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Crypto Digest #2 Crypto Mining

When Bitcoin entered the ring, back in 2009, individuals were able to solve mathematical equations and receive Bitcoins through the blockchain.

While no one knows who really created Bitcoin (watch this space – with the impending high profile IP litigation brought by Dr Wright, the creator may have to finally reveal his identity), it would appear that the creators thought of everything.

To explain a bit about the blockchain, one can consider the blockchain as a verification system.  For example, imagine a chip that is split into millions of parts, each part containing the same information, existing in millions of devices, all at the same time and all communicating with each other to keep the information they have, updated. When a change happens on the blockchain, this information is stored on all of the devices simultaneously. It is for this reason that the blockchain cannot be destroyed – because if one were to destroy one device, the same information would still be on all of the others.

It is one reason why Bitcoin is considered to be an asset, just like gold, because it is something that stores wealth. Most people have a hard time understanding this because cryptocurrencies are intangible. One should consider, however, that even an asset such as gold is only looked upon once it has been bought (assuming its gold bars we are talking about here). After that, it is stored. One does not go peer at one’s gold bars everyday… or do you?

In the early days, people could solve these mathematical equations for each block in the blockchain (the name is self-explanatory for this one) and receive a Bitcoin for a correct answer. Over the years the equations have gotten harder and harder. They have become so complicated that one would require a computer to solve them and so with that, enter the mining machines. These expensive supercomputers troll the blockchain and solve the equations to get the Bitcoins (or other cryptocurrencies that they have been programmed for).

But it’s not always that easy to use a mining machine to get cryptocurrencies straight from the blockchain…yes they can solve the equations and do this quicker than a human would, but cryptocurrencies are always moving and so, most people that own mining machines enter into “mining pools”. A mining pool is a group of miners that work together to solve the equations even quicker and ensure the cryptocurrency does not move before the pool receives its reward. Upon receiving the cryptocurrency, it is split amongst the members of the pool and each one retains fractional ownership of the cryptocurrency. The higher the hash rate of the mining machine, the quicker it does what it’s supposed to (i.e. troll the blockchain and solve the equations).

But don’t rush out to go buy a mining machine. They use a lot of electricity and get extremely hot. It is recommended that if one were to purchase a miner, it be hosted by a company providing such services (and which is usually the same company from which the miner was bought). Hosting companies have mining farms, rows upon rows of miners, all trolling the blockchain in search of the ‘Bitcoin gold’, and which are usually situated in extremely cold climates such as Siberia, Canada, the US or Russia.

Miners are a great investment, and better in our opinion than buying the coins from an exchange. They generate ongoing revenue and are great for passive investment. But buy the right ones. Check the brand, and the hash rate and review your hosting agreement accordingly. We can assist with setting up companies providing such services, the agreements to provide the services, and any other legally related assistance which may be required.

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