Grandma came to me with money to invest in cryptocurrencies. She’d heard all about the incredible rise of Bitcoin, and wants to try grabbing her piece of the blockchain.
Well Grandma, I’ve got good news! Your new rig may be what carries you into retirement. Any questions?
A mining rig.
To understand this, you first need to know about blockchains.
In the simplest terms, a blockchain is an open ledger. When a transaction is performed on a blockchain, it is recorded for everyone to see in a record that cannot be changed. Bitcoin is a blockchain.
You probably should, but I’ll leave that to you. Bitcoin is one of many cryptocurrencies. Many new currencies, like Ethereum solve new problems that Bitcoin does not. They’re not necessarily meant to replace or compete with Bitcoin, but rather compliment it.
Ethereum is a currency that is set to change the world. It is also spiking in value (up $500 from November). As with Bitcoin, you can simply purchase it off a reputable currency exchange. You can also mine it like in the olden days of Bitcoin.
Remember that ledger I was talking about? Making it transparent and trustless is a tricky thing.
This just means that you’re less likely to be in a situation where you could get robbed.
Basically, in a blockchain, all the blocks are stored in computers, or nodes, all over the world. Together these nodes form a giant, distributed world-wide computer. This computer can never be turned off as long as there is demand. Transparency and honesty are maintained by all the individual nodes. As long as no single person controls 51% of the nodes, fraud is virtually impossible.
Oh yes, back to mining…
The thing about a blockchain is that everyone wants use it. How do we decide who gets to add a new block to the chain? If you want to add a block, you need to show that you’ve done some work to earn the privilege.
Enter the miner.
Proof-of-work algorithms were once considered a potential way to combat spam email. The idea was that you’d have to demonstrate you weren’t abusing the amazing capacity to send out millions of emails at once. Proof-of-work shows that your computer solved a cryptographically complex puzzle and expended a little computing power. If you sent one email, you’d only be delayed by a second. You probably wouldn’t even notice that your computer was working a little bit harder. Try doing that with a million emails! One second for every email makes spamming a lot more difficult.
It works the same with many blockchains. If you show some proof of work you will be rewarded with a bit of currency for enabling someone to add a new block to the chain.
So when we’re talking about cryptocurrencies, this is what people are buying and selling - the opportunity to add a block to the chain.
Exactly. Plug your rig in, turn it on, and press Go… it starts guessing at answers to a puzzle. If it guesses correctly, you are compensated with coins or tokens. Bitcoin, for example, is one such token. Ether as with Ethereum, is another. As with conventional mining, if there is demand, the cost of electricity is outpaced by the price of the coin and it becomes profitable to operate a rig and create money out of thin air.
As an added benefit a rig serves as an excellent space heater.
There are lots of reputable coin exchanges. The one I’ve had the most success with is coinsquare.io. Transaction fees are outrageous, but they are everywhere. This particular exchange is based in Toronto, so you don’t have to worry about your money leaving the country.
To sign up for any exchange service, you’ll need to provide government ID, proof of address, and banking info.
Sure thing, Grandma!