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What is bitcoin Cloud Mining? Pros and cons of virtual mining
What are the pros and cons of the various cloud mining platforms? This doesn’t concern only bitcoin, but more generally all cryptocurrencies. Often, in fact, newbies who are looking for ways to mine bitcoin on Google come across cloud mining , which actually has very little to do with real bitcoin mining.
In this article, we will try to understand what cloud mining is, what are the differences with classic “home” mining and why, generally, it is almost always worth avoiding it .
What is Cloud Mining?
Cloud mining involves purchasing a certain hashing power from a central body that manages and owns one or more mining farms . Let’s say, for example, you want to buy 10 TH/s of bitcoin mining power from one of the cloud mining platforms.
Such platforms will virtually rent out some of their bitcoin mining hardware that can achieve the desired hashrate at a certain market price . Usually, the users pay an initial fee that varies according to the hashrate , which allows them to enter into a contract with the entity offering the service for one or more years.
After that, every month a part of the revenue allocated to the users’ hashrate share is retained by the company , both to pay the operating expenses, such as electricity, cooling, maintenance and other, and as company profit.
In detail, an entity offering a cloud mining service owns one or more mining farms around the globe. All ASICs and devices for bitcoin or other cryptocurrency mining are located within these farms. So, if a company sells a total power of one PetaHash/s (i.e. 1000 TH/s) on its website, it will need to have a number of machines capable of delivering a total hashrate of one PetaHash/s .
Usually, a company opts to offer a cloud mining service to minimise ROI times. By selling virtually its own hashrate, in fact, the entity can repay most of the initial hardware investment in a very short time, rather than directly mining cryptocurrencies for itself .
What are the advantages of Cloud Mining?
1) No technical knowledge required
For the beginners looking on Google for ways to mine bitcoin, this is a very simple and fast service to use . In fact, it requires virtually no real knowledge of cryptocurrency mining .
There is no need to know what an ASIC is, what a mining pool or a mining farm is, it is not necessary to know how to use mining tools, what protocols to use and how to connect to the mining pool (Stratum or otherwise). It is enough to simply create an account, pay the relative fee according to the hashrate one intends to buy , keeping in mind that the greater the hashrate, the greater the revenue will be, and activate the service. The earnings will be credited directly to the user’s account.
2) No need to purchase hardware
Another advantage of cloud mining is that there is no need to purchase any mining equipment . This means that you don’t have to study which are the best ASICs or video cards for mining, which saves an awful lot of time. For the nerdy user, buying, installing and tuning hardware is perhaps the most fun part of mining . However, for those who do not have knowledge of the sector all of this time and studying is spared.
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Perhaps the real good thing about cloud mining is that, since you don’t really own a certain ASIC or GPU, there is no need to worry about devaluing and updating your equipment . The actual mining, with all the related technicalities, is a black box for the end users. And of course, all this will end up costing them a great deal.
3) No operating costs, no heat and no noise
Have you ever had the chance to touch an Antminer S9 that mines bitcoin? It is a machine that consumes 1500 Watts per hour, produces a lot of heat and, as a result, emits a deafening noise due to the cooling system .
It is easy to see that these are not devices to be kept at home . These devices require a suitable environment with good ventilation, away from or isolated from the living space. The same goes for mining-rigs with multiple GPUs, although in this case, the noise level is usually lower.
Having one or more ASICs for mining bitcoin also requires a large amount of electricity . Domestic energy supply contracts usually start from a minimum of 3 kWatt. However, with one or more 1.5 kW ASICs each, it becomes unsustainable to power both the home and the mining machines at the same time for small contracts .
Therefore, who for example lives in an apartment, will hardly be able to mine bitcoin in the house due to all the constraints above mentioned . That’s why cloud mining could be the only option.
What are the disadvantages of cloud mining?
The fact that you don’t have to configure anything and that you have to deal with a ready-made solution has a negative impact on your income , which is often quite low . A part of mining, in fact, is retained by the mining farm for expenses. In addition, over time, with the increase in the difficulty of extracting bitcoin or, as happened in the last 12 months, with the decline in the value of the currency, situations can arise where mining generates very little profit .
This is not such an extreme case. Just last summer, several cloud mining services were forced to interrupt various contracts and suspend their mining farms .
In addition to these exceptions, in general, cloud mining provides rather low revenues for those who want to convert their mined coins into fiats monthly . It is different for those who want to mine bitcoin in order to hold it as a future investment. In this case, however, it is perhaps better to buy bitcoin directly , considering also that over time the hashrate purchased at the mining farm will tend to extract fewer bitcoins.
2) A large number of scams
It is well known that in the cryptocurrency world, unfortunately, there are many fake fraudulent companies . This is partly due to the lack of regulation of the sector, and partly because once a bitcoin payment has been made it is impossible to cancel it.
The cloud mining industry has often been the focus of attention for several fraudulent platforms that sold fake mining contracts or did not pay their users. For this reason, those who are really interested in cloud mining must carry out a series of checks and inspections, as well as relying only on the best cloud mining platforms . Scams are often around the corner!
3) It favours the centralisation of the network
This point is more of an ethical issue related to those who really want to contribute to the cryptocurrency world rather than aiming for economic return only .
First of all, it should be remembered that mining bitcoin means contributing to the security of the network , by validating the transactions that will be inserted in the blocks.
Since the blockchain is trustless , meaning that there is no central body, in order to ensure that cases of double spending, spam attacks on the network, etc. do not occur, the miners take care of the security of the network by running the PoW consensus algorithm.
The probability of finding a block and then receiving a reward in BTC increases as your hashing power increases . This triggers a real competition between the various miners. For this reason, miners often come together (mining pools) to aggregate their hashrates and thus increase their chances of success .
If, however, a good part of the hashrate is concentrated in the hands of a single group: at least 51% of the total hashing power of the network, such an entity could carry out a dangerous 51% attack . It is a very remote possibility, but still possible.
Bitcoin and most of the other cryptocurrencies are designed to be decentralised, i.e. without a central body . It is clear that cloud mining favours the centralisation of mining in the hands of a few because the effective control of hashing power is in the hands of the farm manager, not the end user. This implies that the user will not be able to change pools for example, which is very possible for domestic miners and that several times has allowed communities to redistribute the hashrate of the network to avoid that a single pool had control of 51% of the network .
This is an ethical matter that has hardly any real repercussions. However, those who really want to support bitcoin, ethereum, monero or any other mineable cryptocurrency, should do so while maintaining adequate decentralisation . The same reasoning can be done with full nodes, but this is part of a separate chapter.
4) One is constrained to the mining of only some coins
Finally, a fairly important aspect concerns the coins that are mined. Cloud mining is usually limited to the most popular major currencies . This in itself is a good thing, as you will only mine proven and therefore reliable cryptocurrencies. However, it is often possible to make good profits by mining new coins at their debut, when the difficulty and spread is minimal .
Of course, it’s a risky choice, but it’s only possible for domestic miners who have direct control over the hardware . In order to mine particular coins (for example the newborn Grin ), you need ad-hoc software to install and configure manually .
This is hardly possible with cloud mining. Domestic (real) mining, therefore, offers much more possibilities and flexibility .
Bitcoin Cloud Mining
Want to find the best Bitcoin cloud mining contracts? This post has you covered.
Most Bitcoin Cloud Mining Companies are Scams
Like the heading says, most cloud mining contracts are scams. Why?
Because it’s easy for companies to take peoples’ money, and then not pay out. A company can claim to be a cloud mining company without any proof of actually owning any hardware.
So remember: 99.9% of cloud mining companies are scams.
Mining is not the fastest way to buy bitcoins.
Which Companies Are Not Scams?
We can’t recommend any cloud mining companies at this time.
Note: If you do find one, you’ll need a wallet to receive payouts to. A secure hardware wallet like the Ledger Nano X is a good option.
Is Cloud Mining Profitable?
It depends what your goals are with cloud mining. If your goal is to obtain bitcoins, then there is really no reason to cloud mine or even mine at all.
You will get more bitcoins for your buck if you just buy bitcoins!
VPNs for Mining
As a Bitcoin miner, you may also want to look into getting a VPN.
You can never have enough security when it comes to bitcoin. Using a VPN adds an extra layer of security.
Bitcoin Cloud Mining Comparison
There is not much to compare, because we personally do not recommend buying any cloud mining contracts so we will not spend the time to compare any.
But check back in to see if we find any new, legit cloud mining companies.
Bitcoin Cloud Mining Scams History
The reason there are so many cloud mining scams is because it is very easy for anyone in the world to setup a website.
Once the website is setup it can claim that the company has a large mining facility.
The company can act legit by sending initial payments to its customers. But after that it can just keep the already received payments for hash power and then make no further payments.
In just the last few months, two cloud mining scams were uncovered: HashOcean and Bitcoin Cloud Services.
Mining is not the fastest way to get bitcoins.
Try an exchange below for the fastest way to get bitcoins.
What Payment Methods do Cloud Mining Companies Accept?
Most cloud mining companies accept Bitcoin, PayPal, and credit cards. If a cloud mining company accepts bitcoins then there is a good chance it is a scam.
This is because Bitcoin payments cannot be reversed. Once the scam company receives your bitcoin payment you have no way to get your coins back.
Are there Free Cloud Mining Trials?
No company would give away free cloud mining; this is basically giving away free money.
Any company offering free trials, especially if they require payment information, is most likely a scam.
Mining or buying bitcoins? You can’t do either without a Bitcoin wallet.
Our guide on the best bitcoin wallets will help you pick one. Read it here!
How does Bitcoin Cloud Mining Work?
Cloud mining means a host company owns Bitcoin mining hardware and runs it at a warehouse.
You pay the company and rent out some of the hardware. Based on the amount of hash power you rent, you will earn a share of payments from the cloud mining company for any revenue generated by the hash power you purchased.
Cloud Mining Viruses
There have been viruses that land on computers and then use the computers’ power to mine bitcoins.
Run a malware detector on your computer if you think you may have come under attack.
Is Mining Software the Same as Cloud Mining?
Mining software is something you download on your computer. It is required when you OWN mining hardware. Software connects your hardware to the internet so that it can make hashes and communicate with the network.
Just buy Bitcoins!
If you just want bitcoins, don’t bother with cloud mining. Just find an exchange in your country and buy some bitcoins.
Best Bitcoin Mining Software
Best Bitcoin Mining Hardware
Best Bitcoin Mining Pools
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What is cloud mining ?
With the development of cryptocurrency, more and more people are thinking now of working with it. The interest in cryptocurrency mining is growing every year. Issuance of cryptocoins is limited and today users have already mined two thirds of it. Therefore, the complicity of mining is constantly growing. Not long time ago it was quite possible to mine bitcoin on your home computer but today for these purposes you will need to purchase and set up special ASIC miners which require considerable investments. Cloud mining is an alternative way not only for beginners but also for those users who want to relieve their mining process of “crypto-gold”.
A little of history
Mining is the process of cryptographic calculations which are performed through computer hardware. Currently it can be noted four generations of miners:
- CPU mining – cryptocurrency mining through a processor.
- GPU mining – cryptocurrency mining through video cards. And if in the first case, users needed only one processor, then for GPU there were available whole farms based on graphic GPUs for Bitcoin mining.
- FPGA mining – a competing technology for GPU miners. It consumes less electricity resources but at the same time its price is vary high as compared to GPU technology.
- ASIC miners – specialized devices, whose tasks are hash solving and Bitcoin mining. Today these are the only devices that allow users to engage in traditional mining of the first and most popular cryptocurrency. But there are little users who have sufficient seed capital to invest in purchasing, customizing and asic maintenance. In this case the best option is cloud mining.
What is Cloud Mining ?
Today cryptocurrency mining is available for everyone, therefore it’s safe to say that cryptocurrency mining is very popular now. It’s possible largely due to cloud mining. This is the opportunity for users to earn Bitcoin and altcoin by leasing out the production capacities of a specialized and configured hardware for cryptocoin mining. In this regard there is no need to purchase hardware adapted for cryptocurrency mining, pay electricity bills and spend your time on miner maintenance.
You lease out capacities from companies who owning their its data centers. The transaction is performed through specially created cloud mining services. Project participants pay money for the purchase of Gh/s including the commission established by the company. Instead users receive cryptocoins in accordance with the volume of purchased capacity.
How to start cloud mining: user instructions
- Users need to choose a cryptocurrency cloud mining service. The further user’s profit depends on the right choice. Today there are a great number of projects on the Internet that offer capacities for bitcoin and altcoin mining but not all of them have real hardware. Many of these projects are hype. Of course you can also earn on them, but the strategy will be different. For those who plan to invest exactly in cryptocurrency mining should pay their attention to reliable cloud mining services that have already gained popularity and trust with users. These projects are: Hashing24, Hashflare, Genesis Mining. The company must have a registered legal address and real contacts;
- Create an account on the cloud mining service, specify your crypto wallet and purchase the desired capacity. Contracts can be issued, both on an ongoing basis and with time-limited period of validity. To start cloud mining in 2020 you can have only a
- few dollars. Using a special promo code users can receive a discount on contract purchase;
- Distribute paid Gh/s among your pools and start cryptocurrency mining. Project calculators will help you to calculate your profit and graphics will let you monitor your successes in different pools;
- The received popular cryptocurrency can be exchanged on special stock exchanges or you can make purchases on the Internet using it;
Advantages of cloud mining service
- There is no need to buy high-priced hardware, spend your money on its maintenance, customizing and repair it;
- Pay electricity bills. Hardware for cryptocurrency mining consume a lot of energy, therefore, usually all specialized data centers are located in districts with cheap electricity. Also for these purposes can be used solar panels;
- It’s an easy way for cloud mining. Buying a contract users can receive their first profit next day;
- You can predict your profit. Any user can calculate possible profit including his/her investments by using project calculators;
- Users can mine different types of cryptocurrency simultaneously. Even on the same cloud mining service you can mine not only Bitcoin but also other altcoins;
- Referral programs. Generally, such projects provide users ability to earn on their partner systems. This enables to not only increase the income but also allows to start cryptocurrency mining without investments.
Disadvantages of cloud mining
Like in any investment, there are some risks:
- Users can invest their money in fraudulent projects. That why it’s very important to act properly during the selection of the cloud mining service;
- The cryptocurrency rate can go down and it’s mining will become ineffective. This applies not only cloud mining services but also traditional mining;
- Internet resource can be prone to hacker attacks. In this case users risk loosing their unwithdrawn funds. Therefore, you should beware of investing in projects that don’t provide the possibility of quick withdrawal of funds to the user’s crypto wallet.
To sum up what has been said, we can conclude that today on condition of working with the proper service, cloud mining is an optimal and really profitable way for cryptocurrency mining.
What is Cryptocurrency? [Everything You Need To Know!]
What Is Cryptocurrency: 21st-Century Unicorn – Or The Money Of The Future?
- Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
- The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference.
- Cryptocurrencies can be sent directly between two parties via the use of private and public keys. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
Today cryptocurrencies (Buy Crypto) have become a global phenomenon known to most people. In this guide, we are going to tell you all that you need to know about cryptocurrencies and the sheer that they can bring into the global economic system.
Nowadays, you‘ll have a hard time finding a major bank, a big accounting firm, a prominent software company or a government that did not research cryptocurrencies, publish a paper about it or start a so-called blockchain-project. (Take our blockchain courses to learn more about the blockchain)
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us .” – Thomas Carper, US-Senator
But beyond the noise and the press releases the overwhelming majority of people – even bankers, consultants, scientists, and developers – have very limited knowledge about cryptocurrencies. They often fail to even understand the basic concepts.
So let‘s walk through the whole story. What are cryptocurrencies?
Understanding Cryptocurrency Basics 101
- Where did cryptocurrency originate?
- Why should you learn about cryptocurrency?
- And what do you need to know about cryptocurrency?
How cryptocurrency works?
Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin , the first and still most important cryptocurrency, never intended to invent a currency.
In his announcement of Bitcoin in late 2008, Satoshi said he developed “A Peer-to-Peer Electronic Cash System.“
His goal was to invent something; many people failed to create before digital cash.
Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority. – Satoshi Nakamoto, 09 January 2009, announcing Bitcoin on SourceForge.
The single most important part of Satoshi‘s invention was that he found a way to build a decentralized digital cash system. In the nineties, there have been many attempts to create digital money, but they all failed.
… after more than a decade of failed Trusted Third Party based systems (Digicash, etc) , they see it as a lost cause. I hope they can make the distinction, that this is the first time I know of that we’re trying a non-trust based system. – Satoshi Nakamoto in an E-Mail to Dustin Trammell
After seeing all the centralized attempts fail, Satoshi tried to build a digital cash system without a central entity. Like a Peer-to-Peer network for file sharing.
This decision became the birth of cryptocurrency. They are the missing piece Satoshi found to realize digital cash. The reason why is a bit technical and complex, but if you get it, you‘ll know more about cryptocurrencies than most people do. So, let‘s try to make it as easy as possible:
To realize digital cash you need a payment network with accounts, balances, and transaction. That‘s easy to understand. One major problem every payment network has to solve is to prevent the so-called double spending : to prevent that one entity spends the same amount twice. Usually, this is done by a central server who keeps record about the balances.
In a decentralized network , you don‘t have this server. So you need every single entity of the network to do this job. Every peer in the network needs to have a list with all transactions to check if future transactions are valid or an attempt to double spend.
But how can these entities keep a consensus about these records?
If the peers of the network disagree about only one single, minor balance, everything is broken. They need an absolute consensus. Usually, you take, again, a central authority to declare the correct state of balances. But how can you achieve consensus without a central authority?
Nobody did know until Satoshi emerged out of nowhere. In fact, nobody believed it was even possible.
Satoshi proved it was. His major innovation was to achieve consensus without a central authority. Cryptocurrencies are a part of this solution – the part that made the solution thrilling, fascinating and helped it to roll over the world.
What is cryptocurrency?
If you take away all the noise around cryptocurrencies and reduce it to a simple definition, you find it to be just limited entries in a database no one can change without fulfilling specific conditions . This may seem ordinary, but, believe it or not: this is exactly how you can define a currency.
Take the money on your bank account: What is it more than entries in a database that can only be changed under specific conditions? You can even take physical coins and notes: What are they else than limited entries in a public physical database that can only be changed if you match the condition than you physically own the coins and notes? Money is all about a verified entry in some kind of database of accounts, balances, and transactions.
So, to give a proper definition – Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Cryptocurrencies leverage blockchain technology to gain decentralization, transparency, and immutability.
How miners create coins and confirm transactions
Let‘s have a look at the mechanism ruling the databases of cryptocurrencies. A cryptocurrency like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of every account.
A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key. It‘s basic public key cryptography, nothing special at all. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is basic p2p-technology.
Blockchain and Cryptocurrency
The transaction is known almost immediately by the whole network. But only after a specific amount of time it gets confirmed.
Confirmation is a critical concept in cryptocurrencies. You could say that cryptocurrencies are all about confirmation.
As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is confirmed, it is set in stone. It is no longer forgeable, it can‘t be reversed, it is part of an immutable record of historical transactions: of the so-called blockchain.
Only miners can confirm transactions. This is their job in a cryptocurrency-network. They take transactions, stamp them as legit and spread them in the network. After a transaction is confirmed by a miner, every node has to add it to its database. It has become part of the blockchain.
For this job, the miners get rewarded with a token of the cryptocurrency, for example with Bitcoins. Since the miner‘s activity is the single most important part of the cryptocurrency-system we should stay for a moment and take a deeper look at it.
What is cryptocurrency mining?
Principally everybody can be a miner. Since a decentralized network has no authority to delegate this task, a cryptocurrency needs some kind of mechanism to prevent one ruling party from abusing it. Imagine someone creates thousands of peers and spreads forged transactions. The system would break immediately.
So, Satoshi set the rule that the miners need to invest some work of their computers to qualify for this task. In fact, they have to find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the Proof-of-Work. In Bitcoin, it is based on the SHA 256 Hash algorithm.
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You don‘t need to understand the details about SHA 256. It‘s only important you know that it can be the basis of a cryptologic puzzle the miners compete to solve. After finding a solution, a miner can build a block and add it to the blockchain. As an incentive, he has the right to add a so-called coinbase transaction that gives him a specific number of Bitcoins. This is the only way to create valid Bitcoins.
Train to Become A Blockchain Developer
Bitcoins can only be created if miners solve a cryptographic puzzle. Since the difficulty of this puzzle increases the amount of computer power the whole miner’s invest, there is only a specific amount of cryptocurrency token that can be created in a given amount of time. This is part of the consensus no peer in the network can break.
If you really think about it, Bitcoin, as a decentralized network of peers that keep a consensus about accounts and balances, is more a currency than the numbers you see in your bank account. What are these numbers more than entries in a database – a database which can be changed by people you don‘t see and by rules you don‘t know?
Basically, cryptocurrencies are entries about token in decentralized consensus-databases. They are called CRYPTOcurrencies because the consensus-keeping process is secured by strong cryptography. Cryptocurrencies are built on cryptography . They are not secured by people or by trust, but by math. It is more probable that an asteroid falls on your house than that a bitcoin address is compromised.
Describing the properties of cryptocurrencies we need to separate between transactional and monetary properties. While most cryptocurrencies share a common set of properties, they are not carved in stone.
Understanding cryptocurrency properties
1) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.
2) Pseudonymous: Neither transactions nor accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real-world identity of users with those addresses.
3) Fast and global: Transactions are propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbor or to someone on the other side of the world.
4) Secure: Cryptocurrency funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers make it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.
5) Permissionless : You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.
What is Cryptocurrency: Monetary properties
1) Controlled supply : Most cryptocurrencies limit the supply of the tokens. In Bitcoin, the supply decreases in time and will reach its final number sometime around the year 2140. All cryptocurrencies control the supply of the token by a schedule written in the code. This means the monetary supply of a cryptocurrency in every given moment in the future can roughly be calculated today. There is no surprise.
2) No debt but bearer : The Fiat-money on your bank account is created by debt , and the numbers, you see on your ledger represent nothing but debts. It‘s a system of IOU. Cryptocurrencies don‘t represent debts, they just represent themselves.
To understand the revolutionary impact of cryptocurrencies you need to consider both properties. Bitcoin as a permissionless, irreversible, and pseudonymous means of payment is an attack on the control of banks and governments over the monetary transactions of their citizens. You can‘t hinder someone to use Bitcoin, you can‘t prohibit someone to accept a payment, you can‘t undo a transaction.
As money with a limited, controlled supply that is not changeable by a government, a bank or any other central institution, cryptocurrencies attack the scope of the monetary policy. They take away the control central banks take on inflation or deflation by manipulating the monetary supply.
“While it’s still fairly new and unstable relative to the gold standard, cryptocurrency is definitely gaining traction and will most certainly have more normalized uses in the next few years. Right now, in particular, it’s increasing in popularity with the post-election market uncertainty. The key will be in making it easy for large-scale adoption (as with anything involving crypto) including developing safeguards and protections for buyers/investors. I expect that within two years , we’ll be in a place where people can shove their money under the virtual mattress through cryptocurrency, and they’ll know that wherever they go, that money will be there.” – Sarah Granger, Author, and Speaker.
Understanding cryptocurrency: Dawn of a new economy
Mostly due to its revolutionary properties cryptocurrencies have become a success their inventor, Satoshi Nakamoto, didn‘t dare to dream of it. While every other attempt to create a digital cash system didn‘t attract a critical mass of users, Bitcoin had something that provoked enthusiasm and fascination. Sometimes it feels more like religion than technology.
Cryptocurrencies are digital gold. Sound money that is secure from political influence. Money promises to preserve and increase its value over time. Cryptocurrencies are also a fast and comfortable means of payment with a worldwide scope, and they are private and anonymous enough to serve as a means of payment for black markets and any other outlawed economic activity.
But while cryptocurrencies are more used for payment, its use as a means of speculation and a store of value dwarfs the payment aspects. Cryptocurrencies gave birth to an incredibly dynamic, fast-growing market for investors and speculators. Exchanges like Okcoin, Poloniex or shapeshift enable the trade of hundreds of cryptocurrencies. Their daily trade volume exceeds that of major European stock exchanges.
At the same time, the praxis of Initial Coin Distribution (ICO), mostly facilitated by Ethereum‘s smart contracts, gave life to incredibly successful crowdfunding projects, in which often an idea is enough to collect millions of dollars. In the case of “The DAO,” it has been more than 150 million dollars.
In this rich ecosystem of coins and token, you experience extreme volatility. It‘s common that a coin gains 10 percent a day – sometimes 100 percent – just to lose the same the next day. If you are lucky, your coin‘s value grows up to 1000 percent in one or two weeks.
While Bitcoin remains by far the most famous cryptocurrency and most other cryptocurrencies have zero non-speculative impact, investors and users should keep an eye on several cryptocurrencies. Here we present the most popular cryptocurrencies of today.
The one and only, the first and most famous cryptocurrency. Bitcoin serves as a digital gold standard in the whole cryptocurrency-industry, is used as a global means of payment and is the de-facto currency of cyber-crime like darknet markets or ransomware. After seven years in existence, Bitcoin‘s price has increased from zero to more than 650 Dollar, and its transaction volume reached more than 200.000 daily transactions.
There is not much more to say – Bitcoin is here to stay.
The brainchild of young crypto-genius Vitalik Buterin has ascended to the second place in the hierarchy of cryptocurrencies. Other than Bitcoin its blockchain does not only validate a set of accounts and balances but of so-called states. This means that Ethereum can not only process transactions but complex contracts and programs.
This flexibility makes Ethereum the perfect instrument for blockchain -application. But it comes at a cost. After the Hack of the DAO – an Ethereum based smart contract – the developers decided to do a hard fork without consensus, which resulted in the emerge of Ethereum Classic. Besides this, there are several clones of Ethereum, and Ethereum itself is a host of several Tokens like DigixDAO and Augur. This makes Ethereum more a family of cryptocurrencies than a single currency.
While Ripple has a native cryptocurrency – XRP – it is more about a network to process IOUs than the cryptocurrency itself. XRP, the currency, doesn‘t serve as a medium to store and exchange value, but more as a token to protect the network against spam.
Ripple, unlike Bitcoin and Ethereum, has no mining since all the coins are already pre-mined. Ripple has found immense value in the financial space as a lot of banks have joined the Ripple network.
Litecoin was one of the first cryptocurrencies after Bitcoin and tagged as the silver to the digital gold bitcoin. Faster than bitcoin, with a larger amount of token and a new mining algorithm, Litecoin was a real innovation, perfectly tailored to be the smaller brother of bitcoin. “It facilitated the emerge of several other cryptocurrencies which used its codebase but made it, even more, lighter“. Examples are Dogecoin or Feathercoin.
While Litecoin failed to find a real use case and lost its second place after bitcoin, it is still actively developed and traded and is hoarded as a backup if Bitcoin fails.
Monero is the most prominent example of the CryptoNight algorithm. This algorithm was invented to add the privacy features Bitcoin is missing. If you use Bitcoin, every transaction is documented in the blockchain and the trail of transactions can be followed. With the introduction of a concept called ring-signatures, the CryptoNight algorithm was able to cut through that trail.
The first implementation of CryptoNight, Bytecoin, was heavily premined and thus rejected by the community. Monero was the first non-premined clone of bytecoin and raised a lot of awareness. There are several other incarnations of cryptonote with their own little improvements, but none of it did ever achieve the same popularity as Monero.
Monero‘s popularity peaked in summer 2020 when some darknet markets decided to accept it as a currency. This resulted in a steady increase in the price, while the actual usage of Monero seems to remain disappointingly small.
Besides those, there are hundreds of cryptocurrencies of several families. Most of them are nothing more than attempts to reach investors and quickly make money, but a lot of them promise playgrounds to test innovations in cryptocurrency-technology.
What is Cryptocurrency: Conclusion
The market of cryptocurrencies is fast and wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy and investors lose money. Every cryptocurrency comes with a promise, mostly a big story to turn the world around. Few survive the first months, and most are pumped and dumped by speculators and live on as zombie coins until the last bagholder loses hope ever to see a return on his investment.
“In 2 years from now, I believe cryptocurrencies will be gaining legitimacy as a protocol for business transactions, micropayments, and overtaking Western Union as the preferred remittance tool. Regarding business transactions – you’ll see two paths: There will be financial businesses that use it for it’s no fee, nearly-instant ability to move any amount of money around, and there will be those that utilize it for its blockchain technology. Blockchain technology provides the largest benefit with trustless auditing, single source of truth, smart contracts, and color coins.”
– Cody Littlewood, and I’m the founder and CEO of Codelitt
Markets are dirty. But this doesn‘t change the fact that cryptocurrencies are here to stay – and here to change the world. This is already happening. People all over the world buy Bitcoin to protect themselves against the devaluation of their national currency. Mostly in Asia, a vivid market for Bitcoin remittance has emerged, and the Bitcoin using darknets of cybercrime are flourishing. More and more companies discover the power of Smart Contracts or token on Ethereum, the first real-world application of blockchain technologies emerge.
The revolution is already happening. Institutional investors start to buy cryptocurrencies. Banks and governments realize that this invention has the potential to draw their control away. Cryptocurrencies change the world. Step by step. You can either stand beside and observe – or you can become part of history in the making.
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