Welcome back to our tour of the cryptocurrency landscape.  In the last post, we discovered XRP, a cryptocurrency specifically designed for use in enterprise applications.  XRP is utilized on the XRP Leger (XRPL) by RippleNet, an ecosystem of financial institutions from around the world (RippleNet is maintained by the parent company Ripple).  In the world of XRP, there’s no mining, there’s not really a blockchain, and there’s no monetary incentive for validation of transactions.  Ripple has SWIFT (and similar payment platforms) in its sights; only time will tell if/when XRP becomes the new mainstream for processing transactions among banks and other financial companies.

            Alright, since we already have so many cryptocurrencies in the world, so many different purposes for each ecosystem, and so many lessons that we’ve learned along the way – why introduce yet another player to the game?  Or on the other hand, why not introduce a new coin to improve on what we already have?

Review The Crypto Generations

            Before looking at Cardano (home to the Ada cryptocurrency), it’s essential to understand where we’ve come from in terms of different crypto systems.  The developers of Cardano like to break up previous groups of crypto technology and applications into different generations. 

First Generation Cryptos

  • The first generation was spearheaded by Bitcoin, arguably the grandfather of all cryptocurrencies.  Bitcoin was the response to the question, “Could I send money to someone without the need for a middleman?”  Obviously, there’s always cash, but in this generation of cryptocurrencies, the world discovered the ability to send and receive payments over the Internet in a decentralized and reliable manner.  But could a blockchain be used for more than just sending money back and forth?

Second Generation Cryptos

  • The second generation of cryptocurrencies answered this question – yes, you can use a blockchain to meet a host of needs, not just the transfer of money.  Ethereum is the poster child for this second generation; using smart contracts on the blockchain led to a whole new world of “dapps” (decentralized applications) and possibilities for those interested in privacy and further decentralization.  But if these crypto systems don’t scale well and aren’t governed correctly, how is the whole world supposed to be able to use them?

Third Generation Cryptos

  • The third generation attacks this problem head on.  Cardano specifically relies on three core principles for its ecosystem – scalability, interoperability, and sustainability. 
    • Scalability affects the number of users the system can support (both in transactions per second (tps) and overall throughput).  It also affects the overall network as a whole and how data can scale as new revisions are added to the current system.
    • Interoperability provides use for the “internet-of-blockchains”.  Is it possible to have, for instance, the Bitcoin blockchain talk to that of Ethereum?  The researchers behind Cardano think so and are implementing “sidechains” to attempt to address this current hurdle.
    • Finally, sustainability allows for stability in the project and promotes future development and growth.  How does Cardano pay for itself?  Cardano is hoping to build on some of the key elements of Dash and use a treasury to store money for potential future needs.

How Does Cardano Work

Alright, now that we’ve taken a brief look at the position of Cardano in the overall cryptocurrency world, let’s try to make sense of what Cardano actually is and how it works. 

The developers of Cardano see it not as just another cryptocurrency but rather the future of how the industry works as a whole.  Academics and engineers are applying philosophies behind mission-critical applications (aerospace and banking, most notably) and producing high-assurance, peer-reviewed software to power the platform.  While some ecosystems seek to provide the utmost in privacy and decentralization, Cardano hopes “that it will balance the needs of users with those of regulators, and in doing so combine privacy with regulation” (“What is Cardano”).  This goal spurs the developers to provide a world of fair financial services to anyone desiring to participate. 

Cardano Mining

What does mining look like in Cardano?  Short answer:  very different than what you’ve seen in other systems.  Rather than utilizing the standard proof-of-work approach, Cardano has chosen to base block validation on a proof-of-stake methodology.  What does proof mean in this situation?  It refers to the evidence that a given block of transactions is actually legitimate (the transactions have been validated by an approved party).  That makes sense – it’s similar to what we have learned about in proof-of-work systems.  But what about stake?  The Cardano Settlement Layer comprises the entire system of Ada within the Cardano network.  Any one particular node has a small subset of this value; hence, dividing what a particular node has by the total value of the Cardano network gives a relative value or “stake” for any particular node.  So, a proof-of-stake methodology refers to the evidence of legitimacy that a particular node has as compared to its impact on the system as a whole.  While it may sound simple (or maybe it doesn’t), it’s actually quite a complex series of events; nevertheless, let’s see what’s going on.

Ouroboros Protocol

To begin to understand Cardano’s “mining”, it’s important to understand the basics of the proof-of-stake algorithm Cardano uses – Ouroboros.  By incorporating Ouroboros, the Ada cryptocurrency doesn’t have to rely on a global infrastructure of power-hungry servers.  Instead, stakeholders who will help form the next block on the blockchain are randomly chosen based on their proportional stake size (in accordance with the blockchain ledger).  These chosen stakeholders are referred to as “slot leaders” (more on this in the next paragraph).  A secure, multiparty implementation of a coin-flipping protocol is used to select the next slot leader to form a block.  Note that there isn’t a typical “block reward” for the node who solves the next block (like is common in a proof-of-work based crypto). Rather, the node responsible for transaction validation makes profits based on the transaction fees within the transactions.

Validation by Epochs

Ouroboros divides physical time into “epochs” which are comprised of “slots” (hence the term “slot leader” in the previous paragraph).

Figure 1:  Ouroboros dividing time.  Image from docs.cardano.org.

There are an arbitrary number of slots in an epoch (we’ll say there are N slots), and each slot lasts a short period of time (usually around 20 seconds or so).  For each given slot, there is a slot leader.  Remember that this leader is chosen at random among a specific subset of nodes; we’ll explore the details behind this decision in a future post.

Figure 2:  Each slot has a leader.  Image from docs.cardano.org.

During the slot leader’s designated slot time, only the slot leader may produce a block.

Figure 3:  Only a slot leader can produce a block.  Image from docs.cardano.org.

If the slot leader misses their chance to form a block (maybe they were offline or not active at the time), they will not be able to produce another block until they are a slot leader again.  So what happens if there are empty slots?  No problem – an epoch is allowed to have some empty slots.  Nevertheless, an epoch must have at least a majority of slots filled (i.e., at least 50% of slots + 1 slot to ensure a share greater than 50%).

Nodes on Cardano

Another major difference – Cardano doesn’t require each individual node to have an entire copy of the blockchain.  Rather, a collection of nodes sends verified and validated transactions to the slot leader and the slot leader produces a new block.  There’s an algorithm to decide who gets elected as slot leader and also how the other nodes on the network keep the slot leader honest in their performance of duties. 

Not only does Cardano challenge the norms in terms of transaction validation proof, it is also challenging what a streamlined, efficient network looks like for cryptocurrencies.  Enter RINA – the Recursive Inter-Network Architecture.  The overall objectives for RINA are threefold:  create a network that is private, transparent, and scalable.  Forget the typical homogeneous network that most systems use – this network asks that every node relay every message on the network. 

This isn’t a problem with smaller networks, but scalability becomes nearly impossible as networks grow exponentially with increasing number of users.  Fully describing RINA would take several weeks’ worth of post, but to keep it simple for now, RINA assembles a heterogeneous network that selectively informs necessary nodes of transactions and other messages as needed.  Everyone isn’t notified of everything, and because of this, a heterogeneous network has the capability of expanding significantly while still remaining nimble. 

Learn More About Cardano

Cardano is an amazing, and very intricate, network that has been carefully designed and implemented using almost a decade’s worth of lessons learned from previous cryptocurrencies (most notably Bitcoin and Ethereum).  We will spend much more time in future posts discussing the details behind the system and its network, but for now, here are a few articles you can peruse to gather some more information:

            Thanks again for reading!  In the next post, we’re going close out our series on The World of Cryptocurrencies with IOTA – see you then!

Welcome back to our tour of the cryptocurrency landscape.  In the last post, we discovered Monero (XMR), a cryptocurrency primarily focused on privacy.  Rather than utilizing a standard blockchain with detailed information concerning senders, receivers, and transaction amounts, Monero obfuscates all of this information by employing ring signatures, ring confidential transactions, and stealth addresses.  Another unique quality of Monero is the fungibility of XMR – any unit of XMR is equivalent to any other unit with no way to trace which XMR has been used in any previous transactions.

What is Ripple

            While Bitcoin, Monero, and even Ether to some extent are focused on individuals in need of transferring money, Ripple takes a different tack – why not provide a commercial solution for use in transferring money for the enterprise?  Using this kind of an ecosystem would allow financial institutions to send money across the world in a matter of seconds rather than days (as is common in current monetary transfers, especially to foreign countries). 

            Before we dive in, let’s get our terms straight.

  • Ripple – According to their FAQ, “Ripple is a technology company that provides the most efficient solutions to send money globally using the power of blockchain technology.”
  • RippleNet – Financial institutions operate within the ecosystem provided by Ripple.  For fractions of a penny, a financial institution in the US, for instance, can transfer money to Germany (or almost any other foreign country) in a matter of seconds with the reliability and verifiability of a ledger system (discussed more below).
  • XRP – This is a digital asset independent of Ripple, which operates on the XRP Ledger (or XRPL).  The ledger is open-source and independent of Ripple.
  • Drop – This is the atomic unit of XRP equivalent to 0.000001 XRP. 

Ripple the Company

Let’s put it all together – Ripple (the company) operates RippleNet (a financial ecosystem) utilizing XRP (a digital cryptocurrency) to fund transactions on the XPRL between financial institutions.

             So why not just use something like SWIFT or Western Union to transfer money?  That’s a great question, but before we answer, let’s dive into the reason why Ripple started in the first place and how it attempts to bridge the gaps present in the current financial system.

            Although the original idea for OpenCoin (which eventually became Ripple) came about around 2005, the company didn’t really find its roots until its official founding in 2012.  As more companies caught onto the idea behind Ripple, more investments allowed the company (and the cryptocurrency) to gain a wider platform.  The development of the Ripple Transaction Protocol (RTXP) earned the company a position in the 2014 50 Smartest Companies (by MIT Technology Review).  In late 2017, XRP became the 2nd largest cryptocurrency in use for a short time (currently sitting at 3rd as of the time of this writing).  

            Back to the question about SWIFT – Ripple has decided to challenge the 40+ year old system by providing quick payments (we’re talking seconds, not days) at a very small cost (fractions of a penny).  SWIFT still works and has worked quite well for decades now, but it is very slow in view of modern expectations of information exchange and can be slightly costly to transfer money.  While SWIFT has developed their global payments innovations (gpi) service to bolster their reputation and throughput, it still remains to be seen if Ripple will ultimately gain ground on SWIFT and provide serious competition in this global market.

On Demand Liquidity

            Before moving on to other core components of Ripple, it’s interesting to take a look at one of their poignant value propositions – On-Demand Liquidity (ODL) (this was originally known as “xRapid” if you’ve been following Ripple for a while).  Typically, when a bank desires to send money to another country (say, using SWIFT), they need to have a pre-funded account in the destination currency.  In other words, if we want to send USD to Gambia, for instance, I would need to have a pre-funded account that can convert the USD to GMD.  Now, do this hundreds of times to send currency around the globe, and you might begin to see the problem.  This can be difficult, expensive, and, for smaller countries, even impossible.  Ripple’s ODL solution seeks to change this.  If financial institutions use XRP as a digital asset to source liquidity, these transactions can be completed in three seconds – bridging any supported currency divide and allowing for reliable, low-cost transfers. 

            Another interesting facet of RippleNet is the ability to send currency other than XRP.  There are several specialty payment types that can still use the XRPL to send payments across the world, but utilize an exchange of standard currency or “checks” for deferred payments or even partial payments that can be finalized over a period of time.  While XRP is definitely a primary focus of the XRPL, it’s definitely not the only currency transfer mechanism available.

Ripple Methodology

            While other cryptocurrencies are based on miners providing validation of transaction blocks for the network, Ripple uses a vastly different methodology.  There are no more tokens (XRP) to mine in Ripple – there never have been.  At the very inception of the ecosystem, 100 billion XRP were placed into existence.  The founders of Ripple kept 20 billion and gifted the other 80 billion to be used in the network.  Ripple is a deflationary currency as well – there will never be any more XRP added to the network and currency will be lost over the course of time.  Each time a transaction occurs (i.e., transaction fees are charged) or when XRP is sent to a wallet with no keyholder, more XRP is removed from the network.  As such, XRP will only increase in value over time.  Won’t we run out of XRP soon?!  No, at the current rate it will take approximately 70,000 years to destroy all XRP in existence.

            Like we previously mentioned, no one can mine “new” XRP or contribute to a proof-of-work algorithm like most other cryptocurrencies.  If so, then how do we know that transactions are being completed properly?  Does the decentralization of confirmation still exist in RippleNet?  Put your thinking caps on and remove your previous understanding of how cryptocurrencies work – this is going to be quite an interesting tour.

Ripple Validation Method

            Ripple uses a system of “trusted validators” to agree upon which transactions occur and in which order they occur.  There is no monetary incentive for being a trusted validator; your incentive is that you (or your company) is a part of the network and you want it to remain stable and trustworthy.  This was specifically designed so that the network wouldn’t become warped for gaining as much currency as possible.  Because there is no mining, the energy costs for running RippleNet are exceedingly small (especially compared to Bitcoin) – a single trusted validator uses about as much power as an email server.  In addition, transactions are completed within seconds (as opposed to a new block being produced every 10 minutes in Bitcoin or waiting for several days of SWIFT transaction time). 

So… it can be quick, but does it scale?  Currently Bitcoin can produce around 6 transactions per second (tps) while Ethereum more than doubles the rate at 15 tps.  At nearly 1,500 tps, 24x7x365, RippleNet is able to process nearly 130,000,000 transactions per day and claims to be able to scale to nearly 65,000 tps!

Is Ripple a Blockchain?

            How about the blockchain – does Ripple use a blockchain like everyone else?  Yes and no.  As you saw above in the company’s self-description, the “power of blockchain technology” is used to manage interactions and transactions on the network, but in a more accurate sense, XRP is not administered through the use of a blockchain like most other cryptocurrencies.  Instead, a consensus protocol is used to validate and process transactions. 

Essentially, a transfer of XRP is given a single value through the use of a hash tree.  The hash tree implements a data structure that holds hashes of the keys and sends the actual keys (and any other data that needs to be included) to tracking servers and validators (nodes on the network).  The nodes serve to compute hashes of the keys and compare them to the hash tree – if everyone agrees (or at least 80% of the nodes involved in the consensus), the transaction is authorized and processed. 

Learn More About Ripple

            So that’s Ripple – and it’s quite different from other cryptocurrencies we’ve looked at!  Still not sure what’s going on?  Curious to learn more?  Check out a few of the links below:

  • The self-described “most accessible global payments network”, RippleNet has the potential to revolutionize the way financial institutions transfer money around the world.
  • With more reading than you can shake a proverbial stick at, the XRPL home site contains a vast amount of information about XRP and the ledger upon which XRP operates.  Check out the “Docs” section for more.
  • Learn more about the differences between Bitcoin and Ripple.
  • In this corner – Ripple.  In that corner – SWIFT.  Just who will come out on top?
  • Is Ripple even a cryptocurrency?

            Thanks again for reading!  In the next post, we’re going to take a closer look at Cardano – see you then!

Welcome back to our tour of the cryptocurrency landscape.  In the last post, we discovered Ether (and by relationship, Ethereum).  Ether is the “digital oil” that fuels the Ethereum network, upon which decentralized applications (or “dapps”) can be constructed and performed in a deterministic fashion thanks to Ethereum’s underlying Turing-complete blockchain.  Ether is used to monetize transactions among various entities within the Ethereum ecosystem. 

Nothing should be considered investment or financial advice. Enjoy the ride.

Privacy on the Blockchain – Monero

            While the main focus of Ethereum is decentralization of online application control by major entities, Monero takes a very different direction concerning its core emphasis – privacy.  According to their website, “Monero is the leading cryptocurrency with a focus on private and censorship-resistant transactions.”  The folks who develop Monero have specifically designed their platform to be highly secure and highly private so that users can send and receive money with no worries about intervention or interception by malicious parties.

After adopting and modifying the CryptoNote reference code, Monero launched in April 2014 as a viable alternative to other cryptocurrencies with the “goals of privacy and security first, ease of use and efficiency second” (according to their About section).  Monero is not meant to replace something like Bitcoin; it is meant to be an alternative for those who are supremely concerned with the privacy and security of their online transactions.

How Does Monero Work

What makes Monero different from common cryptocurrencies like Bitcoin or Ethereum?

  • Monero doesn’t employ a typical blockchain with addresses of entities and amounts transferred.  Instead, ring signatures, ring confidential transactions, and stealth addresses are used to decouple the network’s users from their pseudonymous identities online.  Because of this, it is extremely difficult (if not impossible) to determine the origin and destination of a transaction as well as the amount of XMR (Monero’s abbreviation) transferred.
  • Monero is fungible since all transactions are private by default.  In case you’re wondering what “fungible” means, it refers to a cryptocurrency (in this case) whose units are interchangeable with each other.  For example, if Alice has a pound of gold and Bob has a pound of gold of equal quality, they could exchange their gold and it still be worth the exact same amount – regardless of who possesses the gold.  Why does this matter for Monero?  Units of XMR can’t be blacklisted due to their use in previous transactions.  There are no “tainted bills” or specific XMR to be wary of since any XMR can be exchanged for any other XMR.

Cryptography On Monero

Monero incorporates several techniques that assist in the privacy of transactions on its network.  First, ring signatures are used to obfuscate the signer of a specific transaction.  In the future we will dive into the details of Monero’s cryptography, but for now this basically means that a group of users (as opposed to a single user) sign a message – and no one has any way of determining who in the group did the signing. 

If the cryptography is performed correctly, anyone in the group has an equal likelihood of having signed the message (i.e., this is the sender of the XMR in our case).  Who are the members of the pool?  Monero has a specific algorithm that pulls addresses at random to form a group of signers.  If an outside party attempts to discover the original sender of certain XMR, they will only be able to tell that one member of the pool sent it without knowing who within the pool did the sending.

Monero also utilizes ring confidential transactions (RingCT) to conceal transaction amounts.  RingCT advances the ring signature originally used by Monero and became a mandatory function of the network in September 2017.  It is quite a complicated topic, so we’ll post a link here and let you read more (we plan to cover this in-depth in a later post, so stay tuned!). 

Security of Monero

Finally, the security of Monero is further increased by stealth addresses.  Each time a sender wants to send XMR to a recipient, the sender must create random one-time addresses and relay payments to the recipient’s public address.  As XMR is received, each payment is placed in a unique location on the blockchain which cannot be linked back to the public address or any other addresses used in previous transactions.  Because stealth addresses are used by default (and are required in the Monero network), only a sender and recipient can ever know where a specific payment was sent.

Mining on Monero

Mining in Monero works similarly to Bitcoin and other cryptocurrencies by requiring miners to solve proof-of-work problems to validate transactions within blocks.  Until recently, Monero incorporated the CryptoNight hash algorithm, which was a feature of CryptoNote.  CryptoNight was originally designed to run using ordinary CPUs and GPUs. 

Over time, the original CryptoNight algorithm has been modified to keep it resistant to ASIC miners and allow ordinary users with standard equipment the opportunity to participate in mining.  A major reason for this is to ensure that massive centralization efforts won’t thwart the underlying desire for security and decentralization by the developers and users of Monero.  This has become a major source of contention in the Bitcoin network as several major players somewhat “own” the mining operations across the world – defeating Satoshi Nakimoto’s original vision for a decentralized, peer-to-peer monetary exchange platform. 

As of November 2019, the modified CryptoNight hash algorithm has been replaced by RandomX, developed specifically for Monero’s use.  CPU miners can see a dramatic increase in their mining capabilities, while a GPU miner will sit close to where it is currently in hashing power.  ASICs and FPGAs are even further discouraged by the new RandomX algorithm due to the incorporation of random code execution and memory-intensive techniques.

RingCT Transactions

RingCT transactions proved to be a barrier to efficient mining in the original implementation in Monero.  Since RingCT uses multiple signers and requires a signature both on the entire transaction and each subset of transaction bits, it became quite unwieldy to process increasingly hefty amounts of data.  This led to more intense computations and higher fees to validate blocks.  Luckily, a cryptography group based out of Stanford University authored a paper detailing a new avenue for accomplishing range proofs. 

These novel “bulletproofs” dramatically decrease the size of data for validating RingCT transactions.  As more and more ring signatures are added to a specific transaction, the size of data requiring validation increases logarithmically instead of linearly – this is a big deal!  It took about a year to get an implementation for Monero ready for production use, but after the incorporation of bulletproofs, average transaction sizes decreased by nearly 80%.  Not only were computation requirements downsized, but also Monero users saw a decrease in transaction fees.

Cryptojacking Exploits

Monero saw quite a bit of news flurry in 2018 due to the now defunct “cryptojacking” exploits made possible by Coinhive, a cryptocurrency mining service.  The service started by allowing site owners to incorporate a blob of JavaScript that loaded when a user opened a Web page and began full-scale mining as the user visited the page.  This led to increased power consumption for the user and batteries that were quickly drained for those on mobile devices.  Malicious actors quickly jumped on the opportunity to make money by surreptitiously stealing CPU cycles (so that they could mine Monero on a user’s system).  You might wonder,

“Why does this matter?” 

First, utilizing someone’s computer resources without their consent is fraudulent activity; users should be notified and agree to allow mining to take place on their systems. 

Hackers Doing Hacker Things

Second, hackers were injecting malicious payloads into Web sites and using other forms of trickery to silently place code on users’ systems such that it would run indefinitely – until a shutdown or reboot took place.  This led to laggy system performance, quickly drained batteries, and much increased power consumption (remember, extra power à extra electricity à extra money on the electricity bill this month). 

Luckily in March 2019, Coinhive was shut down.  They cited that a recent fork in Monero mining and a plummet in the value of XMR made their operation no longer profitable.  Albeit the idea to use spare CPU cycles began as a novel way of allowing sites to make money, it’s purpose quickly morphed into malware that profited off of unsuspecting visitors, and because Coinhive did not provide a swift response in quelling the bad actors, it experienced a quick demise.

Learn More About Monero

Monero is quite an interesting cryptocurrency specifically tailored for those who need or desire a high level of privacy in online transactions.  Having almost 6 years of development and improvements has led to a robust and trustworthy network of monetary exchange for anyone, anywhere.  Still want to learn more about Monero?  Check out a few of the links below:

Thanks again for reading!  In the next post, we’re going to take a closer look at Ripple – see you then!

In learning about the cryptographic and technical aspects of cryptocurrencies, we have mainly focused our attention on Bitcoin up to this point.  And while Bitcoin is the most prolific cryptocurrency in use today, there are several others which are worth exploring.  In this 5-part series we are going to take an individual look at several other “coins” and explore their place in the ecosystem.  These include:

  • Ether
  • Monero
  • Ripple
  • IOTA
  • Cardano

Haven’t heard of some of these before?  No problem!  We will first focus on presenting a basic overview of each of these coins – what makes them special? How are they used?  why not just use Bitcoin instead?  are they worth the investment?  Then we’ll take a detour and explore each of these coins individually – there’s a lot to learn!

In this first exploration into the world of cryptocurrencies, we’re going to take a look at Ether.  And before we can understand exactly what Ether is, we need to understand Ethereum.

What is the Crypto Called Ethereum

According to the Ethereum Foundation’s website, “Ethereum is a global, open-source platform for decentralized applications.”.  These “dapps” (decentralized applications) can be used as cryptocurrency wallets, financial applications, games, or even decentralized market. If you can think of an application currently in use, Ethereum can build such an application as well.  Dapps are built on “smart contracts” which are simply deterministic scripts of code that will perform the same operation each time they are run, regardless of the person or entity employing the code. 

The amazing part of Ethereum is its foundation – a blockchain.  All Ethereum assets are written to a blockchain to ensure that they are forever encapsulated and verifiable.  What’s more, this blockchain is Turing-complete (which may delight computer science geeks).  To keep things simple, this means that a system is computationally universal. Additionally, it can run on any system and complete an operation. (for perspective, Bitcoin is not Turing-complete, so applications cannot be written to its blockchain and executed) 

This may sound strange at first – aren’t we supposed to be tackling cryptocurrencies?  But fear not, dear reader, we simply needed to lay the groundwork to reach this conclusion – Ether is the cryptocurrency that drives the Ethereum ecosystem (you can now breathe a sigh of relief).  In this sense, Ether is very similar to what we have discussed concerning Bitcoin.  As a cryptocurrency, Ether can be used to buy goods or services or even receive payment for such items.  Payments can be sent to anyone, anywhere quickly and cheaply. 

The Difference Between Cryptos

However, there are quite distinct differences between the two cryptocurrencies, both in their designed use cases and implementation.  Ether differs from Bitcoin in the fact that it can be used as the native currency within its own ecosystem – Ethereum – while Bitcoin is specifically designed as a decentralized currency without an internal application environment. 

There are a variety of dapps that are built natively on Ethereum and use Ether as the means by which to earn payment or buy goods.  While Bitcoin is designed to produce a new block every 10 minutes or so, Ethereum produces new blocks every 12-14 seconds, allowing for transactions to take place much more quickly instead of having a transaction stuck in the Bitcoin mempool for extended periods of time.  Finally, the majority of mining with Ether is done using GPUs as opposed to specially designed ASICs.  This is due to the algorithm in use, Ethash, which doesn’t lend itself to specifically programmed circuitry.  (This is done on purpose – check out this link to see why this was originally proposed and implemented).

Ether Basis Monetary Denominations

The basis of Ether’s monetary denominations has quite an interesting background.  Rather than employing names with prefixes based on the root value (say, for instance, a “centi-Ether” or a “micro-Ether”), each unit of Ether measurement is based on the name of a famous computer scientist or an influential figure in cryptocurrencies (with the Wei as the atomic denomination).  You can see the denominations in the table below:

Table 1:  Ether’s Interesting Denominations.  Table from Investopedia / Carla Tardi.

The actual unit name can be seen on the left (Wei, Kwei,…) and the colloquial name in the Ethereum community is mentioned in parentheses (wei, babbage, …).  Notice that 1 Kwei is equal to 1,000 Wei (i.e., a kilo-Wei).  The same holds true for all denominations except the Ether (Mwei is mega-Wei, Gwei is giga-Wei, and so on).  If you are interested in the names of the individuals mentioned above, a brief explanation can be found here.

Ethereum Gas

            While all of these names are valid terms to describe Ether, the Gwei is most often used to denote specific transaction amounts.  Why?  To answer that, we need to first understand the role of “gas” in Ether transactions.  Similar to transaction fees in Bitcoin, the amount of gas (a unit of work in Ethereum) needed for an Ether transaction determines the relative cost of completing the transaction.  Because every node requires CPU cycles or network operations to perform a unit of work, gas is used to compensate nodes for their role in completing these tasks.

 As tasks become more intensive or require more information to cross the network, the total cost of the operation goes up.  If you’re willing to pay more per gas, miners will be more likely to quickly complete your transaction since they will earn a higher fee. In essence, your total fee comes to how much gas is used (how many units of transaction work) multiplied by how much you are willing to pay for gas (cost per unit of work). 

            Alright, back to Gwei.  If you want to determine the cost of gas for a specific transaction, you’ll allot a specific amount of Gwei that you’re willing to pay for it.  Notice that Gwei, while being equal to one billion Wei, is still only equal to one-billionth of an Ether (1 Gwei is 0.000000001 ETH).  How much does a typical transaction cost?  It all depends on the current block gas price limit at the time you attempt a transaction (this site for instance will show you the current block gas limit).

Ethereum Total Supply

            How many Ether will ever exist in the Ethereum network?  This isn’t a cause for concern like it is in the Bitcoin ecosystem.  Bitcoin will only have 21 million BTC ever in existence. This means that when the final BTC is gone there will be no more coins to uncover and transaction fees will become the main viable solution for miners to earn money. 

Ethereum, however, doesn’t employ such a mechanism and instead produces more Ether each year.  There has been talk of introducing a hard cap on the total number of Ether in existence, but this has yet to come into existence and does not seem to be the inevitable end to the current operation of the network.  The current system uses a Proof of Work (PoW) algorithm to ensure that each transaction is correct and added on the blockchain. 

Ethereum Proof of Stake

While there have been talks for years concerning a switch to a Proof of Stake (PoS) algorithm, the current implementation designed as a hybrid of the two is named Casper.  While older PoS algorithms have been less than effective, Casper is designed to ensure that all participants continue to play nicely and punish those who refuse to follow the rules. 

How Old is Ethereum

            Although Ethereum is only about 5 years old (beginning July 30, 2015), there has already been a forking of Ethereum.  A quick back story:  In June 2016, the Decentralized Autonomous Organization (DAO) launched as a venture capital firm using the Ethereum blockchain.  Even though it began with $150M USD, it was immediately hacked due to a flaw in the DAO code.  The thieves stole around $50M USD worth of Ether.  Rather than continuing with the vast sum of stolen ETH, the Ethereum Organization decided to hard fork the Ethereum blockchain at block 192,000. 

Due to this action, the previous transactions were invalidated, and Ethereum Classic continued with the original blockchain while Ethereum stuck to the new blockchain.  As one can imagine, there is now a rivalry between the two forks, with each attempting to prove its dominance and efficacy in greater proportion to the other.

Learn More About Ethereum

            Ether (and by relationship, Ethereum) is a novel and interesting cryptocurrency.  While we’ve tried to cover plenty of information here about Ether, there’s still so much more to learn.  Take a look at the articles below if you are interested in learning more about Ether:

Thanks again for reading!  In the next post, we’re going to take a closer look at Monero – see you then!

Bitcoin has revolutionized the way payments can be made in the 21st century.  There’s no centralized bank holding money or validating transactions – instead, everything is handled by the network in a decentralized manner.  No one’s in charge, so no one can tell you how to handle or spend your money (i.e., there’s no censorship).  In addition, you can maintain a higher level (though not perfect) of anonymity when using new addresses with each transaction.  Transactions are also irreversible, so you don’t have to worry that someone might pay you and then steal their bitcoin back from you.  Bitcoin is safe, stable, and a worthwhile cryptocurrency to use in sending money to other parties for goods and services. 

But it can be soooo slow.  And transactions can be pretty expensive.

Bitcoin Transaction Speed

Why?  Even though a new block in the Bitcoin blockchain will be produced every 10 minutes or so, your transaction may or may not be included in the most recent block.  Or the next one.  Or even the next one.  In fact, it is not unreasonable to think that a single transaction could take up to a day or two to be completed. 

When you initiate a transaction on the Bitcoin network, it doesn’t immediately go into the next block; instead it heads into a “holding bin” of sorts – the Bitcoin mempool.  Miners choose transactions from this pool to confirm, and once every 10 minutes or so a new block of transactions is added to the blockchain.  When a block is added, the miner gets not only the mining block reward (currently 12.5 BTC) but also the fees associated with each transaction in the block. 

From the miners’ perspective, their incentive to earn more money means that they will tend to pull higher-value transactions first and leave lower-value transactions in the mempool.  This means you have two basic options:  1) initiate a transaction with a higher fee, or 2) be patient and wait for the transaction to be completed.  (There are other ways to “push” the transaction along, but none of them are guaranteed or even necessarily helpful.)

Transaction Fees

As of the writing of this post, each transaction is averaging about $0.50 USD, but at various times in the history of Bitcoin, fees have been as high as ~$40 average per transaction.  If I owed my friend $10 for pizza, I would end up paying $50 for $10 worth of pizza – definitely not worth it.  And it could possibly take a day or two to reach his Bitcoin wallet!  Is there a way to pay more quickly and with lower fees?

I’m glad you asked!  Yes, there is!  Enter the Bitcoin Lightning Network (LN). 

Bitcoin Lightning Network Overview

The LN is capable of completing transactions within seconds and with minimal fees (it’s difficult to give an exact amount – we’ll discuss this later).  Rather than completing a transaction that might wallow in the mempool for quite some time, the LN allows one sender to direct payments to a receiver (and vice versa) with no wait time.  The LN creates a new “layer” on top of the current Bitcoin network that will essentially bypass the wait time that a standard transaction must endure.

So how exactly does this work?  Rather than creating a new transaction every time bitcoin passes between two parties (and broadcasting this transaction to the network), these parties are able to establish a shared (or “multi-signature”) wallet and deposit a small, individual allocation to the wallet.  A single entry on the blockchain is added and used basically as a bookmark for subsequent transactions between these two parties.  Subsequently, the individual balances are passed back and forth as desired by both parties.  Only the most recent version of the blockchain entry is considered valid.  When they are ready to “terminate” their relationship, either party is able to close the blockchain entry and broadcast it to the network. 

BTC LN Fees

Let’s discuss how fees work in the LN.  If you and a friend establish a shared wallet, you can transfer money to each other for only cents per transaction.  Yes, you heard me right, almost no fees at all.  But let’s say that you want to pay someone else that you don’t have a direct relationship with – would you need to establish a direct relationship with them and exchange bitcoin?  No, you can operate through other known relationships.  Confused?  Let’s take a look at the figure below.

Figure 1:  Mesh payment example

Alice owes Kevin money for lunch, but they haven’t established a shared wallet – can she still pay him, or do they need a new wallet?  Well, luckily Alice and Stephen have a shared wallet, as do Stephen/Jen and Jen/Kevin.  Alice can pay Kevin directly (the thick black line in the figure) by paying through a chain of shared wallets (the think blue lines). 

            Albeit this specific situation is just an example but think about how this could be used.  What if, for instance, Jen was replaced with a payment processor who handles payments for $0.10 per transaction?  You could potentially pay any third party through shared relationships with the payment processor and drastically reduce the associated fees and time it takes to complete the transaction.

Learn About Lightning Network

            Are you ready to get started??  Well, while it is possible, it’s definitely not prolific yet.  The LN is still a relatively new occurrence in the cryptocurrency world, but it is gaining popularity and becoming more popular to use as an alternative to the way standard transactions are performed.

            Curious about the LN?  Take a look at some of these articles:

Thanks so much for reading!  Go take a look at the LN and see if it’s a good resource for you!

Over the course of the past two articles, we have dived into what it looks like to get into mining Bitcoin.  We’ve discussed the key elements of mining operations and the technology behind the scenes – including CPU, GPU, FPGA, and ASIC mining hardware.  After taking a closer look at FPGA and ASIC miners and comparing their optimal use cases, we looked at the craft of mining from both an economic and a feasibility standpoint.  Now, we are going to slowly dive into: What is Cloud Mining.

Mining Industry Worlds

Essentially there are two worlds in the mining industry – mining with your own hardware and mining with someone else’s.  Let’s start with the first world since this is the one we have been discussing (and is probably more intuitive as well).  Let’s pretend that after running the numbers, it seems that our investments have a reasonable probability of producing income. 

We’ve factored in initial investments and recurring costs (equipment maintenance and electrical consumption) and deemed it worthwhile to start mining.  After purchasing a mining rig (most likely either FPGA- or ASIC-based), we configure, customize, and let it run.  There is some tending to the equipment, but for the most part it is happy to sit in the corner of our room and crank out hashes hour after hour, day after day.

That seems to make sense.  We could either join a mining pool or mine on our own, but either way we are capable of producing hashes and potentially earning a hefty sum of money if we are lucky enough to get our block into the blockchain.  But what if we didn’t want to purchase and maintain our own hardware?  It seems like it might be a pain, and what if the electrical consumption was higher than we thought?  Maybe we move often and can’t seem to find a dedicated space for our mining rigs.  Perhaps there’s another way to mine?

Cloud Mining Operation

Enter cloud mining.  Rather than running our own mining operation, we can essentially buy shares along with others in a centralized mining outfit that splits the profits among the investors.  This is similar in nature to cloud-hosted file shares and apps – we pay a monthly fee for someone else to store our data and in turn we have no hardware to keep up with, no patches to apply, and no reason to worry about theft or disaster recovery.

Pros and Cons of Cloud Mining

Why turn to cloud mining?  Let’s weigh the pros and cons of cloud mining. 

Pros:

  • No equipment to deal with.  This means no excess heat in our room, no loud fans to keep processors cool, and nothing to sell if we decide to stop mining or upgrade to a newer rig.  This also means no upfront equipment costs to get started in the first place.
  • No electrical consumption.  Mining can be very power hungry.
  • No need to worry about someone stealing our mining equipment or damages due to storms, fires, or other unforeseen circumstances.

Cons:

  • Attempting to use untrustworthy vendors can potentially lead to scams and loss of your money.
  • Your profits help to pay for the overhead of the data centers and employees who maintain and operate the equipment.  In other words, you make less profit than you potentially would if you managed everything yourself.  In addition, if payouts are too low, you might make nothing at all.
  • You can’t customize or optimize the mining equipment – meaning you must use their mining software and their chosen processors for producing hashes.  You also can’t choose to upgrade specific components as new technologies emerge.

Should You Start Cloud Mining

Alright, that gives us a basic idea as to what cloud mining is, so let’s consider cloud mining from a “real-world” perspective.  Typically, a user who wants to mine in the cloud will enter into a contract for a specific hash rate at a specific dollar value.  For example, you might be interested in spending $100 per month as an investment in Bitcoin mining.  You can search through a list of reputable dealers (we’ll provide some to check out below) and see what rates they offer.  They might be willing to provide you 1.5 TH/s for $129 per month for a 24-month contract (these numbers are fictitious and just used as an example). 

There also may be a monthly maintenance fee based on the number of GH/s or TH/s of mining power to help cover the costs of their infrastructure.  Most outfits will allow you to mine a plethora of cryptocurrencies, not just Bitcoin, and provide indices for forecasting investments. 

Places to Find Mining Services

There are lots of mining services out there who are more than happy to take your money – but this doesn’t mean all of them are trustworthy.  You need to carefully research and vet a cloud mining company to ensure you know what they’re doing with your money, and equally importantly, that they know what they are doing.  Here are a few places you can look into to get started with cloud mining (this is not an endorsement for any of these services but rather a springboard for your own research):

Now that you’ve taken a look around the Web at some major players in cloud mining, here are a few more resources for you to browse:

Research Mining Before You Commit

Needless to say, cloud mining is a way to get into the world of cryptocurrency but is not foolproof nor without its risks.  Remember to do your research and if it seems too good to be true – it probably is!  There’s a lot to weigh between risk and reward, so make sure that you have a good understanding of how cloud mining works and its benefits and drawbacks before diving into the deep end.  Happy (cloud) mining and thanks for reading our post on What is Cloud Mining.

Welcome back to our exploration into Bitcoin mining!  In the first part of this mini-series, we took a look at what mining is and how it originated.  Remember that the whole point of what we are doing while mining is attempting to find a “golden” hash which means:

  1. It provides a correct output hash from the current block
  2. It is a value below the target number provided by the Bitcoin network. 

What Are The Best Bitcoin Mining Rigs

We’ve gotten past the CPU and GPU miners, and though they are quite capable at calculating hashes, they have been trumped by different technology that is specifically built for such calculations.  Let’s take a closer look at FPGA and ASIC miners and see why these are the miners of choice in the current environment.

What Is A FPGA Miner

An FPGA miner is a field-programmable gate array. 

To keep it simple, this is somewhat like a hybrid between a software-configurable logic structure and a microprocessor.  A specific hardware description language (HDL) is able to convert instructions in software to a novel setup within the processor itself.  This is where the term “field-programmable” comes from – an engineer in the “field” is able to change the architecture of the circuit so that it can be different from how it came from the factory.  The FPGA can be programmed and re-programmed with relative ease to design novel circuits and accomplish tailor-made results. 

            So, you may be asking yourself, “Why does this matter?”  Power consumption for a given computational workload – this is a key metric in actually running a profitable mining operation. 

Why Are FPGA’s Good?

FPGA’s use much less power per computation than GPU’s.  It’s difficult to give exact numbers because workloads vary, but FPGA’s can use anywhere from 3x to 10x less power than a GPU.  Even at only 3x more efficient power consumption, you could, for instance, take a 1,500 W mining machine down to only 500 W, saving approximately $1,000 over the course of a year (using about $0.1319/kWh and mining 24/7).  This is a significant amount of savings, needless to say.  With this in mind, it’s a simple matter to switch to a technology that will perform comparable workloads with significant savings.  I guess that’s that – we’ll stick with FPGA’s! 

What Are ASIC Miners

Not so fast…  There’s a new miner in town (well, at least as of 2013).  The ASIC (application-specific integrated circuit) can perform calculations more quickly than FPGA’s in addition to being significantly less power-hungry.  An ASIC is specifically designed to perform a single function – and to perform it incredibly efficiently. 

ASIC’s are used in a host of electronic tech nowadays, including networking routers/switches, digital voice recorders, and, of course, cryptocurrency mining gear.  Because these chips are designed to do one thing, they aren’t quite as versatile as FPGA miners, but if you only plan to mine one cryptocurrency (i.e., Bitcoin in our case), then you’ll find your ROI to be quite higher over the lifespan of a device.  If you plan to mine multiple cryptocurrencies, you might be better off going with an FPGA miner – the choice is yours and is largely based on where you plan to devote your resources – both time and electrical energy consumption.

ASIC Or FPGA For Mining?

“Alright,” you might be saying, “get to the point – which one is better for Bitcoin mining?”  This is a tough call.  I think the age-old answer, “it depends…”, is in order here. 

ASIC’s are definitely more efficient and faster than FPGA’s.  It is very difficult to find direct comparisons on the Internet given the disparity of information and the difference in specific applications, but ASIC’s tend to be about 10x more efficient than FPGA’s (in terms of number of hashes per Watt of electricity required).  This means that you can either reduce your overall power consumption or mine significantly more BTC at a specific power consumption. 

Antminer For Bitcoin Mining

One example of a rig you might consider is the Antminer S9K-13.5 TH/s.  At around 1,150 Watts of energy consumption, you can mine approximately 13.5 terahashes per second (TH/s).  Needless to say, this is a crazy amount of mining potential for a very low price.  FPGA miners tend to be higher priced but are also able to mine many different types of cryptocurrencies.  It’s difficult to find specific FGPA mining rigs because FPGA’s can be placed in a typical computer’s PCIe slots and utilize a commodity operating system (Windows, for example).  A code base is configured, compiled, and pushed to the FPGA. 

After programming, the FPGA is able to start mining – typically in the neighborhood of 500MH/s or so – but again, it varies so much that it’s hard to really get an “A to B” comparison here.  As far as price, many specific rigs are starting in the $650 range and can easily hit $5k – $6k depending on the complexity and brute force available.

Bitcoin Mining Rig Analysis

For this reason, let’s discuss what you need to concern yourself with if you plan to mine with a personal rig and provide links so that you can make an informed decision on how to proceed.

  1. Do a brief economic analysis.  Is there at least a marginal possibility that you will earn money mining?  Remember that between the costs of acquiring mining hardware and paying for electricity to run these beasts, you could spend anywhere from $100’s to $1,000’s.  Make sure this has at least a reasonable probability of earning you money before dumping your savings into a rig.
  2. Buy a miner.  This could be an ASIC miner if you know you will specifically focus on one type of mining (i.e., you only plan to mine Bitcoin).  This could alternatively be an FPGA miner if you plan to try your hand at different cryptocurrencies out there.
  3. Get a Bitcoin wallet and join a mining pool.  Obviously, you need to get paid, so you’ll need a wallet.  You’ll also dramatically increase your chances of earning at least some money if you pool your resources with other miners.
  4. Get some sort of mining software to start mining and get to work.

Resources For Bitcoin Mining Hardware

So there’s a lot going on here, needless to say.  Below are some links to help get you started in the world of cryptocurrency mining:

In the next post, we’ll take a look at other options available to get in on the action.  Until then, happy mining!

We’re going to take a few posts to really “dig deep” into Bitcoin mining (with plenty of mining puns to boot). Now that we’ve looked at the cryptographic aspects, we’ll focus on the nuts and bolts of mining including hardware you need to get started, how to join a mining pool, and balancing the economics of whether or not it’s worth it to mine for yourself or get into cloud mining. There’s a lot going on here if you haven’t noticed! Therefore, Let’s dive into Bitcoin Mining for beginners part 1.

Bitcoin Mining For Beginners

Before looking into the computer power necessities to mine, we need to remember the key elements of what’s actually going on during a mining operation. We need a computer of some sort that is able to compute a hash based on specific information within a block of transactions in the Bitcoin network. The hashing algorithm used for Bitcoin is the Secure Hash Algorithm (SHA-2 or the 2nd generation of SHA) with a 256-bit output length (usually referred to as “SHA-256”).

It’s not really necessary to know all the details of how we arrive at this output for our purposes, but the computing power to transform a small block of information into an output message of this size is rather trivial. Here’s a simple picture below (taken from BitcoinWiki).

Figure 1: A simple example of computing a SHA-256 hash

Basically, a message is split up, run through a specific crypto algorithm many times, and output as a 256-bit value. No problem, what about if we tried this 10 times in a second? That would be a lot of calculations, but still this is computationally negligible given the current state of CPU power. What about 100? 1,000? Now let’s try 1,000,000.

Million Hashes Per Second

Even at a million hashes per second (that’s a lot of computing, needless to say), we aren’t even scratching the surface of what a Bitcoin mining device is capable of. As of the time of this writing, you can purchase your own Bitcoin miner that can produce 13.5 TH/s (terahashes per second) for $90. This means that this mining rig (which is relatively cheap, by the way) can produce 13,500,000,000,000 hashes per second. Some of the bigger rigs can produce 67 TH/s…it is difficult to even conceive how this could produce so many calculations on a per second basis.

How is this possible?

Bitcoin Mining Nodes

Enter our time machine as we travel back to the not-so-distant year of 2009 when it all began. In this quaint age, any node on the Bitcoin network who wanted to mine was able to use a simple PC. When Bitcoin first started, the reward for finding the hash of a specific block was 50 BTC – which is a ton of money at the present moment but was worth very little when the cryptocurrency first began. At this time, it took machines guessing around 10 MH/s (megahashes per second) statistically to find a hash below the target number for the network.

It was simple enough for a computer’s CPU to compute this number of hashes in hopes of being the lucky miner to solve the block and reap the mining reward. (Check the Bitcoin Difficulty Chart to see how many mining operations are running to compare how many you need to solve for a new block currently.)

Bitcoin Network Self Regulation

Well, needless to say, people weren’t content with running CPU’s to compute hashes and now rely on more powerful means. As a quick aside, it’s important to remember what’s going on with mining power – as more people add more effective mining power (i.e. calculation operations) to the overall Bitcoin network, the difficulty of the target number simply goes up.

The network is self-regulating and desires to keep block outputs at around 6 per hour or every 10 minutes. So, if more power is added to the overall network, the difficulty increases. This happens regardless of the type of processor being run – it’s simply based on the overall computing power. We learned way more about this in our post on Bitcoin mining’s cryptographic operations but essentially the target number will add more 0’s to the beginning of it such that hashes need to be below an even smaller number, which increases the overall difficulty of attempting to find a hash with the SHA-256 algorithm.

CPU and GPU

Alright, after operators were no longer content with the power provided by CPU mining, the GPU miner became the new answer. GPU’s are dramatically quicker than CPU’s (as in 1,000’s of times quicker) because of the function they serve to provide. Think about it like this – CPU’s are kind of like a boss dealing out tasks. The CPU and its instruction set are designed to handle a host of tasks in a computer. Tasks such as graphics operations, math computations, isolations of threads among processes, handling virtual memory allocations, and more are done.

GPU’s don’t care about all of this – they just want to work. The job of a GPU is to do the same thing over and over and over. This supports graphic operations for a computer, so they are designed to perform calculations very quickly and very efficiently. In addition, they can handle more parallel operations. (similar to fitting all of LA’s traffic in a 20-lane highway vs. a 2-lane highway).

Bitcoin Mining Resources

Want to learn more about the topics we covered today? Here’s a few links for you to check out:

  1. Here’s some more information about the difference between CPU’s and GPU’s.
  2. This article gives a basic overview of mining. It also discusses many available facets for starting.
  3. Want to buy a dedicated Bitcoin miner? We didn’t get to a deep dive on these devices this week. That’s coming next week, but take a sneak peak at what’s on the market.
  4. Finally, the name’s in the title: “What is Bitcoin Mining and How Does it Work?

Next week, we’re going to tackle the two remaining mining hardware types – the FPGA and ASIC miner. We’ll also get to discuss what it looks like to mine for yourself, including some possible platforms to join. We’ve got a lot to get to – thanks for reading, and we hope to see you in the next post!

If you have even the slightest interest in cryptocurrencies, you’ve probably heard a lot of terms thrown around – mining, blockchain, proof of work, and public key. That’s fine, but what do they actually mean? Hence, we made an article to help learn about these topics with a focus on Bitcoin Mining Education.

Nothing should be considered investment or financial advice. Enjoy the ride.

Mine Bitcoins

In this post, let’s take a closer look at what it means to “mine” bitcoins. It’s a strange thought to visualize, down deep in the earth digging up 0’s and 1’s, but it’s a fundamental concept for most cryptocurrencies.

Sometimes it’s best to get information from the source. Therefore, here’s what Bitcoin.org has to say about why it’s referred to as “mining”:

This process is referred to as “mining” as an analogy to gold mining because it is also a temporary mechanism used to issue new bitcoins. Unlike gold mining, however, Bitcoin mining provides a reward in exchange for useful services required to operate a secure payment network.

Bitcoin.org

Bitcoin Mining Basics

At its most basic level, mining is simply attempting to solve a difficult problem. Solving this provides security for the blockchain to ensure that each block of transactions is credible and can be trusted by the community. When a node on the network solves a difficult problem, they are rewarded with a fixed number of bitcoins as compensation.

Alright, that’s it! Thanks for reading!

Just kidding. Let’s break down these steps, starting with “solving a difficult problem”.

Mining To Solve A Problem

A single block on the blockchain can contain as few as 1 transaction or as many as 1,000’s of transactions. All of these need to be verified and placed onto the blockchain.

It’s no problem for anyone to verify that a transaction is valid, but to place a new block a miner must provide a “proof-of-work” to the community proving that they have validated all transactions within the block. The difficulty present in mining blocks keeps the output of blocks steady (about every 10 minutes or so a new block is pushed onto the blockchain).

Hashcash Bitcoin Proof of Work

Bitcoin uses a proof-of-work function called “hashcash” which provides the “difficult problem” to solve before a block can be added to the blockchain.

We’ve talked about hashing in a previous article, but let’s provide a quick recap: Hashing takes a message of arbitrary length and changes it to a fixed-length output that cannot be reversed to find the original data. Bitcoin uses the SHA-256 algorithm in hashcash, so essentially a miner who needs to find a specific hash can end up with 2256 values (around 1.16 x 1077 – this is an incredibly large number, needless to say).

Bitcoin provides a target number to the network. All miners on the network are attempting to provide a hash value that results in a number lower than the target number.

Let’s make this a little more practical with a simple example.

BTC Mining Example

Suppose we have an 8-bit algorithm, so instead of SHA-256 producing 256-bit values, we are using our own made-up version called “SHA-8”.

This means that I can produce hashes between 00000000 and 11111111 in binary or 00 and FF in hex. Since our infrastructure wants to keep the output of blocks to around every 10 minutes or so, I can make it so that any miner who wants to get rewarded for solving a block must produce a hash that starts with three 0’s or less, i.e. a target number which must be less than 00011111 in binary or 3F in hex.

This is dramatically smaller than the overall size of the hashing algorithm’s available output. Now miners must make a number (in decimal) between 0 and 63; any number 64-255 will not meet the criteria. In this example, we have voided the applicability of 192 hash values.

Real World Crypto Mining

This is the exact thing that happens in the real-world of Bitcoin mining – more and more 0’s are added so that the hash values become increasingly hard to mine. As of January 2020, there have been as many as 74 0’s at the front of the number – which essentially voids about 18 x 1021 hashes. Because of this, miners have to output trillions of hashes before eventually finding one that is below the target number.

Every 10 minutes a hash meeting this criteria is found – but this after lots and lots of work on behalf of the worldwide mining pool.

Alright, we’ve discussed what it means to “solve a difficult problem” – what’s next? Miners add their block to the blockchain after completing the hashcash algorithm. Basically the first to complete the block and add it to the blockchain is the winner and receives a reward in BTC for their effort. As more and more miners add blocks onto the block chain, the verification of a specific block is solidified.

Early Days Of Bitcoin Mining

Back in 2009 when the Bitcoin network was formed, miners who solved for a block on the blockchain received 50 BTC as a reward for their efforts. However, Bitcoin was designed to halve this value after solving for 210,000 blocks (which averages to about every 4 years or so).

That means that around 2012, the reward became 25 BTC; in 2016 it was about 12.5 BTC and so on. Only 21,000,000 BTC will ever exist in the network; after this point mining will no longer produce new bitcoins to pay the miners, who will then be paid through transaction fees for their efforts in verification.

Bitcoin Mining Resources

Do you want to read more about the cryptographic aspects of mining? Here are a few links that will shed additional light on the topic:

  • This site does a great job breaking down the overall process of mining.
  • Here’s more from the official Bitcoin.org website explaining mining and its effects on the cryptocurrency ecosystem.
  • Want to get in on the action? Learn more about how to start mining on your own or how to join a mining pool.
  • Finally, this article digs into mining (pardon the pun), including the economics of the situation.

As we get closer to the Bitcoin halving, Ethereum Proof of Stake Casper release, and continuous regulatory clarity, it is important to have a game plan. These events and solidifying developments will strongly propel the crypto market towards the next bull run. Therefore, here at my Top 5 Tips For The Next Crypto Bull Run.

Nothing should be considered investment or financial advice. Enjoy the ride.

Crypto Bull Cycle

With the bull market coming back into effect, you will need to know where you can safely obtain relevant information. Not only that, but accurate, and timely news can be the difference between making a 2% gain or a 20% gain. You need to be ahead of the rest of the market. Therefore, my first tip is find reliable news sources.

Stay Up-To-Date On Crypto News

If you were in crypto during 2017 or 2018, you know news is everything in this market. The minute the markets start moving, people look for a reason why. More often than not, there is a logical explanation to pattern off of the price movements.

Although, if you get your news even 1 minute later than most of the market, you will have likely already missed your chance for huge profits.

CryptoPanic

The first site I recommend for staying up-to-date in the crypto market is CryptoPanic (CP). To keep this brief, CP is a news aggrigator for the top new sources in crypto.

The owner spent many months searching and digging through the market to find the most reliable and diverse sources the market has to offer. The best part about this platform is that the community gets to ultimately decide what is important and what is not. They do that by voting which articles are bullish, bearish, important, liked, disliked, or toxic.

The amazing thing is the top voted on articles are then displayed at the top right of the site making keeping up with all the most important news in the industry, easy as pie.

In addition, you can subscribe to this blog you’re on now, Sanfrancisco Tribe, to receive daily articles about tips and tricks in the crypto market, relevant news, and educational pieces.

Research New And Top Projects

Once you have your reliable news sources set up, you are going to want to do preemptive research. This is important because if you are not ahead of the game, there is no way you can make confident trades and orders when the market starts moving.

If you are trying to make money trading or investing in crypto, you need to be researching all of the top projects, some of the new and upcoming ICOs, and be organized on what projects to keep an eye on.

There are thousands of projects across the market, but I would say, you need to know the top 50 projects by market cap at a minimum in the crypto space. This is the only way you can feel confident in your portfolio. This way you will understand the competition, price fluctuations, and have other projects to hedge into just in case.

CryptoCompare

CryptoCompare is a great site to review some of the upcoming ICOs, review top exchanges, and follow the top projects in the space. There are a ton of sites like this, so in reality it is all about finding the one that suits your needs. I personally like CryptoCompare because of their detailed reviews, data driven research, and consistent up time.

Track Crypto Prices and Trends

As I just mentioned above, you need to find sites where you can quickly and seamless identify price movements. Therefore, let’s look at two important sites to utilize.

Coin Market Cap

This is an obvious choice due to the impact and authority Coin Market Cap (CMC) holds throughout the industry. CMC has a great up time, and very rarely has issues with price reflection or social implementation. My favorite part about CMC is that you can click on your favorite coins, view the price movements, get updated on all of their social posts, and see relevant information all in one page.

Arbitrage

One thing to mention, CMC has the potential to help identify arbitrage oppertunites.

Arbitrage is the practice of trading the same asset in two different ways or places and making a profit. In short, purchase Bitcoin on one exchange, and sell it on another with a higher market price to obtain a profit.

Ideally, this should never happen because the price of an asset should be consistent based on the current market value, but that is never the case with hundreds of exchanges, and trading pairs. Therefore, CMC is also great for seeing what price BTC is at on different exchanges. If you are quick, and can move assets around quickly and cheaply, you can easily create arbitrage opportunities and get quick profits.

Tradingview

Tradingview is another one of the more popular sites, but this one offers more utility. This site can allow you to map out almost any coin vs coin or trading pair, and then map those to selected development patterns or moving averages. If you want to see how BTC is going based on the Fibonacci levels, 200 day moving averages, or any other important metrics, this is the place to go.

Find An Exchange you trust

If you do not already have a reliable exchange that you trust to hold crypto in and making timely trades, then you need to figure that out now. Once the bull market starts, timing is everything. More than likely, crypto will explode in price at some point and you need to be ready to sell within hours of when that happens. Otherwise, you can miss out on maximizing your profits.

Coinbase For Fiat Conversions

The first exchange I suggest looking into is Coinbase. Again, this is a popular exchange across the market, but it is the easiest way to transfer fiat into crypto and vice versa. Not only that, but it is one of the most secure and trusted exchanges on the market.

More often than not, traders will exchange fiat for crypto on this exchange and then send their digital assets to another exchange in order to purchase altcoins not offered on Coinbase. One of those “other” exchanges is most notably, Binance.

Binance For Altcoins

Binance is probably the most reputable and sought after exchange in the industry. With its insanely low trading fees, consistent security, and fun loving CEO, this company and exchange have excelled way above expectations.

One of the reasons Binance is so great is due to the mass availability of altcoins that you can not trade or acquire on Coinbase. This coupled with a multitude of benefits like trading competitions, increased security, low fees, high volume, accessible trading pairs, stable coin trading pairs, a native token Binance Coin for easy conversion, and consistency, makes Binance the top exchange on the market for crypto traders.

White List Bitcoin Addresses

One thing to note, make sure to white list your BTC addresses on other exchanges from your main exchange.

White listing means sending a small amount to your liquidable wallet (Coinbase wallet) to make sure there are no issues with the transfer. Some exchanges require up to a 72 hour white listing period on moving funds to a new wallet for the first time. You really do not want to have this problem if you are trying to sell your assets fast, so go ahead and do it now.

Avoid Scams and Lending Platforms

The last tip is to avoid scams and lending platforms. Every bull cycle comes with amazing amounts of scams and lending platforms promising huge returns for simply buying in or giving them your money in exchange for passive income. These are almost always either based on pyramid schemes, trading bots, over leveraging the market in margin accounts, or fraudulent practices.

Personally, I would avoid these at all costs, but if you do need an interest account to receive around 6.2% on your Bitcoin reserves then I can help you with that.

Blockfi Interest Accounts

Blockfi is one of the most competitive and recognized interest account providers in the crypto scene. They are backed by Gemini, ConsenSys, and a multitude of other VC’s and companies. To date that have approximately over $100 million in assets under management (AUM) and continue to grow. Last month alone (January 2020) they paid out over $1.5 million to holders of their accounts in interest alone.

Those are some huge numbers for interest. In addition, the platform is insured through Gemini’s partnerships and insurance coverages. Therefore, you can sleep soundly knowing that your crypto is safe.

In addition, this is one of those platforms with a 72 hour white listing period. This is done in terms to help the investors from their accounts getting hacked and the hackers withdrawing all of your wealth to an unknown address instantly.

Personally, I love Blockfi interest accounts. It gives the interest account holders security to know that someone can not break into my account and immediately withdraw all of my crypto. It gives me 72 hours to see the email, deny the transaction, and prevent the fraud.

You can learn more about this platform in this Blockfi Review.

Top 5 Tips For The Next Crypto Bull Run

Thanks for reading my top 5 tips for the next crypto bull run. Once again just to cover them all:

  1. Stay up-to-date on crypto news
  2. Research new and top projects
  3. Track Crypto Prices and Trends
  4. Find an exchange you trust
  5. Avoid Scams and Lending Platforms

You need to do all of these to give your investments the best chance to be successful. Best of luck this next bull cycle, and may the “When Moon” memes be ever in your favor.