Bitcoin Questions

What is Bitcoin?

Bitcoin is a new form of digital currency, designed for the Internet.  It is completely decentralized, and is not controlled by any government entities.  The easiest way to think about the Bitcoin is that it is a global ledger of accounts. You can read more details about Bitcoin here.

Does someone control the Bitcoin network?

No single person or entity owns the Bitcoin network.  Bitcoin is controlled by every Bitcoin user worldwide. For example, as developers improve the underlying Bitcoin software, they must propose the changes to the network, and there must be unanimous consensus among all users to implement those changes.  This gives Bitcoin users and developers the incentive to strive for consensus.

How does Bitcoin work?

Bitcoin can be boiled down to two distinct components: a user-friendly wallet application that allows users to send and receive Bitcoin, and the Bitcoin Core, which provides the infrastructure for these transactions to occur.

Behind the scenes, the Bitcoin network shares the “block chain”, which is a distributed ledger. It contains every transaction since the beginning of Bitcoin, and allows a user’s computer to verify the validity of each transaction. Each transaction’s authenticity is protected by digital signatures corresponding to the sending addresses.  Transactions are processed by “mining”, which is essentially using the computational power of specialized hardware to store transactions in the blockchain.

Where can I use Bitcoin?

You can use Bitcoin at thousands of online retail stores, as well as many restaurants, food delivery services, and of course, mining hardware companies.  You can now trade Bitcoin on Coinbase’s new regulated US exchange, which operates in 25 states.

Some of the most famous companies that accept Bitcoin include Microsoft, Dell, Overstock, Newegg, PayPal (via BrainTree), Foodler, Virgin Galactic, WordPress, TigerDirect, Tesla, Zynga, and thousands of others.

Mining Questions

What is Bitcoin Mining?

Mining is the act of helping the Bitcoin network record transactions in a provable way.  Without getting into the details of the SHA256 algorithm, mining is helping the Bitcoin network by recording transactions in the distributed ledger, and in exchange for miners’ computing power, miners are rewarded with Bitcoin.  You can read more about Bitcoin mining here.

What kind of hardware do I need to mine Bitcoins?

At this point, Application Specific Integrated Circuits (ASICs) are required to mine.  Some hardware manufacturers produce miners with a single high-powered chip, while many others produce systems that incorporate many smaller chips all mining in tandem.  If you wanted to mine Bitcoins at home, you would need a hardware-based miner from a manufacturer such as Bitmain or Spondoolies, to name just a few.

What is cloud mining?

Cloud mining takes the same concepts used in cloud computing, and applies them to Bitcoin mining. Rather than hosting a website, an email service or a file sharing service in the cloud, cloud Bitcoin mining companies will mine Bitcoins for users.  Companies will purchase, host, and maintain the hardware at massive data centers, and provide specified amounts of hash rate (mining power) to clients, for a fee.  Hash rate is usually described in terms of GH/S (gigahashes per second) or TH/S (terahashes per second).

Is cloud mining profitable?

That depends on a number of factors that contribute to a contract’s return on investment or ROI.  Cost is an obvious factor, which is why our rating criteria revolved heavily around price.  Maintenance fees cover electricity, hosting, and maintenance of hardware, and can eat into profits, so all other things being equal, these two factors are the most important to consider when determining profitability.  However, the reputation and track record of a company is incredibly important, because of the prevalence of ponzi schemes and bankruptcies in the Bitcoin mining space.  ROI can become impossible if your 5 year contract is terminated after 2 months.  Finally, profitability comes down to the 2 factors that no single company can predict or control.  Bitcoin’s price has fluctuated all over the map, from pennies to over $1000 and back to under $200 in the space of 3 years.  However, when purchasing a mining contract, it is best to assume a constant price for Bitcoin, since your alternative is to simply purchase Bitcoin and hold it, hoping for a price increase.  The other factor that impacts mining in a very big way is Bitcoin network difficulty.  Difficulty is determined by global hash rate, which was increasing at an exponential rate until late 2014, when it began to plateau.  Whether this plateau continues will likely depend on the price of Bitcoin, as well as innovations in ASIC development.

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