All You Need To Know About Bitcoin And Cryptocurrencies

bitcoin-perfecthue[1]Open your wallet, how much paper money you have?

A few banknotes maybe?

A few coins?

Well, if you’re like me then basically all your transactions are being made using a credit card and if that isn’t true for you, it will be in the near future.

We are heading towards an age of digital currency, where money will be nothing more than a number on the screen.

There are many different innovations happening in the financial field right now and here I want to talk about one of them it’s called cryptocurrencies or more specifically about the leading and the first ever cryptocurrency Bitcoin.

What The Hell Is Bitcoin?

Bitcoin

Even though there is a “coin” in the name it’s nothing like a coin you would imagine. It’s not tangible, you can’t hold it in your hands. It’s just a series of bytes in a computer.

And this series has value for which you can buy things like with any other currency.

Now, this might not be the most accurate description, you can definitely find a better one on Wikipedia.

Currently, when I’m writing this the price for one Bitcoin is around $900. This can be rather confusing.

So, do you need to spend $900 just to get one bitcoin? And one bitcoin sounds so little, what could you do with one bitcoin?

Well, the thing is you can buy 0.00000001 Bitcoin. So, it’s flexible like any other currency. Now, 0.00000001 would result in zero dollars so, we actually use 0.001 which is around a dollar, but in the future, if the bitcoin value will grow we might need those smaller parts.

Where Do You Get Bitcoin?

There are two ways of getting bitcoin: buy them at an exchange site or you can mine them. Mining again isn’t what it sounds like. For the bitcoin to work computers need to evaluate every single transaction happening.

Obviously, no one wants to work for free so, for processing all the transactions people are getting rewarded with bitcoins. More on mining later because it takes a bit more explaining.

So, the other option is exchanges.

They are pretty straight forward. You exchange your dollars, euros, pounds etc. for bitcoin.

Some of the better exchange sites are these:

  1. https://www.coinbase.com
  2. https://www.kraken.com/
  3. https://localbitcoins.com/

And there are much more if you search for them, but always make sure to investigate them.

Leaving bitcoin in the exchange site is a bad idea. The exchange site can go bankrupt for some reason or another, it can close down and disappear with all of your coins. There are no real regulations for these exchanges so, they shouldn’t be taken for granted.

This leads us to discuss bitcoin wallets.

How To Safely Store Your Bitcoins

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When you buy bitcoins through an exchange site those bitcoins aren’t in your full control. To keep them safe you need to transfer them to your electronic wallet.

There are basically two types of wallets. One where you need to download the whole blockchain and another where you don’t.

What is a blockchain you ask? Well, it’s the history of every single transaction ever happened using bitcoins, when you download it you basically know which wallet how much money has or in other words the history of all the bitcoins.

It’s like you had the archives of a bank. Now, as you could imagine this file is really big it’s getting to around 100GB and it’s catching an exponential growth course.

So, the size of it will only increase and you’re likely not willing to download gigabytes of worthless information (at least for a regular folk) to your computer.

This strikes out the first category of wallets.

So, here are the ones I recommend using:

  1. Mycelium
  2. Coinomi
  3. Copay

They won’t require you to download the whole blockchain.

Making Transactions

Now, that you have your wallet set up you can start to fully utilize bitcoin. Firstly, you will want to transfer your coins from the exchange to your wallet, they will require your wallet address, which you will find somewhere in your wallet app and that’s it.

To send money to others all you need is their wallet address and you can do it from your wallet. This is no more complicated than a money transfer using a regular bank, even less complicated I suppose.

If you would leave the bitcoins in the exchange, that would be like holding your money in someone else’s wallet and you don’t want that do you?

Quick Recap

So, I want to make a quick recap before we dive deeper. You now know everything you have to know to start using bitcoins. It’s easy, right?

You buy bitcoins at an exchange site. Transfer them to your wallet. Pay, buy, sell using your wallet. Simple.

Mining Bitcoins

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As I briefly mentioned before to keep the bitcoin economy going computers have to process all the transactions and update the blockchain consistently.

When the bitcoin was at its early stage this was done by regular computers. People were incentivised to mine because they get the fees from the transactions that were made and 25 bitcoin as a reward.

With todays prices that would mean you would get $25.000 + for computing a single block.

Now, as the bitcoin grew the system made the calculation of these blocks harder and harder by design. Where it got to a point where regular computers would need to work years just to solve a single block.

So, technologies like AntMiners emerged that were specifically made to work with the bitcoin hashing algorithm which is called SHA-256.

These days, even those miners aren’t too profitable and there are servers being built for that purpose alone because it’s cheaper to mine at bulk and in places where electricity prices are the lowest.

For a regular user, it isn’t profitable to mine bitcoin anymore.

Mining Pools

As I already mentioned with a regular computer it would take years to compute a single bitcoin block. Even, if you have invested in miners it takes a ton of computing power to calculate a single block.

The time it takes to compute a block is equal to the bitcoin transaction time. So, it’s necessary for a block to be calculated quickly. This is done by mining pools. People, usually server owners join mining pools where they divide the work and also divide the rewards.

This makes it possible even for the smallest miners to join.

Cloud Mining Contracts

DISCLAIMER!!!

I think I have rushed into investing in cloud mining. I have started doing a lot more research about HashFlare and I can’t seem to find proof of legitimacy, neither there is any proof that they are a scam, but it’s very likely. 

So, I no longer recommend investing in any cloud mining contracts, I was thinking of removing this part altogether, but I will leave it for now because it requires a bigger update. 

There is a way to invest in mining without buying miners, through cloud mining contracts. There are companies that operate huge servers where you can buy out miners that will work for you.

You invest your money and you get computing power, which is used for mining. Usually, the contracts are for a lifetime with a condition that mining continues to be profitable, which is a possibility, but not a very likely one.

Also, the contracts come with a daily maintenance fee, which covers the electricity cost and hardware maintenance.

So, you get a daily income of bitcoins minus the maintenance fee.

Sadly, there are a lot of scams in this field, some “companies” only pretend they operate servers. So, be very skeptical and do your research before investing.

There’s an MLM company launching called Coinomia, which might be a possible scam. Mining isn’t super profitable and I doubt you can make it into an MLM model to get commissions from contract sales.

So, either the contracts will be over priced or it’s going to be a scam.

Where I Have Invested

I made my decision after checking the list at https://www.cryptocompare.com/mining/#/contracts and sorting it by payback period. The list keeps getting updated as the price of bitcoin continues to change.

Screenshot 2017-01-24 14.17.08

At one time there was a contract with a payback period of only a year. So, it can highly fluctuate and you can’t really know how long it can take to get profitable. The two contracts I invested in are Bitcoin Mining Contract and Litecoin Mining Contract by HashFlare.

The two contracts I invested in are Bitcoin Mining Contract and Litecoin Mining Contract by HashFlare. They are currently the top ones and they continue to stay at the top for as long as I’m monitoring them.

I’m not sure how accurate these calculations are, but I have seen HashFlare at the top of most cloud mining company lists.

I have invested $46 in these two contracts. So, far the bitcoin contract seems to be a lot more profitable, but the overall earnings so far are $0.07 per day, which is a 4.5% earnings monthly.

I have made this excel table of hypothetical calculations with reinvesting when the monthly earnings are staying the same:

Screenshot 2017-01-24 14.33.27

Nothing crazy, but the compounded reinvesting can do wonders. I’m planning to reinvest at least for a couple of years or maybe I will put in some more money if I will see that the profit is growing.

Both of these contracts pay daily in bitcoins.

Altcoins

Altcoins or alternative coins are basically the same thing as bitcoin using the same blockchain technology, but possibly with some minor tweaks.

In the previous section, I mentioned the Litecoin which is a popular coin right now.

Though, the most popular alternative coin right now is Etherum, which has made a lot of changes to the blockchain technology and is rapidly gaining popularity.

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Here’s a list of just a fraction of Altcoins and how they compare to Bitcoin. I believe there’s a lot of potential in some of these Altcoins, but it would take a lot of time to learn about them and figure out which ones are worth investing into.

Is It Worth Investing in Bitcoin?

I think Bitcoin price will go up. There was a recent price bubble at $1130 and now it is around $900. I think it will slowly, but steadily go back up.

The volatility might be a big red flag for some investors, but it also creates a lot of opportunities.

Also, as I mentioned above there’s a huge potential for growth in Altcoins, but it’s hard to know which one of them can spike up and double or triple in price. The ones that I would follow is Etherum, Dash and LiteCoin.

Do you use Bitcoin? What do you think about the future of Bitcoin and other cryptocurrencies? Let me know in the comments below.

2 Comments
  1. January 26, 2017 | Reply
    • Liudas Butkus
      January 26, 2017 | Reply

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