated is
through calculating the percentage of total hashing power a miner will
possess. This can be done by executing a certain command that will give
you the mining speed on the network. Use that figure to calculate the
proportion of hashing power that you have.
A bitcoin block is solved every ten minutes or so. This means an estimated
six blocks per hour are solved – 144 within a 24-hour period. If the current
reward for a block is 25 BTC, simply multiply 144 by 25 to get the total
amount of BTC that will be mined in a day.
The proportion of mining speed that you calculated earlier, should be used
to calculate the amount of newly mined bitcoins that you should be able to
earn. Calculate the expected return you should receive after a month,
measure it against your costs, and determine whether this option will be
profitable for you or not.
If you stand to make a sliver of profit, do not use the FPGA option. You
need to be able to make a considerable amount of profit in order to make
your mining options worthwhile. If you incur losses, on a regular basis, it
will be very challenging for you to try and make up for it. Quit while you
are ahead and seek alternative options for mining.
As mentioned earlier, FPGA mining was only the “in-thing” for a certain
period of time. Systems that proved to be cheaper, yet more sophisticated,
than the FPGA mining system became more favorable to Bitcoin miners.
The stress involved with sourcing FPGA hardware, finding the right
climate, and accommodating all of the costs, did not appear to be worth all
of the stress. This is the truth. Don’t just go for FPGA mining software
because you have heard and read that it is faster. Speed is not the only
thing one needs in order to be a successful miner.
ASIC mining

This is also known as Application-specific integrated circuit (ASIC)

mining. ASIC miners have dominated the mining game completely. ASIC
machines are known to mine at amazing paces. The one-up they have is
the fact that they consume far less power than FPGA or GPU miners.
ASIC chips are specifically for bitcoin mining, created to solve Bitcoin
blocks at an efficient speed – with a lesser amount of electricity consumed.
ASIC mining systems are capable of solving Bitcoin blocks at much more
rapid speeds than older mining hardware. The creators of ASIC hardware
took note of the challenges miners were experiencing with the other
mining hardware systems. They implemented improvements into their
systems and produced an alternative that turned the heads of many Bitcoin
miners.
As the popularity of Bitcoin mining rises with every day that passes, the
Bitcoin price rises and so does the price of ASIC hardware – this can be
defined as the consequences of increasing demand. The more demand a
product experiences, the higher its value goes. The same has occurred
within this context.
Since ASIC has become the preferred system, it has become almost
impossible to mine Bitcoin profitably without having to use an ASIC
system. Your GPU or FPGA will not stand a chance against an efficiently
functioning ASIC hardware system. As more Bitcoin mining hardware is
released to secure the Bitcoin network, the difficulty of mining increases.
As the difficulty increases, it becomes harder to use certain “older”
hardware systems. If you are still entertaining thoughts of using your CPU
to mine bitcoin, it would be advisable to stop. You will end up using an
unnecessary amount of money to compete with miners who aren’t under as
much pressure as you are.
ASIC technology continues to be developed, making it much faster, far
more efficient, and greatly productive. Bitcoin ASIC technology is
redefining the world of mining for Bitcoin at an increasing rate, the slow
users will be left behind.
It should be noted that Bitcoin ASIC chips can only be used for Bitcoin
mining, nothing else. They cannot be used to mine other cryptocurrencies
because these chips were not programmed to accommodate such. There
are, however, a few exceptions. Some chips are able to mine both Bitcoin
and Litecoin. This is because the chip package comes with to ASICs – one
crafted for Bitcoin and one crafted for Litecoin. In other circumstances,
these chips cannot be used for alternative coins. It is not advisable for
miners to attempt to use Bitcoin chips to mine other currencies, otherwise
damage or other negative consequences could occur as a result.
ASIC development and manufacturing are very costly processes. A
miner’s chip of choice will be largely dependent on the costs that the
miner is able to accommodate, as well as its efficiency. If you do not have
a high budget, the last thing you want to do is wind up with an expensive
system that you will not be able to maintain on your own.
The development of Bitcoin ASIC technology sparked a lot of intrigue.
One could almost say that the technology “popped out of nowhere”. The
technology came as a reaction to the emerging Bitcoin network. The
creation and developing of these customized ASICs was done without the
support of any major company. The users organized and financed the
development of the hardware and software on their own. They endured the
risks and any issues that came up alone. It was a completely brave task that
worked out in their favor. In modern times, such a feat is almost unheard
of.
An online course at Princeton University noted how the Bitcoin ASIC
technology happened to have the fastest turnaround time for development,
despite how hard they were to design. It goes to show that a great amount
of effort and dedication was put into the creation of this technology in
order to ensure that a need, in the Bitcoin network, was met.
It is not hard to detect the parallels that exist between FPGA and ASIC
hardware. Both of kinds of this hardware process similar operations and
they generate a great amount of mining power for bitcoin, in a relatively
“power-efficient” way. The growing availability of ASIC left FPGA as an
undesirable option for mining.
Users preferred to make use of ASIC technology due to its wide
availability – as opposed to how hard it is to source FPGA hardware – and
cost efficiency. ASIC units managed to complete mining tasks at a more
efficient rate, at a far more cost effective rate.
ASIC technology has taken over the mining sphere. Though it should be
noted that some networks, aside from Bitcoin, are formulating ways in
which they can limit the advantages ASIC miners have over other miners.
As intriguing as the development of advanced mining technology may be,
such compromises the values of what Bitcoin was all about.
The whole idea of Bitcoin was to make it a decentralized platform, for
users across the world to make purchases, trade, and transact without
having to rely on centralized third-parties. Allowing users with higher
standard hardware to dominate the mining process would go against
everything that Bitcoin was intended to stand for. Personal profit/gain is
not what cryptocurrency is meant to be about – especially when it comes
to the mining process.
We can only wait and see where the next advancement will take
cryptocurrency. For now, competition still exists and ASIC, and some
FPGA, miners are dominating the Bitcoin mining network. This does not
mean users of other miners cannot mine. They just have to work a little
harder than their competitors. For miners who are determined to make a
break in the mining industry, they will have to work with what they have
until they are able to afford better. However, if there is no way to make
profitable returns by mining on Bitcoin, there are other cryptocurrencies
that may work out better for miners who have not managed to be as
successful on the Bitcoin platform.

Mining Services (Cloud Mining)

If you aren’t the type of person to become caught up in the intrigue of all
the hardware and software that is required for Bitcoin mining, then cloud
mining is the best option for you. If you are unable to find a low electricity
cost area to mine from, which is pretty much everywhere in the world, but
you really want to go into mining, then cloud mining will be the best
option for you.
It has been said that cloud mining is the next thing for the future of Bitcoin
mining.
It is no secret that Bitcoin has become the most popular digital currency to
be used as an alternative to the standard ways of making purchases,
trading, etc. Bitcoin transactions have to be verified by users known as
miners, in a process called mining.
Mining is usually done through a software that accesses the computer’s
processing volume (capacity) in order to solve the proof of work
algorithms.
Proof of Work can be defined as a sort of proof required for a miner to
prove that they have performed an action that warrants payment. This is
usually done through calculating mathematical operations,
computationally, that will lead to the production of cryptocurrency. A
miner is also responsible for preventing attacks such as spam, fraud, or
service denial from occurring in the network.
With Bitcoin, for example, Proof of work is found in the calculations that
are carried out by the computers (nodes) within the digital currency’s
network. The nodes are the computers that play a role in keeping the
network’s consensus up and running. The nodes are also known as the
miners.
Miners are given newly produced coins, and the relevant transaction fees,
by the network as a reward for the services they render as miners.
A great amount of processing power is required in order for Bitcoin to be
successfully mined. Nowadays, in order to have that processing power,
sophisticated hardware and favorable environmental conditions are
required. Not everyone is able to afford GPUs, FPGAs, or ASIC
technology and it leaves them at a great disadvantage. In order to mine
effectively, you need to be able to outdo your competition. If you are using
a CPU or an outdated GPU system, you may as well kiss your mining
chances goodbye. This posed a problem in the mining sphere; a problem
that was yet to receive a suitable solution. The Bitcoin network was not
created with the intent of creating an elite group who will have access to
greater “funds” (bitcoins). This would not make the network any different
from the traditional banking system. Miners with less an advantage would
miss out on the opportunity to mine and provide a service to the network,
as a result of not being as good as the users of more sophisticated software.
Enter the rise of cloud mining, a service dedicated to bridging the gap
between the advantaged miners and the disadvantaged miners.
Cloud mining offers prospective miners the opportunity to mine bitcoin
without having to endure the hassles of handling their own hardware.
Instead of having to use their own machines to generate mining power,
users can make use of the cloud mining services to purchase mining
power. The cloud can be used to earn coins. Interested miners only require
a regular computer, for the sake of communication, local bitcoin wallets,
etc.
Cloud mining services come with pros and cons that should be considered
before one jumps in.
Types of Cloud Mining
Cloud mining can be divided into three types:
1. Hosted Mining

A mining machine is hosted by the provider, and leased to whoever

may need it.

2. Virtual hosted mining

A private server can be created by a user. They can install the mining
software of their choice, and then let out their services to other users.

3. Leased Hashing Power

An amount of power used for hashing can be leased, without the

need of a specific physical or virtual PC. This is one of the more
preferred methods of cloud mining.
Pros
- Your workspace will be quieter and cooler.

When you have to rely on your own hardware for mining, you need
to purchase a variety of items that will assist you with keeping
everything intact. Mining hardware is known to heat up quickly; if
the hardware overheats, the entire mining process will be
compromised. The fans that come with the hardware are not enough
to keep the high temperatures at bay. If you are using your own
hardware, you will have to purchase additional fans and coolers to
regulate your GPU, FPGA or ASIC’s temperatures. When using a
cloud mining service, you don’t have to worry about these problems.
The hardware part is taken care of for you. Your workspace – be it at
home or in an office – will be clearer and much more comfortable for
 you and anyone else you may be working with.

- There are no additional electricity costs.

Since you won’t have to use specialized hardware – that is known to

guzzle electricity – or purchase fans and coolers – that will also
consume a great amount of electricity – your costs will be relatively
low. Cloud mining services take care of that problem for you, since
all you will be using is the mining power generated by their data
centers.

- You won’t have to sell any equipment when mining stops

being profitable

Bitcoin mining is a risky process. The best technology for mining

today might end up being the most useless technology in a couple of
weeks. At one stage, the best technology to use were GPU systems.
But that changed when FPGA systems became the favorable systems
to use for mining bitcoin. FPGA’s period as the top technology to
use for mining bitcoin was short-lived. The rise of ASIC technology
took over and changed the game for everyone. Imagine what many
users had to go through during the changes in technology.
Equipment had to be sold, new equipment had to be bought – with
no guarantee of how long the equipment would be profitable for.
Costs can also contribute to equipment no longer being profitable.
With every new development that occurred on the Bitcoin network,
rose the mining difficulty, which ultimately required more mining
power from mining systems. In order to generate more mining
power, more electricity is required – and we all know how expensive
electricity costs are. Cloud mining removes this inconvenience
completely. The only equipment you need is your computer.

Cons
- Risk of Fraud

The problem with cloud mining is that a large number of cloud

mining services are actually fraudulent. They make use of Ponzi
schemes to attract interested investors, promising great returns, easy
services, etc. The problem with Ponzi schemes is that they cease to
be effective at a certain point of time. The person who will lose out is
you, the investor. If you paid using cryptocurrency, there is nothing
that can be done to recover your money. Cryptocurrency networks
do not provide this option the way traditional banking systems do.
In a traditional banking system, if someone falls victim to fraud,
measures can be taken for the money to be recovered. Bitcoin, and
other cryptocurrencies, however, cannot be retrieved once they are
lost. There is no mechanism that is able to recover lost Bitcoins, once
a transaction has gone through it cannot be reversed. If someone’s
wallet is hacked and their digital currency is stolen, there is no
network authority they can report the matter to. This is why users
need to be wary of the people they send transactions to, if you fall
victim to a fraud, no one will be able to help you.

- Process won’t be as fun (especially if you’re a fan of system

building)

Cloud mining services take care of the technicalities for you. All
you’re going to do is mine. There will be no system building,
intricacies to deal with, etc. If you are a fan of getting involved with
the nitty-gritty of bitcoin mining, using a mining service might not
be the best option for you.

- Profits are lower

The operators of the mining services have costs to cover, and the fee
you pay to use their service is what they will use to cover their costs.
A percentage of the profits you make from mining will go to these
operators, thus lowering the amount of profit you make for your
efforts. If you were mining on your own, your profits would be
higher – provided that the cost of electricity, hardware, etc. don’t eat
up your earnings.

- Risk of mining operations ceasing depending on the price of

bitcoin
 Mining services are not exempt from the risks that come with mining
cryptocurrency. Cryptocurrency, Bitcoin included, is extremely
volatile. Anything can happen. The value of Bitcoins can spiral down
just as much as they have shot up. If mining bitcoin ceases to be
profitable for the operators of the mining operators, operations can
cease. This risk is always looming and you have to ensure that you
keep that in mind.

Determining Profitability
Cloud mining services offer a way to calculate profitability when making
use of cloud mining services. Profitability calculators are offered, on the
companies’ websites, to assist you with making calculations as well. The
calculator will usually ask for the electricity costs you may have. There are
other necessary costs that need to be taken into consideration – chances
are, the calculator will ask you for these things too. These are highly
dependent on your location, hardware, environment, etc.
The electricity costs will be covered by the service providers. This means
that you can substitute your mining bill, which will be per month, in place
of the cost of electricity.
The conversion process isn’t entirely clear, though. For hardware miners,
you can calculate your total ongoing cost with your electricity charge and
the power consumption of the unit (CPU, GPU, etc.), and apply a
conversion factor.
For cloud mining, however, the opposite needs to be done in order for you
to garner a monthly ongoing cost that is as accurate as possible. Most
profitability calculators will assist you with successfully calculating the
profitability if you opt for cloud mining.
Risk vs Reward
When it comes to engaging with any kind of cryptocurrency, there are
risks that must be taken note of. But profitability can become a possibility
if you end up making the right choices.
During your test calculations, you should see that some cloud mining
services will be profitable for a certain amount of time (a few months,
weeks, etc.) but when the bitcoin mining difficulty increases, you will
incur continuous losses, without any hope of there being a change.
A possible way to remedy this situation is to reinvest your returns – but
this comes with risks of its own.
Fraud and mismanagement are highly probably in the cloud mining sphere.
Investors should only pursue cloud mining if they are ready to live with
the risks and potential consequences should anything go wrong. The
golden investment rule: never invest more than you can afford to lose.
There are various social media channels that can give you the information
you need regarding cloud mining. You can also seek to talk to former
customers and find out about their experiences with the cloud mining
service. You should their advice and implement it in your investments in
order to avoid incurring irreversible losses.
How to Avoid Fraudulent Services
As mentioned above, there are many scams that have been disguised as
cloud mining services. These are a few ways in which you can avoid
falling victim to fraudulent schemes:

- If there are no genuine videos or images of the mining facility on

their website, this is a strong sign that the service could be a scam.

- If the cloud mining service has not been running for a year, at
minimum, then the best option for you would be avoid using this
service.

- Make sure that you only consider companies that the bitcoin
community trusts and can vouch for. If their pricing is not
reasonable, skip it.

- If the company’s site lacks pages like “About us” and “Customer
service”, those are red flags. Avoid companies that cannot give you
sufficient information about who they are and what they can do.

- Try not to pay with cryptocurrency. Remember, if you pay with

cryptocurrency and the system turns out to be a scam, you will not be
able to recover your money.
 - Make sure you fully understand the terms of your contract before
signing it. Read it as many times as you need to before you sign.
This isn’t just for scams, but legitimate companies too. Some
contracts will allow you to mine one cryptocurrency, only, while
other contracts will permit you to mine different coins. If the contract
is not clear, and you feel uncertain about certain things, ask as many
questions as possible. If you are not satisfied with the answers you
receive, do not sign the contract. The last thing you want is to get
caught up in a deal that backfires.

- Make sure you take into account the cost of electricity and
management – some services do not display these things on their
pricing page.

Legitimate Mining Services

Genesis Mining
This is one of the most famous cloud mining service providers in the
world.
The cost of a bitcoin mining contract, with Genesis Mining, costs $15.99
initially. If you would like to invest more money, you can purchase more
mining power for prices that range from $779 to $7699 – depends on how
much power you purchase.
The platform is very simple. All you need to do is sign up, deposit funds
into your account, and choose the mining plan that best meets your needs.
Two-factor authentication will be a part of the process – for your own
safety. Hashrates are upgraded for free, as well.
SkyCoinLabs
Coins that can be mined: bitcoin, Litecoin, and altcoin.
Contracts can be up to a year.
Using Skycoinlabs can cost $5.99 per Bitcoin mining GH/s or you can
purchase 100GH/S mining power for $599. The cheapest contracts are for
litecoins, which can start from as low as $2.49 for every KH/s.
Hashing24
Hashing24 is known to be a reputable cloud mining service provider due to
the fact that it partnered with BitFury – one of the well-funded companies
that deals with Bitcoin.
Their contracts last for a lifetime. This means you can keep your hash
power for your desired period of time – even when the contract ceases to
bring you any profit.
Cloud mining is something that one can only decide to go into on their
own. It comes with great benefits, but there are also a number of risks.
You should only make use of this option if the profitability proves to be
more – this is the only thing that will make the process worth it. Keep in
mind to also apply all the necessary steps to ensure that you are not
defrauded of your money. There are many malicious entities that use cloud
mining services as a front for attacking people’s wallets.
Software

So we’ve gone into extensive detail about Bitcoin hardware, now it’s time
to talk about the software. Mining software for bitcoin is just as important.
What is Bitcoin Mining Software?
If you are a miner who mines on their own (a solo miner), mining software
is what connects your miner to the blockchain. You cannot do without it.
If you mine through a mining pool, the software will connect you to your
respective mining pool.
However, you will not need mining software if you have resorted to cloud
mining.

Why is Bitcoin Mining Software important?

The main task of mining software is to deliver the work the hardware does,
to the rest of the Bitcoin network. The software is also responsible for
receiving the completed tasks from other miners across the network.
Mining software observes the input and the output of the miner; and
displays statistics (mining speed, fan speed, temperature, etc.) while you
work.

Bitcoin Wallet
It is imperative that you get a wallet before you start using any type of
Bitcoin mining software. Regardless of what the software may be, you will
be asked for a Bitcoin address. Rewards you receive from mining, and any
other payouts, will be sent to your address. Once or download a wallet,
you will be given access to your Bitcoin address from your established
wallet. We mentioned a couple of wallets you can use, in earlier chapters,
but we’ll add them here again.
Coinbase

Coinbase is a web-based wallet that is known for its user-friendly

interface. It is a great platform for first time traders and users who
 desire a quick and efficient way to perform their transactions. The
platform also offers exchange services, meaning a user can convert
their currencies in one place without any hassles. Two-step
verification and Google Authentication were incorporated into the
application, allowing for added protection. If you wish to have an
extra layer of security, you can make use of the application’s vault.
The only downside of Coinbase is the fact that it only offers wallets
for Bitcoin and Ethereum. If you deal with other altcoins, this might
not be the platform for you.

Trezor

Trezor is known to be a hardware wallet. A hardware wallet is a kind

of bitcoin wallet that stores users’ private keys in a safe hardware
device, making it harder for hackers to infiltrate the system and
access users’ private information. Trezor is known as one of the top
wallets when it comes to crypto security. The wallet has a reputation
for providing first class security – protecting users from physical and
virtual attacks. Some users have complained of the wallet’s lack of
aesthetics but what the wallet lacks in appearance, it definitely makes
up for its security. At the end of the day, security is what matters.
One can think of Trezor as a heavy-duty vault, instead of a wallet.
Ledger Nano S
This is another affordable hardware option, going at a cost of $65. It
is a hardware wallet that is easy to set up and use on any desktop
device. Like Trezor, the Ledger Nano S comes with two physical
buttons that make it more secure. The only way you can authorize a
payment is when you push both buttons at the same time. This means
that it will be practically impossible for a hacker to infiltrate your
wallet and authorize payments. The wallet also comes with a PIN
code setup. This prevents the loss of bitcoins in the event that you
misplace or lose your device. The device will wipe all its data after
the incorrect PIN attempts have occurred.
Other good wallets to consider are Electrum, Mycelium, and breadwallet.
Hardware wallets are the best ones to use if you are expecting to earn large
sums of money through mining.
Let’s take a look at the different software that is available for various
operating systems.
For Windows
Bitcoin Miner
Bitcoin Miner can be used on Windows 8.1 and any later versions of
Windows. The software has a user-friendly interface. It is also
popular for its energy saving mode and reliable support for mining
pools.
One of the software’s stand-out features is the reports that help
miners know whether their mining is profitable or not.
BTCMiner
This is an open source Miner that’s usually used on FPGA systems.
This software comes with the following features:
- It automatically selects the best frequency that will give you the
most efficient hash rate.
- A Bitstream that is ready for use. No outside software or
licensing will be required in order to use it.

CGMiner
This software could be known as the most renowned and widely
used software by miners, Bitcoin miners, from all over the world.
The software was initially designed for a CPU miner’s code, but later
developed.
These are a few of the main ones:
- Fan speed can be controlled effectively
- Remote interface capabilities
- Ability to efficiently detect new blocks
- Support for more than one GPU
- Mining support for CPUs as well

BFGMiner
 This is more or less similar to CGMiner.
This software was only crafted for ASIC computers. Some features
that are unique to the software are very sophisticated. Some of them
are:
- Clocking that is integrated
- Fans can be controlled

For Linux
- CGMiner
- BFGMiner
- EasyMiner
For Mac OS X
RPC Miner
This can be used on Mac OS 10.6, and later versions.
One should also take note that all the mining software that has been listen
for Linux and Windows, is also compatible with the Mac OS X system.
Chapter 7. Detailed Ethereum Mining Guide
In order for Ethereum to work effectively, the platform requires at least
several thousands of people to run the software on their computers. This is
what will ultimately end up running the network. Every computer, also
known as a node, in the network runs something known as the EVM
(Ethereum Virtual Machine). The EVM can be thought of as an operating
system that comprehends and executes the software written in
programming language that is specific to Ethereum.
Miners play a vital role in ensuring that Ethereum functions properly.
Their role, however, isn’t as obvious as some may think. Most new users
believe that the only purpose of mining is to simply generate ethers.
Ether is generated through the mining process. One mined block is said to
comprise of five units of ether per mined block. Similar to the Bitcoin
blockchain, Ethereum makes use of its own blockchain ledger to keep a
precise record of every transaction that takes place on the platform. The
entire network is responsible for verifying every ether transaction and
ensuring that they are added to the ledger. Once a block is processed and
added to the blockchain, the information is communicated to every node
that is connected to the bitcoin system. Mining is what keeps the entire
system decentralized. Through mining, the network remains secure and
impenetrable because the consensus is being maintained. It is practically
impossible for the consensus to be messed with.
Miners come to an agreement regarding the ether transaction history. The
consensus cannot be changed easily because the system is made up of the
connections between nodes. They also need to make sure that any form of
fraud is prevented from taking place – the most common form of fraud
being the double spending of ethers.
Hardware Requirements to Start Mining

“Ethash” is the term given to the proof-of-work algorithm that is used on

the Ethereum platform. While access to mining Ether is open to anyone
who has internet access and a CPU, the process is not that simple. In order
to mine on major blockchains, a large amount of computing power is
required. This means that users need to ensure that they have powerful
hardware in order to be able to mine ether. Miners who make use of low-
powered systems are highly unlikely to gain any profits.
GPUs are the best option when it comes to choosing mining hardware.
They have a higher hash rate than most CPUs, which means that puzzles
will be able to be solved at a faster speed. GPUs have become the only
option for ether miners who are determined to be successful on the
platform.
In order to find the right GPU for you, you will need to conduct a lot of
research. The factors that you need to take into consideration are the
device’s hash rate performance, the amount of power they consume, and
the initial cost of the card. You need to make sure that you make use of a
reliable calculator (profitability calculator) to determine whether the
amount of ether that you will earn will be enough to make you a
satisfactory profit.
Once you have selected the mining hardware of your choice, you need to
install the Ethereum mining software. You need to make use of a reliable
client in order to connect to the Ethereum network. Geth is known to run
an Ethereum node that is written in the scripting language “Go” –
programmers who are familiar with the command line can opt for
installing this client. There are a number of other clients that miners can
resort to installing.
This a summarized version of the hardware requirements for Ethereum
Mining:
1. A motherboard

This is known as the brain of the computer. Everything that you

build is built on the motherboard – which makes it the base of your
mining rig. The main thing you need to look for in a motherboard is
the number of slots available for GPUs. This will determine the
 number of graphics cards or GPUs that you will be able to fit on the
motherboard – which ultimately leads to knowing the capacity of
your total hashing power.
The presence of three PCI slots will mean that you can accommodate
3 Radeon HD 7950, hashrate of 20 MH/s each – for example. The
PCI Express slot serves as a port of connection on the motherboard.
They can be identified as white or beige in color, and you can also
get other types of slots. Keep in mind that GPUs work best on a PCI
express slot.

2. Graphics Card

This is non-negotiable. The Ethereum network is labor intensive and

it will not be able to accommodate the power required of it. Some
graphics cards are very expensive, but they don’t hash much. There
are cheaper graphics cards that are able to produce maximum results
– but they require more power. Purchasing a graphics cards is trick,
balance is required. You need a graphics card that is within your
budget range, able to produce suitable results, while consuming a
reasonable amount of power. This means that you need to do a lot of
research before you attempt to buy a graphics card. Don’t just buy
one a couple of reviews said would be the best option for you. Find a
GPU that will work best for your system. You can also purchase
reliable second hand GPUs from platforms like the GPU Shack, if
you aren’t able to afford a brand new graphics card. Be careful when
purchasing second hand items, you need to make sure that you do
not purchase these cards from a random shop or off the corner of the
street – you will be signing yourself up for a lot of problems. There
are a number of reputable sites that will be able to assist you with
finding the right graphics card for your system, which will be
affordable.

3. Hard Drive

You also need to ensure that you have a hard drive to store your
operating system and to also store your software for mining. A
regular SSD drive will do the job. The size of the hard drive is highly
dependent on what you intend to do when you are mining. If you
 want to download the whole blockchain and the mine, you will need
a significant amount of space – which will cost you more. If you’re
just going to mine the Ethereum as part of a mining pool, you won’t
need an SSD drive that comes with a large amount of space. A
120GB hard drive would be good for you if you are only mining the
Ethereum. If you are looking for something bigger, a hard drive with
a capacity that ranges from 500GB upwards will be best for you –
these hard drives are not cheap, though.

4. RAM (Random Access Memory)

This is a basic component that is required to run any computer,

really. You’ll need at least 4GB RAM in order to accomplish basic
mining.

5. A Power Supply Unit

A Power Supply Unit is also known as a PSU. It comes in various

sizes and can confuse people who aren’t entirely certain of what size
they need for their mining activities. What you need to do is sum up
the amount of power that your GPU will consume, along with all the
other components that may contribute to power consumption, and
that will determine the amount of power that is consumed when you
mine. You need to ensure that your PSU has the ability to supply
more than what you need. For example, if you have two GPUs that
consume 200 Watts each and other components that require 275
Watts, then you can be comfortable with a 750W power supply since
the total power that you need is 675 Watts.
If you intend on constructing a “mega rig” that will consist of around
6 GPUs then you might need to find a more cost effective option.
One of these options is getting separate power supplies – the
outcome will be much cheaper for you.

6. A Case

Lastly, you will need a case that will protect your system. Finding
the right case can actually be a tough decision to make but it will
depend on your GPUs. The last thing you want is to have
components on top of each other because this will make it a serious
fire hazard. You could leave the whole system open, but dust and
other critters might pose a risk. If you do not feel like purchasing
your own case, and you are into DIY, you could make your own case
– add your own personal touch.
Mining Clients

Ethereum is described as one of the most determined blockchain projects

that are currently in existence. The system runs on its own cryptocurrency,
which is quite remarkable. These are some of the clients that you can use
in order to gain access to the Ethereum network.
Parity
Available for: Windows, Mac OS X, Docker, and Ubuntu
Parity Technologies also successfully comes with a new browser, the
Parity Browser, which is able to be integrated directly into one’s Web
browser. This client is known to be the fastest and a highly secure way of
interacting with the Ethereum system.
The company has managed to create a client that is much faster and lighter
than the other mining clients that are in circuit.
These are some of the features that make the client the most preferred
option that it is:
- Very high performance
- Very reliable
- Future-proofed
- Very small memory footprint
MinerGate
Available for: Windows, Mac OS X, Fedora, and Ubuntu
This is a mining pool that was created by a group of enthusiasts. This is
also the first pool known to provide services that accommodate collective
(combined) mining. This means that you can mine different coins at the
same time. There will be no need to decrease your hash rate – which is a
major advantage.
WinEth
Available for: Windows
Mining Ethereum became much easier with this mining client. It offers
one-click mining for AMD and NVidia cards on Windows devices. Mining
ether (ETH) on windows can be a very easy process, and profitable as
well, if the appropriate hardware is used.
These are some of the technical benefits that come with making use of this
client:
- The application provides graphics that are compatible with
Windows 7 all through to Windows 10 – 64-bit only.
- Client automatically configures itself to Nanopool, after
receiving the Bitcoin wallet address that you provide
- Energy-saving mode and Idle mode
- Updates and error transmission occur automatically. Errors are
analyzed using Microsoft Application Insights, which allows for
them to be identified and resolved automatically.
Go Ethereum
This software is written in Go – totally-open source and licensed. This
client is available as a solo client – known as geth – or as a library that can
be embedded.
Mining Process

The Ethereum mining process is almost identical to the Bitcoin mining

process. For every block of transactions, miners make use of high-powered
computers to repeatedly and rapidly figure out the solutions to the
computational puzzles. If a miner manages to solve the puzzle and process
the transactions, they will be rewarded with ether. The processed block
will be shown across the Ethereum network for every user to review,
validate, and add to their copy of the ledger. Once a block has been added
to the ledger, other miners have to shift their focus from that block to
processing the next one.
There are no shortcuts when it comes to mining. It is very hard for miners
to try and cheat the process. Puzzle-solving is also known as “proof-of-
work” – this is because a miner’s solved puzzle is proof of the work they
have managed to accomplish.
Miners locate blocks every twelve to fifteen seconds. Like bitcoin,
Ethereum’s algorithm adjusts the difficulty of the puzzle problems. The
more miners that work on the problems, the more difficult the problems
become.
The profitability of mining ether is dependent on fortune and the amount
of (computing) power that is dedicated to the mining process.
Once you have installed your software, your node (computer) is able to
communicate with other nodes, thus connecting it to the Ethereum
network. Mining ether is not the only thing that the platform gives you an
opportunity to do. This software also gives you the opportunity to form
smart contracts and send transactions.
If you are not ready to mine publicly, that is okay. You can resort to
mining “test” ether on your personal private network. This is a good way
to experiment with smart contracts or other applications that may be of
your interest. You must remember that these are activities that require the
use of ether.
You don’t need to have advanced software in order to mine on a test
network. Your home PC, with geth or another client installed, will be just
fine. Mining fake ether, however, is not a lucrative activity – keep this in
mind.
After you’ve tested your mining skills and you feel confident enough to
mine real ether, you can proceed with installing mining software – if you
have not done so before.
Now that you have already downloaded a client and your computer has
become another node in the network, you can download the mining
software – Ethminer. The software is available for free download on the
internet, simply search for it and include your hardware model in the
search option so that the results will give you the appropriate version for
your hardware.
Once you have installed the software, your node will play a part in keeping
the Ethereum network up and running.
It is imperative that you join a mining pool. As a miner, it is not likely for
you to successfully mine ether on your own.
Miners tend to come together in order to combine their computational
power.
This heightens their chances of reaping rewards, since they will be solving
puzzles together. The ether is split according to how much power every
miner contributed to the pool.
There are many things that need to be taken into consideration when it
comes to joining a mining pool. The lifespan of a mining pool might not
be long-term and the computational power that every pool contains is
always changing. You need to be wary of the pools you join in order to
avoid wasting time and/or missing out on earning ether.
Every mining pool has a different payout structure. Before you join a
mining pool, try and get as much information on the prospective pool.
Research as much as you can and take all the factors into consideration.
Every mining pool has a registration process on the network so that miners
can connect and commence with mining.
You need to realize that the mining sphere is always changing. The tools
that you develop today might become irrelevant in a couple of months or
years. Some mining pools will fall away as a result of this, and there will
also be mining pools that will emerge. The best thing that you can do, in
order to stay afloat, is observe industry shifts. Put in as much effort as
possible to avoid being caught off guard.
Lastly, keep in mind that the profitability of mining Ether could change
any day. Cryptocurrency is an unpredictable field and it would be wise for
you to keep that in mind. Before you dive into mining ether, take the time
required to ensure that it is worth your time. Mining is not for everyone –
especially if all you are focused on is making profit. What works today
could fail tomorrow. There are many risks affiliated with mining and
managing cryptocurrency, and this includes Ether. Makes use of the
internet and a mining calculator to deduce the effect mining will have on
your cost of living. If the expenses outweigh the profits, put your mining
ambitions aside until you can find a financially feasible option.
List of Tools
In previous chapters, we dealt with the ideal tools and applications that
Bitcoin and Ethereum miners can make a use of in order to maximize their
mining experience. In this chapter we will cover one last tool – mining
pools. This has not been spoken about much, so it will be covered here for
those who are considering making use of a mining pool in order to
increase their chances at mining Bitcoin or Ether.
A mining pool can simply be defined as groups of collaborative miners
who have agreed to share the rewards that come with processing blocks.
One of the reasons why miners decide to come together is in order for
them to combine their computational power. This results in the improving
of their chances of solving the network’s proof of work algorithms and
earning bitcoin or ether. The reward from mining bitcoin or ether is split
proportionally among the miners in the system.
If you intend on joining a mining pool, you need to be aware of the fact
that there are a number of things that must be taken into consideration. The
lifespan of a mining pool might not be long-term and the computational
power that every pool contains is always changing. Don’t just jump into a
mining pool because it seems to be doing well at present. Gain access to
the pool’s track record and see if joining the pool will be an advisable
option for you or not. You need to be wary of the pools you join in order to
avoid wasting time and/or missing out on earning various rewards.
Another disadvantage that comes with mining pools is the fact that most
power is relayed to the owner of the mining pool. If you join as a first-time
miner, you’ll be on the bottom end of receiving rewards for a considerable
amount of time.
Every mining pool has a different payout structure. Before you join a
mining pool, try and get as much information on the prospective pool.
Research as much as you can and take all the factors into consideration.
Every mining pool has a registration process on the network so that miners
can connect and commence with mining.
Best Mining Pools (Bitcoin)
It would be important to note that most mining pools are found in China.
Reasons as to why, are still being explored, but it does seem that it is much
easier to create and maintain successful mining pools in the region.
Unfortunately, many of these pools only have websites and support that
are available in Chinese.
There are a total of 20 major mining pools. It is estimated that the Chinese
pools control around 81% of the Bitcoin network’s hash rate.
Most sites will recommend that first-time miners join slush pool as it is
one of the more reliable and trusted pools – especially for miners who are
new to the scene.
These are the names of a few of the mining pools that are viewed as the
best:
- Antpool
- BTC.com
- BTC.top
- BTCC
- Bixin
- F2pool
- ViaBTC
- Bitclub.Network
- Slush

Best Mining Pools (Ethereum)

Solo mining is an option for Bitcoin miners, but the same cannot be said
for miners who are looking to work on the Ethereum platform. You will
not be able to be a successful lone miner on the Ethereum network, it is
important that you join a mining pool.
A mining pool will assist you with receiving payouts that are more
frequent than only getting paid for solving a single Ether block. I should be
noted that mining comes with a lot of costs – most of them being up-front.
If you only want the ether, then you should stick to purchasing Ethereum.
Mining goes beyond mining for ether.
You will also need the right mining software to connect you to direct your
hardware towards your respective pool.
This is a list of the top mining pools you can consider joining:
- Ethpool and Ethermine
 - F2pool
- Dwarfpool
- Ethfans
The pools may be fewer (in comparison to the ones that are available for
Bitcoin) but they are reliable. Remember, Ethereum is still on the rise and
more mining pools are still trying to find their footing. Do not join newly-
begun mining pools, no matter how promising they may appear to be.
CONCLUSION
Thank you for choosing my book! You have spent some time to read it but
now you are ready to start your own cryptocurrency story! And I believe
that this story will change your life!

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