Friday, 10 January 2014

What is Bitcoin and mining?

So if you have been looking for Bitcoin I would imagine by now you have some idea that it is an internet currency which has exploded in the last few years, people who mined the currency a few years ago are now worth an absolute fortune.

Bitcoin wiki here worth a read

What is mining? Or at least what is my interpretation of mining...

  As always this may not be the best explanation but this is how ive used and seen it being used while i have been researching. Mining is where you download a client to search for blocks which in turn reward you with Bitcoins is the quick explonation. Each block is a mathematical equation which uses massive computing power to solve and eventually complete the block rewarding people once they are found. This used to be able to be done solo on your own but now is impossible so people join mining pools where everyone comes together to find blocks and the reward is shared to everyone in the mining pool

Technical Explonation of Mining 
During mining, your computer runs a cryptographic hashing function (two rounds of SHA256) on what is called a block header. For each new hash, the mining software will use a different number as the random element of the block header, this number is called the nonce. Depending on the nonce and what else is in the block the hashing function will yield a hash which looks like this:
You can look at this hash as a really long number. (It's a hexadecimal number, meaning the letters A-F are the digits 10-15.) Now to make mining difficult, there is what's called a difficulty target. To create a valid block your miner has to find a hash that is below the difficulty target. So if for example the difficulty target is 1000000000000000000000000000000000000000000000000000000000000000, any number that starts with a zero would be below the target, e.g.:
If we lower the target to 0100000000000000000000000000000000000000000000000000000000000000, we now need two zeros in the beginning to be under it:
Because the target is such an unwieldy number with tons of digits, people generally use a simpler number to express the current target. This number is called the mining difficulty. The mining difficulty expresses how much harder the current block is to generate compared to the first block. So a difficulty of 70000 means to generate the current block you have to do 70000 times more work than Satoshi had to do generating the first block. Though be fair though, back then mining was a lot slower and less optimized.
The difficulty changes every 2016 blocks. The network tries to change it such that 2016 blocks at the current global network processing power take about 14 days. That's why, when the network power rises, the difficulty rises as well.
Ok so now you have read this and want to start mining...... Well dont

Mining Bitcoins is no longer profitable for us noobs that are starting out with normal computers and normal money. People now mine Bitcoins with thousands of dollars of equipment which has all been paid for from previous mining when the Bitcoin price exploded and made them a small fortune.
  People used to originally mine Bitcoin with CPU power and then created programs to use your GPU's which in time keeps increases the difficulty. Now people have designed ASIC's which are processors specifically designed for mining which solve the solutions incredibly fast for very little power use. The only problem with this is people have invested big with ASIC's and are pushing some serious numbers mining which in turn give us no hope of making money as we cannot crunch the numbers as they do.
  Making money is possible still with Bitcoin but will take you an absolute eternity with entry level ASIC's, even if you pick up a USB unit for £20 it would still take you over 6 months to pay it off with electrical usage using Bitcoins.

So What is The Alternative?

The easiest alternative is to use very similar crypto currencies which are just starting out and can still be profitable, if you mine these you can trade them for Bitcoins or hold on to them hoping the value of the coins will shoot up in time.

Next up I will show you where to go and what to look for.

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