The Rise of Cryptocurrency
A cryptocurrency, a digital currency or crypto coins is a digital asset structured to function as a virtual medium of transaction where public coin ownership information is stored in a distributed ledger usually in a trust model. This ledger is controlled by a network of individual servers all over the world that act as intermediaries to facilitate the safe, instant, and reliable transfer of funds. The major benefit of cryptosystems is the security properties that make them immune to hacking, fraud, and other threats that may come from a volatile banking system. The system is highly secure because it requires multiple backups to each and every public coin ownership so that in case of a disaster one copy will still be functioning.
There are several different types of cryptosystems including Litecoin, Dogecoin, Nxt, Peercoin, Terracoin, and Bitshares. Unlike traditional cryptocurrencies that use Proof of Work (POW) to award new coins, a Cryptocurrency is based on a Proof of Stake (POS). The POS system is an agreement among diverse individuals that govern the distribution and sale of their stake in the market capitalization. The distribution of this stake is done through what is called “exchange pools”. The advantage of these systems compared to centralized cryptocurrencies is that it is less prone to outside influences like a centralized organization. In the event of a decentralized system being hacked, unlike the case with a POW system, most of the exchanges can self-correct without having to resort to a voting process.
Unlike other forms of Cryptocurrency like stocks and shares, which have limited supply, Cryptocurrency is traded globally and there is a high demand for it. The demand for Cryptocurrency is attributed to several factors including its high-profit potential, its high volatility, and its fast speed. The fastest and highest profit potential of any Cryptocurrency is seen in the buy and sell cryptosystem called “bitfinex”. Other Cryptocurrencies like Dash, Zcash, Monero are much slower and have lower trading volumes. Despite the large gaps in terms of volume and profit potential, all cryptosystems are volatile in nature and tend to follow the trend of the market, increasing in value and decreasing in value over short periods of time.
Like any other type of market, Cryptocurrency markets tend to exhibit “trend overlaps” with other markets. This is where two cryptosystems, such as the Dash and cash, tend to follow the same trend as the Dogecoin market. This is because both of them have built their business on the same premise – to empower ordinary people to participate in the economic activity of the country. Both Dash and Zcash are popularly traded over the Internet. There is also a close relationship between Dash and PIVX, another well-known tokenized Cryptocurrency. The two currencies almost seem to swap the role of the major players in the Cryptocurrency market, with each one taking advantage of the other’s network effect.
Most of the Cryptocurrency players are based in China, Japan, South Korea, and Hong Kong. In terms of market capitalization, four major Cryptocurrencies – ETH, BTC, BNB, and Tether. Some of the lesser-known Cryptocurrency such as SRK is worth less than a dollar each. Some of the more volatile and profitable Cryptocurrency is still relatively new on the marketplace and also face high trading costs and are thus not traded on major exchanges.
There are several forms of Cryptocurrencies that are currently being traded on major exchanges. Most of the tradable Cryptocurrencies follow the same principle of supply and demand. There are very few exceptions to this principle. One of the few exceptions is Monero, which is not actually a Cryptocurrency but rather a digital currency that was designed by a group of computer geeks. This type of Cryptocurrency is difficult to obtain and not recognized by most central banks.
Bitcoin’s emergence as a global digital currency has been as revolutionary as it has been erratic. But while fledgling investors obsess over every fluctuation in the cryptocurrency market, nation-states are more interested in the underlying blockchain technology and its ability to revolutionize how business is done on the internet and beyond. VICE’s Michael Moynihan travels to Russia with Vitalik Buterin, inventor of the ethereum blockchain, to get a front-row seat to the geopolitical tug of war over Internet 3.0.
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How to Assess the Current Cryptocurrency Scene?
After Satoshi Nakamoto changed the world forever with his invention, Bitcoin, the cryptocurrency market saw a massive rise. While Ethereum, Litecoin, and Ripple were some of the most popular cryptocurrencies after Bitcoin, while the total number of cryptocurrencies was more than 2,000. By 2017, the industry touched its peak as Bitcoin surpassed the $20,000 figure – a watershed considering it was not even $1 in 2010. However, then came the bloodbath…
However, after a crash occurred, following which the prices of Bitcoin and all other cryptocurrencies took a severe beating. In the midst of this, there were some projects that were exposed as scams. Some cryptocurrency exchanges were hacked, resulting in loss to many cryptocurrency owners. Hence, skeptics came forward with the million-dollar question: is cryptocurrency dead?
Is Cryptocurrency Dead?
Quite contrary to the general view, cryptocurrency is nowhere dead. Although prices took a nosedive in the last two years, volatility is slowly fading away. This may not excite the speculators; it is a great sign for the institutional investors – those who hold the key to take the cryptocurrency adoption to the next level. Some analysts believe that this institutional money will only grow over the next few years. There are also talks on moving cryptocurrencies to the Nasdaq, a move that can bolster the credibility of Blockchain greatly, and position it as an alternative to present financial options. There are calls for ETFs (exchange-traded fund) too, which is expected to simplify investment in Bitcoin and other cryptocurrencies.
Moreover, the foundational technology of cryptocurrencies Blockchain is becoming popular with real-life impact all over the world. Major tech firms, banks, and many businesses are already working with cryptocurrencies. If you are worried about regulations, then keep in mind that once a critic of cryptocurrency, China, is now competing with the U.S. by issuing digital money to streamline its government services. Last month, President Xi Jinping signaled that the Chinese Government viewed Blockchain as an important piece of the puzzle – one that can elevate the country to become a high-tech superpower.
Moreover, it is expected that Blockchain will be integrated with other modern solutions like IoT to address a slew of problems. For instance, it can provide a secure method to protect customer data. This can especially contribute a lot in healthcare institutions where privacy is highly critical. Similarly, the transparency cryptocurrencies offer can revolutionize the supply chain industry where machine learning can be used to generate real-time information about goods and create optimized routes.
Don’t judge the cryptocurrency market with their prices. These crashes have in fact cleansed the industry off weak platforms and have allowed better ventures to make a difference. These are the platforms that have highly-skilled teams who are dedicated to resolving centralization issues with their innovative solutions. As governments and industries are ramping up their adoption strategies for digital assets, cryptocurrencies clearly are here to stay.
Should You Buy Used Mining Rigs? Yes. Well maybe…. And perhaps no.
The option to buy used mining rigs is a tempting one. With the madness surrounding crypto mining and alt-coins, many people are going to look into building their own mining rigs. While this isn’t a huge undertaking for those who are quite computer savvy, what about those who aren’t? Building a mining rig yourself can be quite daunting if you don’t understand the basics of building a computer from the ground up. This would lead many to look towards eBay and Craigslist to shop for used mining rigs that other miners are trying to sell. But is it worth it?
Arguments In Favor to Buy Used Mining Rigs
Difficult to Source
Sourcing hardware for a mining rig build can be somewhat difficult. The main issue that one would encounter in acquiring the hardware for a mining rig is limitations on GPU quantities you can purchase. Many retailers, such as NewEgg.com, will have a limit of one per customer per purchase. Getting the bulk of your GPUs may be difficult, so buying a rig with all the parts sourced may be an attractive option to some.
Assembly is Complicated
Building a mining rig is also quite an undertaking in and of itself. It requires more than a working knowledge of assembling a normal desktop PC, as you’ll be required to run PCI-E USB riser cards and possibly need to daisy-chain power supplies in order to get the entire rig up and running. Buying used mining rigs with all of the assembly, troubleshooting, and OS installation and configuration done for you may be an attractive prospect.
Arguments Against Used Mining Rigs
As with any used PC, you can never be fully certain how old all the parts are or how long they will last. Additionally, people selling their mining rigs are looking to get out of the mining business altogether, so their rigs will be sold as-is. So a warranty will most often be off the table when dealing in used mining rigs. Once you drive off with it, it’s yours. When you buy used mining rigs you are taking on no small amount of risk.
Used rigs could also contain dated or aging hardware. Dated hardware means the GPUs are from previous generations, and thus offer less hashing power. Aging hardware could mean your used rig won’t mine for a long enough period of time to recoup your investment, much less turn a profit. A key talking point when speaking with the seller would be to ask how long the rig has been mining. If it’s been up and running for longer than a year, it’s probably best to not buy it – you’re on borrowed time. And if the hardware is dated, avoid it altogether. Dated hardware isn’t able to keep up with the mining difficulty to produce viable hashing power. This means it will take far longer to recoup your initial investment, if you recoup it at all.
Price is also a major consideration for buying mining rigs. Due to the nature of cryptocurrency mining, GPU prices are overly inflated, even on the used market. This was covered more in-depth in my previous article. This will lead to mining rigs being sold at above retail price for new equipment, as even used GPUs are being sold for more than MSRP. And you can bet your bottom dollar that any miner looking to get out of the cryptocurrency mining game will look to fully recoup all the money they spent on their rig, so they will sell it for the highest price that people will pay. Given the hype around crypto mining, this means seeing used mining rigs going for north of $4,000 will be the norm.
The main thing one should always do when looking to buy used is to research the price of the individual components before contacting the seller. Purchasing etiquette dictates that one should do all their research regarding pricing before they arrange to meet the seller. This will allow you room to haggle if you know what you’re buying. Plus, it’s considered rude to meet with a seller and begin research while you’re on their time.
Typical Craigslist Ads for Used Mining Rigs
My Opinion: Should You Buy Used Mining Rigs?
With the main pros and cons laid out, my professional opinion is that it can be reasonable to buy used mining rigs. If, and I stress IF, you can find a good deal where the sum of the parts is at or below MSRP, it may be worthwhile for you to buy a used rig. Since the rig will come assembled, you should expect to pay a little extra for that luxury. How much extra you find reasonable is completely subjective.
Now for my conditions:
- Condition 1: You must be comfortable replacing parts if/when they go out. I would highly recommend you only buy a used rig if you have a friend or loved one with the knowledge necessary. That, or you’ll need to be willing to spend hours pouring over how-to’s and in-depth guides on the web to figure out how to troubleshoot and replace any issues that arise with your rig.
- Condition 2: One should be able to comfortably absorb the cost of the mining rig if the entire enterprise goes belly-up. Buying used mining rigs will almost never come with a warranty or guarantee.
- Condition 3: Understand the hashing power of the rig you’re buying. It will be essential to understand just how much cryptocurrency you should expect to mine with your rig so you can plan your ROI. If the rig won’t pay for itself within a year, don’t buy it.
Given the volatility of the cryptocurrency market and the inherent dangers of investing in cryptocurrency, I must add the following disclaimer: the above article was written as my opinion, and should be taken as such. We (myself and CryptoCapers.com) are not responsible for any losses incurred by any reader investing in the cryptocurrency market, mining rigs, or ASIC mining equipment, using any advice we have published as guidance in buying used mining rigs or any other mining hardware. The cryptocurrency market is extremely risky and volatile, and our advice should only be used as part of one’s research into any crypto mining or investing. If you are in doubt, or if high risk isn’t for you, then don’t pull the trigger. But if you’re eager to take a risk in hopes of making real money in the future, then by all means, join us and the rest of the crypto pioneers and invest in mining your own cryptocurrency.
Coinbase Commerce – Striking Back at The Banks and Hitting Them Where it Hurts
Coinbase Commerce empowers over 48,000 businesses to accept Bitcoin, Bitcoin Cash, Litecoin and Ethereum alongside Visa, MasterCard, Discover and American Express. This alone silences the critics that often cite Bitcoin and other cryptocoins as being useless since cryptocurrency can’t be spent anywhere.
Thanks to Coinbase Commerce the four major cryptocoins can now be spent EVERYWHERE. From the big boys like Dell, Microsoft, Expedia, Intuit, Bloomberg and Dish Network to much smaller online merchants, accepting cryptocoin for payment can be implemented in just a few minutes. With such a simple and swift implementation process it’s easy to imagine websites accepting Bitcoin for payment numbering into the hundreds of thousands in no time at all.
Coinbase commerce is a dream come true for online merchants. That’s because online merchants face the bane of their existence in the form of credit card chargebacks. That’s when a consumer disputes a credit card charge with the issuing bank of the credit card. Within a couple of days the merchant’s bank account is hit and the funds are removed. The merchant then has to respond to the chargeback and then hope for the best. Hope for the best? Yes indeed. One of my other businesses, crowdfunding promotion firm Crowdfund Buzz, has only been successful in winning a chargeback case just 50% of the time. The other 50% means that the customer ends up getting our services for free. Online merchants selling products have the same pain; they ship the goods (think Apple MacBooks, Gucci handbags) then get slapped with a chargeback. To add more pain to the process, researching and submitting the documentation needed to answer a chargeback is time consuming AND the merchant typically waits TWO MONTHS for the decision. Even with breathtaking documentation (I typically provide a 45 page response LOADED with proof of work, proof of client acceptance, etc. as other vendors provide FedEx or UPS proof of delivery, etc.), too many chargeback challenges fail. In that case the customer gets to keep the goods or services – and the money. It’s become so common that it has garnered a term all its own; “friendly fraud”. By the year 2020 friendly fraud will cost merchants $25 billion per year at the current pace.
With Coinbase commerce that’s a thing of the past. Chargebacks are impossible and businesses can sell the crypto they received as payment instantly and receive fiat currency just as quickly as if they made that sale with a credit card. It’s not hard to imagine online merchants accepting cryptocoin in droves then eliminating credit cards from their websites. This has already started and I predict will continue to gain momentum.
Banks rake in $200 billion per year on credit cards from the merchant fees imposed to interest charges, annual fees and all the rest of them. Coinbase commerce will steer some of that money their way through the transaction fees they’ll earn on every transaction. With wider adoption cryptocoin becomes more mainstream, consumers have a lighter debt load and this must have the banks scared to death.
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GPU Availability Trending Downward – Cryptomining is the Culprit.
Ask anyone looking to build a PC for gaming or cryptomining and they’ll tell you the same story: GPU availability trending downward is reality. As a result of supply and demand GPU prices are through the roof. A recent boom in popularity of cryptocurrencies, like Ethereum or Monero, has led to a record high demand for GPUs driven by crypto mining. Such high popularity of cryptocurrencies has led to GPU prices trending upward. Yet, higher prices aren’t helping shore up supply. Both major retailers of consumer-end graphics cards, Nvidia and AMD, are experiencing a supply shortfall. Their core markets are also suffering from this relatively sudden price increase and poor availability.
GPU Availability Trending Downward is not an accident….
Demand Far Exceeds Supply
Even with prices for consumer cards on a steady rise, many retailers and even GPU manufacturers can’t seem to keep GPUs in stock. But the rise in GPUs scooped up for cryptocoin mining isn’t the sole culprit in this matter. ASIC manufacturers, such as Bitmain, are buying out major foundries so they can keep pace with demand for ASIC miners. This puts foundries like TSMC at a production deficit when it comes to supplying GPU manufacturers like Nvidia and AMD.
While your average end-user won’t notice a huge difference, this shortage is impacting small-time altcoin miners and gamers alike. Prices are being driven ever higher by major mining corporations buying their GPUs en masse from major distributors in China. GPUs are being bought in such bulk that consumers aren’t able to get their hands on a high-end graphics card without paying a hefty price, if they are able to obtain one at all. With markets devoid of stock, and demand doubling or even tripling supply, even having the money doesn’t guarantee you’ll be able to buy the graphics card you want. That’s where GPU availability trending downward hits hardest.
With massive supply shortfalls, GPU manufacturer Nvidia is trying to limit who buys their GPUs. According to Nvidia spokesman Boris Böhles: “For NVIDIA, gamers come first. All activities related to our Geforce product line are targeted at our main audience. To ensure that Geforce gamers continue to have good Geforce graphics card availability in the current situation, we recommend that our trading partners make the appropriate arrangements to meet gamers’ needs as usual.”
AMD has similar issues. Trying to get the latest Radeon graphics card will likely cost you a small fortune, if you’re able to buy one at all. AMD’s Radeon line tends to be more popular with miners due to their reputation of having better mining efficiency than Nvidia’s GeForce line. This leads to getting all but the most entry-level Radeon cards nearly impossible.
With supply issues and the wide unavailability of AMD’s Radeon RX 500 series, AMD is also putting gamers first. According to an AMD spokesperson in an email to CNBC, “The gaming market remains our priority. We are seeing solid demand for our Polaris-based offerings in the gaming and newly resurgent cryptocurrency mining markets based on the strong performance we are delivering.”
The Future for GPUs
While the short-term is definitely horrible for end-users, answers may be just over the horizon. With both major GPU manufacturers acknowledging the problem, perhaps we’re on the cusp of a revolution in GPU technology. We may be seeing the major GPU players developing graphics cards geared specifically at miners while still innovating and improving graphics cards for the hardcore gamers. Only time will tell. One thing is for certain: current GPU market trends are unsustainable for both the miners and the gamers of the world.
Buying an ASIC Miner
I decided that, after two months of mining with repurposed PCs, it was time to try buying a dedicated ASIC miner for Bitcoin. But just what is an ASIC miner, and why did I want one?
Well, I suppose we should start with just with a simple description of just what an ASIC is. ASIC stands for “application-specific integrated circuit,” and it’s basically a device designed for one function. In my case, this ASIC was used specifically for Bitcoin mining. ASICs are limited to one particular application, and in the case of cryptocurrency mining, one specific protocol.
If you haven’t seen my previous episode in this series, please go check it out here.
Why ASIC Over GPU?
In the world of Bitcoin mining, miners have many options on how they want to mine. A miner can use their CPU, an array of GPUs, or they can opt for an ASIC. Every option has pros and cons, but typically Bitcoin miners opt for ASICs due to their efficiency and hashing power. Some cryptocurrencies, such as Ethereum and Monero, cannot use ASIC devices due to the simple fact that ASICs don’t exist for their protocols. The difference between ASIC, CPU, and GPU mining is broad enough of a topic to deserve its own write-up, so today we’re simply going to focus on my experiences with buying and deploying my first ASIC device.
Where to Buy?
After several days of research, I decided that I was going to opt into using an ASIC. But that was only the first step. I now needed to source a device from a reputable supplier, and I needed to put a good amount of money up front in order to make my purchase.
The concept of putting a lot of money into something I’ve never even heard of was a scary prospect, I must admit. I believe in the blockchain, but I wasn’t willing to drop the roughly one thousand dollars I needed to spend to get my feet wet in the world of ASIC mining. So I decided to look into an older generation miner for far less money to give myself an introduction to buying, configuring, and maintaining an ASIC miner.
What I’m about to tell you comes with a heavy disclaimer: do NOT spend more than you’re comfortable losing! The world of cryptocurrency is rife with risks, shady sellers, and sight-unseen purchases. As with any investment into cryptocurrency, one should always do their research, find the best source possible, and be ready to be patient. Buying hardware for mining Bitcoin comes with many, many risks, and one should be as informed as possible. One should also not spend more than they are able to lose. I cannot stress this enough!
With the heavy disclaimer out of the way, let us soldier on.
After weeks of research, peer consultation, and shopping around, I decided to buy my first ASIC miner from eBay. I settled on a Bitmain Antminer S3+ 450 GH/s ASIC device for $200 as my first investment. Sure, its hash rate isn’t great, and it won’t make me amazing amounts of Bitcoin, but I was far more comfortable plunking down $200 on eBay than I was plunking down nearly a grand to prepay for a latest-gen ASIC from a distributor I’d never heard of.
Bitmain Antminer S3+
Miner Has Arrived
Weeks later, after my order was placed and my item arrived, I began the process of configuring my ASIC. It was fairly easy for me to configure, as I am an IT professional by trade. However, user experiences may vary.
I was required to provide a power supply for my ASIC, as it didn’t come with one, and I decided on a Thermaltake 750 watt power supply that I sourced from my local Fry’s Electronics. I also purchased some handy power supply manual switches from a seller on eBay because I didn’t like the idea of running a power supply 24/7 using a paperclip as a jumper.
Power Supply Switch
With ASIC and power supply in-hand, I set about the process of configuration. It was very straightforward – connect the power leads to the miner, connect the network cable, and power the device on. I then had to use an IP scanner to locate the device on my network, as resetting the device to factor defaults reverts the network configuration to DHCP.
I thought I was ready to continue, but a slew of challenges still awaited me.
To Be Continued
As I found out, configuring used mining equipment not such an easy prospect. My challenges were many. Too many, as it turned out, for a single episode. As such, we will pick back up next time. We will continue diving into the world of buying second-hand mining equipment. I will also share the trials and tribulations that come with the territory.
Look to this space for more adventures in Bitcoin!
Episode 4: Trading Monero
I recently had a crash course in trading Monero for Bitcoin. Boy was that an adventure!
If you haven’t seen my previous episode in this series, please go check it out here.
Mining Enough Monero
Well, after we’ve setup our miner and found our mining pool (I chose Minergate to start), we then need to actually mine enough cryptocurrency to trade for Bitcoin. This can take a lot of time, depending on your mining rigs, the difficulty of the coins you’re mining, and the miner pool fees that you have to pay to trade. The biggest factor to consider, as a matter of fact, is the pool fees. As I’ve found out.
So using Minergate, I had mined the required amount of Monero that Minergate needed to trade. Subsequently, I began the trading process. Easy as pie, right? Oh boy…
Trading for Bitcoin
Prepare to wade through a minefield of pool fees, transfer fees, and selling fees. There are literally fees attached to every…single…transaction. As such, you have to be very careful before you begin moving your coins around. One must read every agreement for every service they use, and one must carefully calculate how much cryptocurrency you need to cover all your fees. Some services and pools have higher fees than others, but this is usually a trade-off for ease of use. Take Minergate for example. They have an extremely easy-to-use GUI that makes mining various cryptocoins very easy. However, their pool fees tend to be higher than others.
Back to the point: I’m trading my Monero for Bitcoin. To begin this process, I logged onto my Minergate dashboard, and began the selling process. (Pardon the balance inconsistency – I went through this process prior to publication)
Minergate – Sell with Changelly
When you go to sell, it will take you to the associated cryptocoin market. For Minergate users, Changelly is the featured partner with integration for ease of trading (or that’s the plan at least.)
Changelly – Trading Cryptocurrencies
In my particular case, I was exchanging my Monero (XMR) for Bitcoin. As I found out, however, you are required to have a minimum amount of Monero, or any cryptocurrency for that matter, in order to trade. This is due to network fees and commissions that each site skims off of the top. This is simply the nature of cryptocurrency trading and must always be taken into account.
Well, all of this seems simple, right? In theory, yes. But what inspired me to share my experience here was the plethora of issues I encountered. My mistakes, I hope, will serve as a warning to everyone else.
What was my problem, you may ask? I had the required amount of Monero ready to go, which at the time was 0.30 XMR. Also, I had the Minergate fees ready, which was 0.02 XMR, and I was prepared to pay the minute Bitcoin fee to Changelly. So all of my fees were calculated and accounted for. But I ran into an issue that will probably arise for many people – network failures when paying the Changelly invoice with Minergate.
Let me back up a bit. When you complete the steps I outlined above, you’ll be required to manually send your cryptocurrency to Changelly using your online wallet or mining pool. In the case of Changelly, they are partnered with Minergate, and they have a simple interface to send the invoice to Minergate within their client dashboard.
Changelly Invoice Option
My issues arose not here, but when trying to pay the invoice using Minergate. Each and every invoice I’d validate and attempt to pay would end in network failure. Reaching to support took much longer than I’d hoped, and I became impatient due to the rising prices of Bitcoin – I wanted my Bitcoin as soon as humanly possible. And that was my mistake.
In an attempt to get around the issues with Minergate sending XMR to Changelly, I went and opened an online wallet recommended by Monero’s network – MyMonero.
I setup my wallet, enabled 2-factor authentication, and verified my email address. I did everything by the book. So I figured that I’d be able to send my XMR to MyMonero and attempt to pay the Changelly fee that way. And in theory, that would have worked. If only I had remembered the cardinal rule of crytpcurrency trading – REMEMBER THE FEES!
I sent 0.30 XMR to MyMonero, paying the 0.02 XMR fee to Minergate for their part of this. I then attempted to send the XMR from MyMonero to Changelly…
So not only did I neglect to check my fees from MyMonero, I also didn’t have enough XMR left in my Minergate wallet to send the necessary amount of XMR to MyMonero. I broke the cardinal rule of cryptocurrency trading, and I’m paying the price of waiting. Waiting for my miners to gather enough Monero to cover the transfer fee from both Minergate and MyMonero to send the XMR to Changelly.
Moral of the Story
The moral of the story is this: REMEMBER THE FEES!
There is literally nothing more frustrating, as I’ve found out, than making all your transfers only to realize you didn’t account for network fees. These issues could have been subverted with just an ounce of preparation. An ounce that I neglected to measure.
That’s my story. I hope this helps some wayfaring crypto-trader out there. Hopefully my mistakes will be your lessons!
In my next installment, we’ll explore my adventures in buying and configuring ASCI miners for mining Bitcoin. Look to this space for more adventures in Bitcoin!
Creating a Bitcoin Wallet
In my last installment, I had just completed my first mining rig and researched my cryptocurrency of choice. I then realized that I needed a bitcoin wallet, but I had no idea what this entailed.
You see, the layman’s conceptualization of a wallet is one that is made of durable material, holds physical cash and an array of cards, and folds up neatly enough to fit in one’s pocket. This concept isn’t too far off for a crypto wallet for holding Bitcoin or other cryptocurrencies. But it’s still far more abstract and requires a decent amount of configuration. (If you haven’t read my previous installment in this series, you should first check it out here)
Offline Wallets – Bitcoin Core
The first bitcoin wallet you will typically find when doing your initial research is included in a program known as Bitcoin Core. This is a wallet that you have to store locally on your own PC, and you are wholly responsible for backing it up and maintaining its security. If you do not keep your offline wallet safe, you are apt to lose any and all Bitcoin and/or other cryptocurrencies you mine or buy. This will mean you lose your investment, which is much like losing your own wallet filled with cash.
Bitcoin Core – Initial Setup
There is no assurance of safety and no expectation that any Bitcoin you keep in an offline wallet will remain if you don’t perform due diligence and keep your offline wallet secure and backed up. This is the biggest con to using a wallet in this manner. However, if you safeguard your Bitcoin in an offline bitcoin wallet, you can greatly protect it from most fees that come with using online wallets, which will be discussed later.
Bitcoin Core – Ready to Send and Receive
Online Wallets – Coinbase
The next option I researched when starting down my path to mining Bitcoin was using online wallets, such as Coinbase. Online wallets usually resemble online bank accounts. They typically allow you to buy, sell, and exchange Bitcoin and other supported cryptocurrencies in real time. Additionally, online wallets will allow you to send and receive coins to and from other users for goods and/or services rendered elsewhere.
In my travels, I settled on using Coinbase as my online wallet of choice. Coinbase only deals in 3 cryptocurrencies: Bitcoin, Ethereum, and Lytecoin. However, Coinbase is highly reliable and very well respected in the world of cryptocurrency. Given their track record, I decided to use them as my online wallet provider. Thus far, in my 6 months of mining and trading crytpocurrencies, I’ve made several purchases of Bitcoin and Ethereum. And as far as ease of use is concerned, Coinbase is tops in my book. I’ve never had any problems with my transactions, and receiving my coins has always gone smoothly.
Another feature that is useful in using an online bitcoin wallet is that you can have your mining pool accounts automatically transfer your mined Bitcoin to your online wallet using a specific receiving address. For more on sending and receiving addresses, please consult this extensive guide. I’ll share my experiences with mining pools in my next installment.
Paper Wallets – A Bitcoin Wallet with Paper
Paper wallets can be used in a very similar way to offline wallets by manner of storing your coins offline. Rather than using a hard drive or other hardware, they are stored on a piece of paper that has a public and private key, as well as a QR code. These wallets are fully offline, and they will hold any amount of Bitcoin or other cryptocurrency as you want to store on them, but they do require either an offline or online wallet to load them with Bitcoin.
Paper wallets can be extremely secure, as they only exist in a paper format, and are only known to you and anyone with which you share the private key. The biggest caveat is that if you lose this private key, you lose all the funds loaded onto it. The vast majority of people will use paper wallets to fully store their Bitcoin offline, and paper wallets will typically be stored in a safe.
Bitcoin Paper Wallet Example
I purchased a paper wallet from a seller on eBay during my experimentation. Therefore, I understand first-hand just how volatile and scary the concept of storing Bitcoin on a paper wallet can be. Using a paper wallet is entirely too risky for myself, and should be considered as such for fellow newbies. Paper wallets are an extreme way to keep your cryptocurrencies offline and away from most fees associated with online wallets. However, paper wallets are extremely vulnerable to theft, disaster, or simply being lost. For this option, I advise you avoid it unless you can stomach the enormous risk that comes with the territory.
Well, we now have a wallet for our coins! Next time, we’ll explore mining pools in an in-depth manner. Look to this space for more of my adventures in Bitcoin!
[ Editor’s note: A bitcoin wallet or a wallet to hold any kind of cryptocoin is something every cryptocurrency investor needs – not just coin miners. Eric wrote an article that everybody can benefit from. ]