As governments and corporations begin to warm up to the idea of using cryptocurrency for consumer purposes, the general population becomes curious as to what the big deal is and how one makes money off it.  Cryptocurrency in general, and bitcoin in specific is often seen with a great deal of mistrust, generated partially by its usage for payment on the online black market and its improbable price. 

     First and foremost, what is cryptocurrency? There is no unified cryptocurrency, there are a lot of different types and variations much like (but different from) the Euro, the Dollar and the Pound. But instead of a physical coin or note of paper you have a set of numbers and letters that signify value. This alphanumerical set (also called a hash) is equal to one block of whichever cryptocurrency you may use (Bitcoin and Ethereum for example, amongst others).

       However, unlike fiat currencies (USD, EUR, etc.) bitcoins aren’t issued or controlled by a government or a central authority, which is the reason it is infamous as a currency used by criminals (transactions are completely anonymous). This means that the way new bitcoins are minted is, to put it in layman’s terms, as a reward for solving maths problems. Very complex maths problems that ensure the integrity of the transactions taking place in the network, and prevent coins from being spent twice. However, every four years the number of bitcoins earned per block (maths problem) halves (right now it is at 12.5 bitcoins per block) until a grand total of about 33 million have been issued in about 2110. This is in order to maintain a verification time of 10 mins per block even as more users begin to take part and so increase the processing power of the network. The reason the media mentions bitcoin as a "blockchain" sometimes is because the solution to one of these maths problems is always part of the following problem.

     The problems are solved by a process called mining which involves your computer running intense multi-stage calculations which require huge amounts of processing power in an attempt to find the correct solution (one such attempt is called a Hash and processing power is measured in Hashes per second). A computer can be programmed to carry out this process by downloading a programme off the internet (more on that later). Due to the aforementioned increase in difficulty standard computers no longer have the power necessary in order to mine bitcoin profitably (electricity costs are too great in comparison to the miniscule chance of a reward) which means that anyone interested in mining will have to buy specifically designed mining hardware with no other purpose but to run the algorithm (the most powerful one on the market produces 0.3 bitcoins a month and rips off an astounding 13,500,000,000 calculations per second).

    Yet bitcoin is not the only cryptocurrency out there and several others have obtained reasonable pricing (largely due to Bitcoin’s popularity) which are a lot more user-friendly and easier to get into largely because the difficulty hasn’t spiralled out and mining can be done with a home computer. The example which shall be considered in this article is called Ethereum, a cryptocurrency currently worth $305.

    One very important thing to consider is that due to the sheer amount of people in each cryptocurrency network, and the fact that the solving of the problems (mining) is inevitably a challenge where the fastest is rewarded first mining alone (solo) is inherently unprofitable due to the low chances of solving a problem first (even with a powerful computer). To combat that, smaller users have banded together into pools (communities where the processing power of all members is combined to increase chances of success). In the pools users are payed according to the amount of processing power that they invest.
     Those pools also often provide the software necessary for your computer to solve the maths problems. There are several examples yet the two most popular programmes on the market are the Claymore Dualminer (so-called because it can mine two currencies at once) and the Ethminer. Both are available for free on the internet.
    More processing power can be obtained by assembling dedicated mining “rigs” which are computers built additional processing power obtained by adding specific components used for high-intensity processing (Graphic Processing Units) in excess of that which would usually be added to a normal computer. 

     It is predicted that eventually Cryptocurrency will do to banks what Amazon did to retail and the invention of E-mail did to the post office. Yet this moment is still a faraway possibility, and electronic currencies are still in the early stages of their infancy with a lot of development ahead of them. For better or for worse.

Egor Kaygorodov

Hampton School