WHAT IS BITCOIN?
Every country has its own currency. Estonia and the Eurozone have the Euro, Russia has the Rouble and the USA have US Dollars. We exchange money in banks or specialized foreign exchanges, transfer it worldwide and invest it. In our times of technological innovation it is safe to say that most, if not all money transfers are conducted through the Internet.
Is it then such a great surprise that an online currency such as Bitcoin has emerged? Interest in the currency has grown towards the end of 2013 due to significant spikes in the currency’s value, but let’s start from the beginning. In 2009, an unknown programmer by the name of Satoshi Nakamoto put forward a whitepaper that proposed a creation of new form of digital currency – cryptocurrency. Cryptocurrency functions the same way as regular currencies do in that its used as a means of exchange, unit of account and a store of value. Cryptocurrency, just like other resources, has some demand for it, and subsequently a market price. The significant difference is Bitcoin’s intangibility – there is no bank-issued notes or papers – meaning that rather being used in hand-to-hand transactions, Bitcoins are stored and exchanged digitally within a decentralized, peer-to-peer network.
HOW DOES BITCOIN WORK?
With traditional money, transferring funds from one account to another requires some intermediary authority or middleman. Even with hand-to-hand cash transactions, the issue, value and fiscal policy of money is controlled by a trusted centralized authority (such as a bank, agency or government). Bitcoin operates differently in that no middleman is required in transactions as the trust between actors is derived from computer science and cryptology, rather than trust in a central establishment. It also means that Bitcoin is transferred directly from the sender to the receiver, with absolutely no intermediaries.
A key point to note is that because of this lack of central issuing body, cryptocurrency is created and transferred with the help of a process called “mining”. This process requires an extremely powerful computer to crunch down the billions of calculations required to solve cryptological functions.
In reality, the mining process is extremely complex and technical. Despite its complexity, the process is transparent and open for review due to the open-source nature of Bitcoin.
WHAT ARE THE STRENGTHS AND WEAKNESSES OF BITCOIN?
Bitcoin is the first decentralized and uncontrolled currency. Since no central body owns the process for issuing new units, new coins are created at a fixed, predetermined rate. Unlike many government-issued currencies, this means that Bitcoin is immune from inflation, and is in fact a deflationary currency. Bitcoin also has the un unique property of “transparent anonymity”- meaning that despite all transactions and wallets being public through the Blockchain, all actors in a transaction are only identified by their bitcoin wallet address. Thousands of addresses are generated daily – this means that the user stays anonymous until they register both their personal details and their bitcoin wallet address somewhere (for example on a Bitcoin exchange). Bitcoin’s unique makeup also creates other strengths from the users perspective- the digital nature of Bitcoin makes it highly divisible and the lack of a central authority ensures that transaction fees are near-zero.
Bitcoin’s digital nature and lack of central body also shape Bitcoin’s weaknesses – lost Bitcoins are non-recoverable (meaning that if you lose your private key or the hard drive with your wallet gets corrupted or if you lose your bitcoin wallet seed, those Bitcoins are lost forever!). Take the case of a British man, who in 2009, threw away the hard drive that contained his 7500 Bitcoins. At the end of 2013, the value of Bitcoin was nearing $1200, meaning there was a hard drive at a dump with over 8.25 million USD stored on it! Stories like this are not uncommon as early miners have been known to mine thousands of new coins, which would have made for a small fortune even with todays weak Bitcoin exchange rate.
SO THEN, WHAT IS BITCOIN?
Bitcoin is a peer-to-peer payment system. Its unique properties attract many followers and opponents.
It’s impossible to tell whether Bitcoin will establish itself as the sole payment system for the internet, but for right now – there is significant interest and demand for it. The Bitcoin economy is still in its infancy and there are already many investors and people who are attracted by the prospects this new disrupting technology may bring.
The future of Bitcoin is unclear at the moment due to legal uncertainty (governments cannot issue it, but they can prohibit use), unstable exchange rates and subsequent lack of widespread (albeit rapidly growing) adoption. However, people familiar with Bitcoin and technology often note the similarities between Bitcoin’s ascendance and the rise of Internet in the 1990-2000s. When the Internet first emerged in the early 90s many experts underestimated the impact it would have on the world. It is often predicted Bitcoin will follow the same pattern. Until then, current users are embracing this truly innovative idea and are contributing to establishing a global bitcoin economy.
WHAT IS CLOUD MINING?
Cloud (or remote) mining – is the process of using hardware power to mine cryptocurrency (such as Bitcoin or Litecoin) remotely. This mining model came to existence due to the fact that the increasing difficulty of mining has made it unprofitable for mining enthusiasts to mine Bitcoins at home.
Cloud mining gives people a unique opportunity to begin mining cryptocurrency without the need for a large initial investment in hardware or technical knowledge. Despite the simplicity of the cloud mining model, it is worth elaborating on a few details, specifically it’s important to highlight that remote mining comes in two forms: hosted or cloud based mining.
REMOTE HOSTED MINING
The first form of remote mining is remote hosting. This model suits users with a high level mining experience and know-how and who require a high degree of control over their mining hardware. Under this model, the mining hardware is hosted in a remote datacentre and the user assumes full control over the setup and configuration of the mining hardware. Under this model, the miner pays a fee to the hosting company that would cover maintenance and electricity costs. This helps the miner handle the risks associated with maintenance of the kit as well as any risks with the shipment of the hardware. On the other hand, it presents the miner with risk on the initial hardware investment and requires much more time and technical knowledge to implement successfully.
It can therefore be summarised that the benefits of remote hosted mining are tight control over the mining process, maintenance support and subsequent ownership of the hardware. The big drawbacks are risks associated with the procurement of expensive hardware and the very high cost of entry, both in terms of investment and technical experience.
The second, and more accessible model of remote mining is Cloud Mining, whereby a miner purchases a part of the mining power of hardware hosted and owned by a Cloud Mining services provider. The service provider takes on configuring the hardware, maintaining uptime and selecting the most efficient and reliable pools.
This option provides a range of benefits: instant connection (meaning no hardware shipment wait times and delivery risks), fixed maintenance and electricity fees and no nuisances associated with mining at home such as noise, heat or space. Another key point is that this model of cloud mining requires no technical experience. Obviously, it’s very important that miners understand the mining process, however this model doesn’t require hardware expertise or significant configuration / implementation cost. Since customers can purchase any amount of mining power they wish, this means that the level of investment will depend only on the miners’ ambition. This means that the cost of entry and subsequent risk is far lower than in comparison with the remotely hosted model.
HashFlare is happy to be offering its new cloud mining services range. We guarantee an instant connection, around-the-clock access and monitoring, an easy-to-use management interface, 24/7 uptime as well as daily payouts.
Cloud mining is greatly suited for novice miners who would like to try out mining and earning cryptocurrency as well as seasoned miners who don’t want the hassle or risks of hosted or home-based mining.