Cryptocurrencies have been all over the media lately, due mainly to the huge shifts in the value of Bitcoin, a type of cryptocurrency. If you don’t know what that means, a cryptocurrency is a type of digital currency made to be especially secure.
The first cryptocurrency was made back in 2009 and is called Bitcoin. Bitcoin is now the most well-known and expensive currency out of the thousands that exist. But it wasn’t always that way: when Bitcoin first started, it was both worthless and known to very few. In March of 2010, one Bitcoin was equal to 0.003 USD. After about a year, in February of 2011, Bitcoin became equal to the USD and by July, it jumped to 31 USD. The trend continued, and in April 2013 it reached 266 USD. It finally peaked on November 20th, 2017 at 8,100 USD. Even so, many people are still unaware as to how Bitcoin and other virtual currencies work. This article should give you all the know-how you need.
How do you get cryptocurrency?
There are two main ways to get cryptocurrencies. The first is to purchase them using traditional currencies: this simply involves finding someone who possesses a type of cryptocurrency and giving them money in return for cryptocurrency. This money is stored in a virtual wallet. The other much more complicated and time-consuming way is to ‘mine’ for the cryptocurrency you want. Most cryptocurrencies have different ways of mining but they all work using the same basic concept. This basically involves the ‘miner’ downloading a program and running it on their computer to generate that type of cryptocurrency.
How does mining work?
Every cryptocurrency keeps a public record of every transaction that is made. This is so people can track the money from its generation to the final person who has it. That way, they can ensure no one can counterfeit their currency and falsely generate their coin. What the mining program does is record a set of transactions into a block and then add it to a chain of blocks: the ‘blockchain’. Whenever a miner adds a block onto the chain, they are rewarded with some of that type of currency. However, this would normally be done very quickly by a computer, leading to huge inflation and devaluation of the cryptocurrencies. To prevent this, cryptocurrencies require a ‘proof of work’ before the miner receives their reward. The difficulty of the proof of work is determined by the average mining speed of a block and the block-creating rate.
What is proof of work?
Proof of work check to see if the hash number (basically, a header) of the block being proposed by the miner has the correct number of O’s or not. However, as the rate of block generation and mining difficulty goes up, the lower the number becomes, and thus the less likely it becomes for a miner to generate a block with that hash number. Every time a miner fails a generation they add a ‘NONCE’ to generate a new hash number.
How much money can you make?
Henry Parsons is a cryptocurrency miner in the United States who mines Ethereum: the second most popular cryptocurrency after Bitcoin. He operates a relatively small-scale mining operation in his house to supplement the income he gets from work.
“Currently,” he says, “most of my direct investment has been in mining rigs; which each provide a fixed amount of work for whatever network or coin I choose to mine with, but how much I am rewarded for that work varies with how much other computing power the network has available.” He adds, “Assuming the difficulty were to stay the same, and the value of the currency were to stay the same as of this moment I would net 650 USD a month.”
What is the payout compared to the investment cost?
Parsons claims that “In total, I have 3000 USD cash from this, plus 2241 USD of mining equipment I didn’t have before, and I only invested 2700 USD, meaning I have already paid off my initial investment and made 2541 USD on top of that.”
Is this a viable way to make a living?
“It is absolutely a viable way to make a living,” Parsons boldly states. “There are many people who make their livings off of day trading stocks themselves, being brokers for others, manufacturing equipment for gamer’s, designing and building high power computer centers for others, so if you make a living off of building mining systems for others, you insulate yourself from the crypto market, and even if the worst comes to worst, you have the technical experience that can get you a job elsewhere.”