When I decided to write this guide, I was throwing cryptocurrencies around like they were nothing. I was foolish in the fact that I disregarded the exchange fees that are attached with the services that those exchanges provided. I'm in by no means a cryptocurrency genius, and I'm still not extremely seasoned at it, but I've learned enough about cryptocurrencies in the past month that I feel confident to pass on the knowledge I have learned and to help those who are overwhelmed on where to start.
So what exactly is a cryptocurrency? According to technopedia
(n.d.) a Cryptocurrency
is a type of digital currency that is based on cryptography. Cryptocurrency uses cryptography for security, making it difficult to counterfeit. Public and private keys are often used to transfer the currency from one person to another.
When mining cryptocurrencies, one important concept needs to be established, and that's hash rate. Hash rate is simply a unit of measurement of processing power. The more your hash rate is, the more profitable mining becomes.
This guide uses specific sites and software, chosen by myself, as a great springboard into the cryptocurrency world. These sites and software are extremely flexible, easy to use, and integrate very well together. The mining pools I've chosen are multiple currency pools, designed to consolidate a major of the cryptocurrencies together, and instead of using several mining pools, you use three.
These are the things you'll need to get started: MultiMiner
Accounts at Coinotron
, The Mining Pool Co.
, and BitMinter
Accounts at Cryptsy
There are a few different ways to mine for cryptocurrencies, the common of which are using your Central Processing Unit (CPU), Graphics Processing Unit (GPU), and Application Specific Integrated Circuit (ASIC) devices. CPU based mining is not profitable any longer, and will cost you money in the end by increasing electricity costs. GPU based mining is still popular, but losing steam against ASIC based mining. If you choose to use your GPU for mining, AMD/ATI based graphics cards (especially the Radeon HD 79xx series of cards), are the most efficient. If you have an nVidia based graphics card, I'm sorry. You can still mine on nVidia cards, but your hash rates are going to be much slower when compared to their AMD/ATI counterparts. If you chose to use GPU mining, Black Friday or Cyber Monday are you best bets for upgrading your equipment. ASIC based mining is quickly losing value with the changing difficulty on all networks, but it's the most cost effective way to increase your hash rate, and see a positive return on any equipment purchases. If my math is correct, using the methods in this guide, in order for any ASIC device to yield a positive cash flow, you've got to get a device that has at least a 5Gh/s rate (such as the Butterfly Labs Jalapeno).
Now for the fun part, explaining how everything in this well greased machine is going to work. Patience plays a big part in the cryptocurrency world, and when I first started, I had none. I was so eager to see the amount of Bitcoin go up, regardless of how much I was getting penalized in fees from trading. So, that's the first step on your journey. PATIENCE. I CANNOT emphasize this enough. Sometimes, you've just got to hurry up and wait, the effects of waiting things out on the cryptocurrency market WILL PAY OFF.
Step one of this machine is signing up for all three pools (BitMinter, Coinotron, and Mining Pool Co.). This is so that you can actually get server addresses to plug into MultiMiner, after signing up for these services though, you've still got a ways to go.
Step two is sign up for Cryptsy. I chose Cryptsy because of the features they're going to offer at a later time, as well as support for 60 cryptocurrencies (which covers all but one of which we can mine). When your Cryptsy account is setup, you will need to go into the Balances portion of Cryptsy, and find all of the currencies in which you will be mining from the pools. Once Balances are loaded up, you will need to click on the Actions button next to the currency, and click Deposit / Autosell, and then Generate Address. There's a small clipboard near the address it generated, and that will copy the address for pasting in the mining pool websites. You will want to copy, and paste all of them to a text document, along with which currency it belongs to. Not only does this keep you from juggling back and forth trying to figure out things, but it helps for reference and setting up MultiMiner.
Once you have those accounts setup, you'll want to sign up for Coinbase. A WORD OF WARNING FOR THOSE WHO ARE PARANOID... Coinbase will want to link to a bank account, this is mandatory if you want to trade your currencies for cash. If you want to trade currencies, just for the sake of trading, then you can skip Coinbase altogether. You can transfer your Bitcoins from Cryptsy straight into Coinbase, and then sell the Bitcoins from Coinbase, and straight into your designated bank account.
MultiMiner, oh how amazing you are. For every cryptocurrency available in all pools, you will need to add these coins, along with server addresses, log-ins and passwords. To do so, click on the drop down next to the Settings button, and click Coins. From there, click on Add Coin, and choose each coin from a pool. This will list it in the box to the left, and give you the ability to add information on the right. You can add multiple servers as well, in case the current server you're mining on goes down. After all your coins are setup, you'll need to setup your Strategies. Click the drop down next to Settings, and chose Strategies. Check the Enable Strategies check box, choosing Straight Profitability from the drop down, and checking the Strategy every five minutes (that way you're not losing money by mining something that has dropped in price). This aggressive price checking makes it to where you're always on top with whatever you're mining. Also make sure you have Mine the Single Most Profitable Coin selected. Stick with CoinChoose as your price source (under Settings), as CoinWarz charges for there services beyond a certain point. Click Start, and take a vacation.
Reading the charts on Cryptsy can be a little tricky, and scary if you've never saw those types of graphs before. Those graphs are called Candlestick Charts, and are used primarily in the stock market. I won't go in to great detail on this, however, you can find a nice cheat sheet on the subject here
I hope everyone enjoyed the guide, sorry for being punctual and brief, but there isn't anything too elaborate of complicated about searching for cryptocurrencies. I love mining as a hobby, mining's fun, and if there is any money to be made off of mining from my end, great, if not, I had fun mining.
While compiling a spreadsheet of the minable currencies in this guide, if everything is set up correctly (and assuming servers aren't down), you should be able to mine the following:
And while Mining Pool Co. offers ASICcoin and Unobtainium, ASICcoin isn't supported in MultiMiner, and Unobtanium isn't supported in Cryptsy. I still mine for Unobtanium in hopes that Cryptsy will include it one day. References
Cryptocurrency. (n.d.). In technopedia
. Retrieved from http://www.technopedia.com/
I've done a little bit of research into these coins because the basic goal is pretty neat: Long-term they aim to be energy enefficient, meaning less power consumption to secure the network. While this might not seem like a very important goal, if you think about bitcoin becoming mainstream and generating a trillion dollar market cap, with billions of dollars in fees, the cost of the bitcoin network becomes roughly equal to the cost of electricity in relation to fees (meaning mining would cause a significant increase in power consumption world wide, making electricity more expensive and slowing down the economy).
The way proof of stake solves this is by "burning" coin days to mine a proof of stake block. While I'm not entirely sure how this would work (would you need lots of coins to mine PoS, would you donate coins to a pool with others to mine PoS?) what this means is that the cost of a 51% attack is roughly equal to half of the coin stake that's being donated to secure the network, offsetting the cost of hardware/electricity to the value of the coin itself.
The problem with PoS is the question of how do you distribute the innitial amount of coins in the network? While both NVC and PPC promiss about 1% inflation per year as your "reward" for mining you can't start at 0 coins because you can't generate 1% of 0. So the way NVC and PPC solved this is by distributing an initial base of coins through traditional proof of work mining. Except instead of using a planed, known release schedule like BTC/LTC, they released coins as a function of hashing power where more hashing power = less coins per block. Bassically when there were only one or two miners during the first couple days of the release they were generating thousands of times as many coins amoung themselves as later miners would get. This is different from BTC/LTC because no matter how many people are mining, the block reward for BTC/LTC remains the same. PPC/NVC on the other hand respond to additional miners by dramatically reducing the block reward so that a majority of the total number of coins that will ever be produced were mined by the first couple miners.
The theory here I think is that more miners means more electricity consumption so to compensate, the amount of coins generated decreases, removing any incentive for more miners to join the network.
I, like many others, see this as incredibly unfair and in fact early NVC miners were forced to "destroy" coins because people saw it as a premine. You can see this premine of PPC here: http://i.imgur.com/K2B8UKq.jpg
(from AndyRossy's PPC Charts
The actual code / methodology for the mining process, while realtively easy to find for NVC, required a bit of digging before I could make sense of PPC's algorithm. NVC:
nBlockReward = 100 / (nMaxTarget / nCurrentTarget) ^ (1/6)
Roughly understood to be reward = 100 / (difficulty ^ 1/6)
Source: NVC faq and generous, well explained comments in the source code.
blockReward = 9999 / (bnProofOfWorkLimit / bnTarget) ^ (1/4)
Roughly understood to be reward = 9999 / (diffificulty ^ 1/4)
Source: Poking around in obscuficated code that looked similar enough to NVC's to make sense of. PPC appears to attempt to hide the specifics of their block reward algorithm while NVC, despite being bassed on PPC's code, is very open about it, even posting an explanation in their FAQ.
For comparison, BTC's block reward algorithm looks like this:
blockValue = 50 / 2 ^ (nHeight / 210000)
Where 210000 blocks is roughly 4 years.
Another difference is instead of adding fees to the block reward, PPC/NVC simply destroy transaction fees. This is enforced by the network to be 0.01, not by the market / miners, regauradless of the size of your transaction, reguardless how old your coins are, reguardless how much the coin is actually worth, the fee is always 0.01 (although I assume devs can adjust this in the future).
Because of their honesty I would probably trust NVC before trusting PPC, although I think both coins are misguided and potentially scams. Had they used scheduled releases like BTC/LTC the story might be a little different. The problem of course is that PoS only really kicks in after PoW (proof of work) making PoS mostly inactive until the coin actually matured. Meaning you'd either be stuck with a premined coin or a coin that wont use PoS until years into the future. If someone can figure out a way to mint a PoS coin without a premine it might be worth while.
Also one other thing that was pointed out to me recently is that it would be fairly trivial for bitcoin (or any other coin) to add PoS if it were deamed necesary in the future. Granted most people would probably be against it but if it were shown to have actual benefits it could be easily added.
- Proof-of-Stake attempts to secure the coin from 51% attacks by adding stake blocks which "burn" coins in the process.
- The main benefit of this is reduced power consumption.
- All current PoS coins are pre-mined and pre-mining is basically built into the code and is required for initial minting.
- Fees, which are hard enforced by the network, are simply destroyed (for no good reason as far as I can tell).
- For what it's worth NVC appears to be a more honest coin than PPC which attempted to obfuscate their minting process. NVC devs also destroyed a lot of their coins from early minting whereas PPC devs still have their coins (which were being minted at 2,000,000 per day).
- It would be very easy for BTC/LTC/TRC or any other PoW (proof-of-work) coin to add PoS in the future if it were found to have actual benefit for cryptocurrencies.
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