Bitcoin 101: Mining Bitcoin – Part 10

For part 10 in my Bitcoin 101 Series, I want to go deeper into explaining what it means to mine Bitcoin.

To start, I think it would be good if you watched a short video. It is less than 2 minutes and really worth the time.

 

Credit for the video goes completely to the site https://www.bitcoinmining.com/

The site isn’t just great because it made a cool video that explains mining really well, but there is a lot more information on that site – including how to get started mining bitcoin for yourself.

I used to mine bitcoin.  I installed the software and followed a youtube video.  It was fun.  The problem was that it wasn’t very profitable. I would encourage anyone who is thinking about doing mining to understand what is all involved with taking this on.

  1. Understand what is all needed for a good mining rig. It might seem silly that you would need to spend a lot of time on this, but there are a lot of options out there that you can use for hardware. The bigger the better and if you don’t have the latest technology and hardware, then you will not be the one collecting the bitcoin reward.
  2. Use a calculator. No I don’t mean a standard math calculator. I’m talking about an online mining calculator. There are a lot of sites out there that do it, but you want one that takes as many factors into consideration as possible. It is important to factor in what your hardware will cost (including the GPU or graphics card that you need) and also how much your electricity will cost.  You will be using a LOT of electricity.
  3. Talk to other people who have done mining.  Yeah they might have not had a good experience, so take what they say lightly. They may tell you to stay away from mining – but ultimately it is your choice. There is a risk in everything you do.
  4. Consider joining a Mining Pool.  There are groups of people that have joined up to form pools. The reason is because it isn’t really that profitable to start mining bitcoin if you are only going to use your own computer at home.  There are huge data centers that organizations now use to mine bitcoin.  (Including John McAfee who – at the time of this writing – was making $55,000 / mo)  If you are going to compete, you may as well join a good team.
  5. To stress how far people have gone to set up a bitcoin mining system, take a look at this video that Motherboard did when they visited a Chinese Bitcoin Mine. The mine generates about $1.5 million per month. At one point they were making over $365,000 per day at the six mines they have.
  6. Do your research. A simple Google search can go a long way.

I will keep this post short.  I just wanted to give you a little bit of information about Bitcoin Mining. I will save the deeper explanation about how it all works for a later post.

Thanks for stopping by. I hope that this helps you further understand bitcoin mining in the new bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

Use the following website to fund this site:

www.coinbase.com/brockton

 

 

 

Bitcoin 101: The Protocol – Part 9

For part 9 in the Bitcoin 101 series, I want to take a dive into the bitcoin protocol.  It is quite a large topic so I probably will not talk about the entire thing, but it is important to step into what the protocol is and what the purpose of it is.

In all phases of life, there are rules.  When you drive your car, you have to obey the speed limit.  However, you are able to go over the speed limit, but if you get caught, there is a consequence. So it seems there is some cushion there so that sometimes you can break the rules. You are OK as long as you don’t get caught. But what about if you tried to go over the speed limit, your car would stop accelerating once you were driving at 55 MPH. Would that be weird?   Yeah maybe a little. But you would also never get speeding tickets.

I see the bitcoin protocol as a collection of rules.  These rules are very well thought out and then written into the source code. The bitcoin software that runs on Nodes and Miner’s computers is called “bitcoind.”  Inside of that software, there are rules that are programmed in so that they are followed all the time by everyone. This keeps things fair for every user of bitcoin.

Shown in the following list are some of the rules that I have learned are part of bitcoin:

  1. A reward will be given every 10 minutes to one of the miners that are solving the math equation and confirming Blocks.
  2. The reward will start as 50 BTC in 2009.  Then it will “halve” approximately every 4 years.
  3. In order for a transaction to be confirmed, it must exist in a block. The blocks must be confirmed by the entire Bitcoin Network. (Or at least a large majority of it.) The blocks are the most secure and fully confirmed when the block your transaction is in is at least 6 layers deep.
  4. When broadcasting a transaction there must be a sender’s and receiver’s public address attached to the transaction so that the software knows where the transaction is going and where it came from.

The rules go on and on.

You could actually categorize the rules even further. For example, there are rules that apply to transactions. There are also rules that apply to sending transactions to the network and how the network propagates the transaction. There are even more rules around how the blockchain exists and what rules have to be followed in order for it to work.

When the planning began for bitcoin, the early developers probably had some very interesting conversations around these rules and what they would be. They had to somehow foresee what kinds of issues there would be and how the rules would correct itself.  The reason that the protocol is so important is that once they started the first Block in the Blockchain, the system would begin running on its own from 1/3/2009, until the end of the Internet.

It fascinates me that this system would start running in 2009 and then continue running on its own up until present day. (I am thinking that this blog will still be up when the internet is about to crash. )  That really is the whole point:  Create the system so it all runs in perfect harmony and have it run without having to rely on a trusted 3rd party. That is why this invention is so important.

The biggest issue that had plagued digital currency in the past was the “double spend” problem.  It was the issue where a person would spend $10.00 in the digital currency and then right away go and spend the same $10.00 on something else. There was no central ledger to keep track of which transaction was which.  That is the simplest explanation that I can have to explain that.

I hope that this helps you further understand what the bitcoin protocol is and how it relates to the rest of the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

Use the following website to fund this site:

www.coinbase.com/brockton

 

Bitcoin 101: More about the Blockchain – Part 8

For part 8 in my Bitcoin 101 Series, I want to go deeper into explaining what the Bitcoin Blockchain is.

In my last blockchain post, I started to explain what it is and what some of the concepts are to a blockchain.  I touched on it briefly and I am going to use this post to bring up some more details about it.  As a review, I explained where you can see the Blockchain and how it works. I came across the following video and I think that it will help even more in digging into what the blockchain is. It may seem long, but it is worth watching if you truely are interested in learning what is behind this new technology.  (Video is 22 minutes)


As you can see, it can get pretty in-depth to explain how the entire process works.  Early bitcoin developers took on the vision of Satoshi and built this system from scratch. (To read the first whitepaper, go here.) Today it has been the longest running and most attacked blockchain to this point in history.  While many other exchanges and technologies are failing, the Bitcoin Blockchain has continued to function just as it has since Jan. 3, 2009.

I am still learning about the blockchain.  I started learning about it 3 years ago and I learn more about it all the time.  The best reference I have on it is the book Mastering Bitcoin. Chapter 7 digs pretty far into what it is and the inner workings of it. (Read it here for free!) I would encourage any bitcoin developer to read that and study it.

Thanks for stopping by. I hope that this helps you further understand the blockchain and other parts of the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

Use the following website to fund this site:

www.coinbase.com/brockton

 

Bitcoin 101 Series Review and Index

I wanted to write a quick post about the series that I have been doing called the Bitcoin 101 Series.  I started writing it so it would be a simple way to explain to new people what Bitcoin was and some of the keywords that users would frequently hear.  I have had good responses to the content and I plan on writing more about it soon.

I wanted to post all of the content and links here in this post so it would be easier for people to find it.

Part 1:  Wallets

Part 2:  Transactions

Part 3:  Money and the Unit of Measurement

Part 4:  The Blockchain

Part 5:  Exchange and Exchanges

Part 6:  Security of your Wallet

Part 7:  Hosted Wallets

Part 8:  More About The Blockchain

Part 9:  The Protocol

Part 10:  Mining Bitcoin

 

Thanks for visiting my site and look forward to any comments or questions you have

 

3 reasons why bitcoin isn’t dead

Recently I have heard a lot of stories about how bitcoin is dead or that it is “dying.” It isn’t true and most people that do not take the time to learn about bitcoin will find it much easier to grab at national headlines, then to actually do the research and find out the truth.

Instead, I wanted to point out some things that might help clarify the thought that bitcoin will be dying very soon.

  1. Bitcoin’s price is falling. That means it is about to be worth nothing. 

This might appear to be true at first because with other currencies that are backed by a central government, that happens because the central government that backs the currency has some serious problems that is causing the currency to inflate at record speeds. Bitcoin doesn’t have any kind of central authority, so this doesn’t apply. One reason it might be falling is that all the people that are nervous about bitcoin and don’t know as much about it as other people – get spooked and then when one bad story comes out they sell all of their bitcoin. This could be happening to a lot of people and it just so happens that there might be more people selling than buying at this point in time. There are probably a hundred different reasons like this. But once all of those people stop selling, the larger amount of people will begin buying up at a lower price so the price will turn at some point. (Right now I am saying it will take about a week, but I am not financial expert.)

2. Bitcoin has issues that are going to cause it to collapse. 

Yes bitcoin does have some issues. The article points that out. However, I think airing dirty laundry in public was a really bad way to go for him. He could have chose not to release a bunch of negative press for bitcoin, but of course he wouldn’t do that. If a human has a choice between getting attention and not getting attention, most will choose the first.

All of the issues with the block size (and the disagreements) are not as big of issues as people say. Yes the blocksize needs to increase, but it isn’t going to stop working if it doesn’t. It will just take longer for transactions to process. I myself am OK with waiting a little bit longer for a transaction to process, if it means having more security and more flexibility than any other alternatives. (banks)

3. The price is going to keep falling and everyone will see that and will abandon bitcoin. 

Certain people want bitcoin to die. Then they can have their “i told you so” moment. Little do they know, btc would have to reach 0.00000001 before it would get to that point (actually 0.00000000) and even before it got there, there would be so many hardcore believers – like myself – buying that shit up so fast the price would be forced to rise.  And all of this would have to be looked at from a time perspective. The price dropping would happen over a few weeks or months – not years. SO in that context, the few of us that buy up large quantities of bitcoin would then just hold on to it until the price began to rise again.

Continuing on this hypothetical scenario – the price could stay in the pennies for years even – but due to its nature and protocol, it already has the framework built and miners would continue to mine it based on the same theory. So based on miners alone, there would be a majority of miners that would continue to mine because the difficulty would be lowered as miners left which in turn would cause the remaining miners to begin to gain more and more bitcoins each day. (Even after it halves, its still 12.5 bitcoins every 10 minutes.)

In fact, there would be more miners joining because it would be easier to get bitcoins. (It would become more efficient to get the reward.)

The nature of bitcoin involves the currency as the reward, the network as the structure, the protocol as the framework and rules, and the miners as the security. It is the circle of life and it keeps moving day after day while still be attacked.  And it is surviving those attacks. As Andreas Antonopoulos said, it is the cockroach that keeps surviving and it becomes stronger by the day.

Bitcoin 101: Hosted Wallets – Part 7

For part 7 in the Bitcoin 101 Series, I want to talk about Hosted Wallets.

Hosted Wallets are websites where you can sign up for an account and have a bitcoin wallet created for you. The wallet can then be used with almost all the functionality of a normal bitcoin wallet except it is controlled and managed by a 3rd party. The 3rd party is the website where it exists.

The best example that I can relate to is Coinbase. (www.coinbase.com)  Coinbase is the company that is a hosted solution for bitcoin wallets that many people have been using. I started using Coinbase back in 2013. Before choosing them, I had looked through a few other wallet vendors. The reason I went with them is because I watched a video where Brian Armstrong talked about Coinbase and the security behind it. The video was done at the Coinbase headquarters and featured Brian and the interviewer talking about the features of the online Coinbase wallet. I found the video to be very insightful without being too complicated for the new bitcoin user to follow along.

Each person that is new to bitcoin has to choose whatever wallet best suits their needs. The important thing to know about hosted wallets is that they have risk associated with them. All hosted wallets control the public and private keys of their user’s wallets. That can be a very bad thing when talking about some really bad hosted wallet websites.

The most popular example of this is Mt. Gox.

When I got started in mid-2013, Mt. Gox had around 70% of the bitcoin market in its wallets.  Most people knew about Mt. Gox and that everyone else was using them. What most of the public didn’t understand at the time was that the company was being mismanaged terribly by its CEO Mark Karpeles.  In March of 2014, I came across the wired story “The inside story of Mr. Gox, Bitcoin’s $460 Million Disaster.”  That story shed a lot of light on what was going on with Mt. Gox from the early stages of the downfall until the end.

The lesson to be learned is that hosted wallets are very risky. There is a chance that the website could either get hacked or it could just shut down at any point in time and the risk of losing all of your funds is real.

Full Disclosure:  I still have over $100 in my Coinbase wallet and it is my most popular hot wallet that I use today. I have also bought the Shift debit card and use it as my primary means of paying for things anywhere that VISA is accepted.

I encourage everyone that is looking to get an online, hosted wallet to do their research. The choice that you make is your own and you will have to live with the consequences – just like the rest of us.

 

 

Thank you for visiting. Be sure to stay tuned to the Bitcoin 101 series where I dig into the various parts of the bitcoin ecosystem and explain various subjects to new users of bitcoin.

Use the following website to fund this site:

www.coinbase.com/brockton

 

Bitcoin 101: Security of your Wallet – Part 6

For part six of the Bitcoin 101 Series, I want to go more in detail about Security and Wallets.

I started this series talking about Wallets because understanding Wallets and how they work is a good building block for explaining how bitcoin works. It is a fairly simple idea and everything explained after that can build on each person’s knowledge of wallets and the role they play in the bitcoin ecosystem.

I want to start by talking about an example I encountered recently:

A girl named Abby wanted… no… she NEEDED a wallet. She had heard about bitcoin and wanted to get started, but she didn’t yet fully understand a wallet. She got some help from her friend named Tom.  She talked to Tom and told him all about a trip she wanted to take and how she knew a bunch of people around the world that wanted to support her. All of her supporters wanted to send her bitcoin, but she didn’t have a wallet. Tom knew how to create a wallet so he gladly helped her out and they created a wallet together.  Once Abby had her wallet, she told everyone she knew about her brand new wallet.

A few days went by and Abby heard from so many people that were excited for her trip that was coming up. She went to look at her new wallet and – shockingly – her balance said:  BTC 0.00000

Abby was very confused. She knew people had sent her funds but the balance said zero?  How could this be?

The story goes similar to this:  Tom had a friend named Brian. Brian knew that Tom was setting up a wallet for Abby. Brian wasn’t very good friends with Abby but they lived in the same neighborhood and they both talked to each other every so often. The truth is that Brian wasn’t actually a very good guy. Brian had been in trouble before and he was always needing money. Somehow Brian had oversaw an email that Tom had received regarding Abby’s bitcoin wallet. Brian was able to use Abby’s password to her online hosted wallet and he logged in under her account and sent the bitcoin to a brand new wallet that no one else knew about. From that wallet he sent the full balance of bitcoins even further long to some more wallets that he was in control of. Before long, the trail was so long it was almost impossible for anyone to track down Abby’s original bitcoins.

The lesson here that Abby had to learn is that even though she trusts Tom, there are some people that Tom knows that aren’t very good people. They may seem helpful and friendly, but human nature tells us that if a person can take money and get away with it, then they might do that. You have to protect yourself.

Here are the two biggest items that you MUST protect if you want to keep your wallet secure:

(1) Password – if you sign up at a site like blockchain.com or coinbase.com or some other Online Hosted Wallet, then your password is going to be VITAL. The other password you will want to keep secure is your email password. If you lose your password on your hosted_wallet_account, you can request a password reset. They will send that to your email.

DO NOT SHOW or TELL ANYONE EITHER OF THOSE!  If you have to, start a new email address!

(2)  Bitcoin Wallet Private Key – every wallet has a public key and a private key. They mean exactly that:  Private and Public. The public key is the one that you give out to other people. That is how they send you money. Just like your email address is how people send you email. Your bitcoin public address is how people send you bitcoin. However, your private key should only be seen by you and only you.

If someone else should see either of these, your wallet is at risk of losing all of your bitcoin.

On a related note, since bitcoin is a decentralized network there are more and more applications being developed for bitcoin that revolve around the security being on the individual level. This is a change in shift from banks and other centralized institutions that have always had hosted servers sitting under their control. One of the big ways that the focus is shifting to users is by putting all of the responsibility about security on each bitcoin user. That is vital to understand:  wallet security is of the highest importance in the bitcoin ecosystem. This cannot be said enough. You can ask anyone familiar with bitcoin.

On final note:  if you want someone to show you how to create a wallet – then have them show you – but do not use that wallet. Go and make a brand new one… after you learn how… all by yourself. I highly recommend doing this by yourself. If you have anyone around you, then you could be putting your funds at risk. This is more than just trusting another person. There is no fallback like traditional financial systems. There will not be any help if someone else knows your private key or password. The funds will just be gone.

I hope that this helps you further understand Wallets and Security in the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

Use the following website to fund this site:

www.coinbase.com/brockton