Bitcoin & Blockchain Buying Bonanza - All you want to know

There's been a lot of buzz on the internet regarding Bitcoin & Blockchain recently, but not all of us know what it means. Here's my take on it and what you should know.

Bitcoin and Blockchain have become hot topics in the past few years, seemingly out of nowhere. We can start with the assumption that you know that Bitcoin is a form of online currency and it is somehow tied to the Blockchain. What is that relation, and what is the blockchain?

Explaining Blockchain

Let's start with the Wikipedia definition: "A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography."  . To paraphrase it, a blockchain is a sort of accounting ledger. With it you can see groups (blocks) of transactions (records). These groups are gathered together and verified to be true and consistent with each other through mathematical functions.

Two properties arise from the verification process: if a transaction is false (i.e. someone trying to lie about their transactions) it will be rejected from the chain, and once a transaction is added it cannot be changed. Knowing that all the records in this chain of blocks are both true and unchangeable is very important as it allows us to build systems on top of the technology that require always-true and trusted data. What sort of systems require that? You guessed it, currencies. This is where Bitcoin comes in. Bitcoin is far from the only blockchain-based currency, but it is the most well-known. Other examples include Ether (using Ethereum), Litecoin and many others.

Bitcoin

Bitcoin is a digital currency using the blockchain in a decentralized fashion, meaning that it does not require to be run by a central authority/computer (i.e. a bank), and the computing magic can be distributed among their users (much like internet torrents).

Bitcoin uses the blockchain record keeping to track transactions made. However, the process of running the blockchain (the previously mentioned mathematical functions) requires quite a lot of computing power. Ordinarily, there is no incentive for someone to do everyone the service of these calculations using their own computer. But with Bitcoin mining there is.

Mining coins

"Mining" is the act of using your computer hardware (specifically graphics cards) to process mathematical calculations in order to run blockchain transactions, in exchange for tiny pieces of currency. With Bitcoin specifically, only 21 million Bitcoins were originally in existence (and still now at the time of writing this). Mining rewards miners with Bitcoins. Don't think that it's "easy" or "free" money however. The Bitcoin blockchain has grown very large, and as such mining an entire Bitcoin no longer returns a profit because the portion of coin you get on ordinary computer hardware in a given time period is less than 3 decimal places.

Is it too late to get into Bitcoin and other currencies?

Short answer: No.
Long answer: No-o.

Mining Bitcoin specifically certainly isn't worth it anymore unless you have large amounts of cash lying around that you can spend on specialized mining computers. For other blockchain currencies however the answer varies.

What are my options then?

You can still trade these digital currencies just like any other currency and commodity. As with ordinary trading though, you should only do it with money you can live with losing. A word of warning: these currencies are very volatile and it's easy to get lost in the ups and downs. Days with 100+% increases or decreases are not uncommon.

Notes

Security, hardware and you

In the last few months, new services have emerged that allow website owners to use the browsers (and thus computers) of website visitors to mine coins for them. The Pirate Bay tested this on their website without telling anyone until after the fact. This raises concerns, because currently these services can't and don't regulate how much of your resources they use. Imagine visiting an ordinary blog website of some random developer and suddenly your computer usage spikes and becomes sluggish.

If you're interested in taking precautions against this, look into No Coin extensions for Chrome and Firefox.

Many believe however that this idea can be executed ethically. Many people would surely be willing to trade somem resources (in limited amount) in order to remove advertisements from a website or otherwise support it.

On building mining computers

Since mining became popular (and increasingly difficult), miners started buying out commercial graphics cards (the main workhorse of mining) and starved the rest of the consumer base. Luckily this has stabilised for now, but please only buy dedicated mining graphics cards when building a mining rig.

Finally

The world of cryptocurrencies (for that is what these currencies are called) is still in the early stages, much like the Internet was in the 1990s. It's far from too late to get in, and the real benefits of the technology have yet to be realised, and might not even be related to currencies!

Is Privacy Dead? Part 1: How you're tracked Ah... That fresh site smell!