Everything you need to know about the cryptocurrency universe


bitcoin mining
A bitcoin mining
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In The Hitchhiker’s Guide to the Galaxy the characters visit the
planet Magrathea which is home to the planet building industry.
 Bitcoin is much like Magrathea and the Alt-coins in the
cryptocurrency universe are like the planets that get built.

What are Alt-coins?

Altcoins are cryptocurrencies other than Bitcoin.
Altcoin is a combination of two words: “alt” and “coin”;
alt is short for alternative and coin as to do with currency;
together they imply a category of cryptocurrency that is
alternative to Bitcoin itself.

The majority of altcoins are forks of Bitcoin and are slight
changes to the underlying Blockchain. Altcoins are the later
alternative cryptocurrencies launched after the immense success
Bitcoin had after its release in 2009. After the Bitcoin became a
success, many other peer-to-peer digital currencies have emerged
in an attempt to imitate it.

In General, altcoins are alternatives to bitcoin because they
tend to improve and solve the Bitcoin protocol’s limitations and
features. Alternative currencies aim to be better substitutes to
Bitcoin, or serve different niche markets.

What are the differences in these planets (alt-coins)?

I was having a conversation with a friend the other day about
Bitcoin, Ethereum, Litecoin and all of the other cryptocurrencies
that exist out there.  As of last week there were over
900 different cryptocurrencies in existence.
 Which makes a difficult concept
(cryptocurrencies/blockchain) even more confusing for people,
like my friend.

My friend is a well educated guy who has a graduate degree in
engineering from a top school.  He asked me what’s the
difference between all of these cryptocurrencies?  So after
taking a deep breath and thinking for a minute I came up with
this explanation.  After I explained the basics of what a
cryptocurrency is and how blockchain works I began to tackle the
differences between the most popular cryptocurrencies: Bitcoin,
Litecoin, and Ethereum.

Bitcoin is the original cryptocurrency.  It
is gaining acceptance as a way to transact business with many
online and some offline retailers.  If I
was to find a comparison that people can easily relate it to is
Gold.  Now I am not saying Bitcoin is exactly like gold but
it makes for a good analogy.  There is no intrinsic value
for gold, just like Bitcoin.  The value for both is
determined by the markets and fluctuate based on the market
forces.  They are both mined, one by large equipment and one
by computers.  You can convert the hard form of gold into
cash based on the spot price just like you can convert a Bitcoin
into cash in your bank account.  One of the challenges for
Bitcoin is the speed of processing transactions and scalability,
which may limit its uses not unlike gold which has limited uses.
For the hitchhikers guide Bitcoin is Magrathea.

Litecoin is one of the first cryptocurrencies to
be considered a Bitcoin clone, also known as alternative coins or
alt-coins.  It has a slightly different algorithm and it
allows for faster transaction processing than Bitcoin.  If I
were searching for a commodity comparison it would be Silver.
 Silver is used as a part of coins and can be used for
financial transactions quicker and easier than gold can just like
Litecoin is faster for transactions than Bitcoin.  I know
this is a little bit of a stretch but I am using it to illustrate
how the different cryptocurrencies function. Silver may have a
broader use case than gold as well since it is the most
electrically conductive metal.  The planetary comparison is
Brantisvogan, where most of the galaxies bank accounts are held.

Ethereum has certainly been getting a ton of
publicity since the beginning of the 2017 having risen from $8 at
the beginning of the year to over $260 as of the date of this
post.  So when I was searching for a comparison the only
think I could come up with was oil.  Oil as a commodity
helps fuel much of what gets done in the world just like their
blockchain for Ethereum drives much of what is happening in the
world of decentralized applications.  Ethereum would be
Megabrantis Cluster in galaxy terms.  It is a powerful
backbone technology that many of the future uses for Blockchain
will be built.

So what does it all really mean?  Fundamentally the
underlying Blockchain technologies for each of the
cryptocurrencies operate under different rules which makes them
candidates for different types of uses.  Just like there are
1000s of planets across the Hitchhikers galaxy each has a
slightly different makeup form and purpose.  Some of the
planets (or alt-coins) belong on the outer-fringes of the outer
rim because they are not good for supporting life and others like
Magrathea (Bitcoin) significant role in the galaxy.

What are Tokens?

When I think of the word token I think of a little plastic chip
that you get at a casino that I can exchange for a drink or in
Hitchhiker parlance they are Altair.  In the beginning of
the digital world a token is a string of characters that help
identify you when you enter your email in a website or online
login.  Now in the world of cryptocurrency the token can not
be a string of characters because they could be easily copied.
 Instead they exist as entries on the blockchain ledger.
 The tokens establish your ownership and you have a unique
key for the tokens you own.  There are two types of tokens
in the crypto world, intrinsic tokens and asset backed tokens.

Intrinsic tokens are often called native or built in tokens,
because they are native to the specific blockchain technology.
 For example BTC which comes directly from the Bitcoin
blockchain or ETH on the ethereum blockchain. Intrinsic tokens
are the coins that get mined by the software from the actual
blockchain.  There are many different intrinsic tokens since
there are over 900 cryptocurrencies currently.

Asset backed tokens are the digital equivalent of the IOU that
was created back in the 17th century when people would park their
gold with a goldsmith.  These notes could be transferred
from person to person, and anyone holding those notes could go
back to the goldsmith and claim the actual gold. Asset-backed
tokens are the digital equivalent. They are claims on an
underlying asset (like the gold), that you need to claim from a
specific issuer (the goldsmith). The transactions as tokens get
passed between people  are recorded on the blockchains, and
to claim the underlying asset, you send your token to the issuer,
and the issuer sends you the underlying asset.  This is the
main type of token that is purchased if you are using a system
like Coinbase where you send cash from your bank account and get
a token in exchange.  You will have to go back to Coinbase
to exchange that token to get the cash back into your bank
account.

What is an ICO?

Initial coin offering (ICO) is
an unregulated means of crowdfunding via cryptocurrency. The term
is often confused with ‘token sale’ or crowdsale, which refers to
a method of selling participation in an economy, giving investors
access to the features of a particular project starting at a
later date. ICOs, on the other hand, sell a right of ownership or
royalties to a blockchain project.  The coins that are
issued in an ICO is an ownership interest that in many cases
includes voting rights in the private company similarly to owning
a share of stock in a public corporation.  I am not saying
that the risks are the same in owning a share of stock or a coin
issued in an ICO, just that structurally there are similarities.

The first token sale was held by Mastercoin in July
2013. Ethereum raised money with a token sale in 2014.
 As of May 2017, there were approximately 20
token sales happening every month.  This is a significant
amount of capital being raised by private companies in a fairly
unregulated way.

In July 2017 the U.S. Securities and Exchange Commission (SEC)
indicated that it could have the authority to apply federal securities law to ICOs. The SEC did
not state that all blockchain tokens (ICOs) would necessarily be
considered securities, but that determination would be made on a
case-by-case basis. The SEC stepping in to potentially regulate
ICOs may lead to more mainstream investors to participate in the
ICO market.

The cryptocurrency market and ICOs  are very complex and
should not be something that investors jump into without a full
understanding of what the risks are.  Despite the headlines of Bitcoin going up 260% for the
year there are still significant risks and challenges that have
to be acknowledged before anyone invests their money into any of
the cryptocurrencies. But pack your bags folks we are only
beginning to explore the new universe of cryptocurrency.

The opinions expressed in this commentary are those of the
author and may not necessarily reflect those held by Kestra
Investment Services, LLC or Kestra Advisory Services, LLC. This
is for general information only and is not intended to provide
specific investment advice or recommendations for any individual.
It is suggested that you consult your financial professional,
attorney, or tax advisor with regard to your individual
situation. Comments concerning past performance of any security
mentioned are not intended to be forward looking and should not
be viewed as an indication of future results
.

Get the latest Bitcoin price here.

Read the original article on Thorium Wealth Management. Copyright 2017. Follow Thorium Wealth Management on Twitter.

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De-jargoned: What is initial coin offering

In the world of cryptocurrencies, initial coins offerings (ICO) are used to raise money for business purposes. Here is a look at these offerings and how you, as an individual, can respond to them.

What is it?

If a blockchain technology platform start-up wants to raise money, it can do so through the usual process of getting funded by venture capital or angel investors.

However, many blockchain startups are using the ICO route. In ICO, the company creates digital tokens, which are in cryptocurrencies. The tokens are issued based on the amount that the company wants to raise. These tokens have a predetermined value. It then sells these cryptocurrencies in an initial offer. In a way, ICO is similar to an initial public offer (IPO). In an IPO, a company sells its shares for the first time in the market. It sets a price band in which the investors can bid. In case of an ICO, tokens are generated and a price is set on those tokens. The tokens are on a blockchain and derive their value based on demand. The concept works on the theory that on blockchain you can transact without the need of a central authority such as a central bank. Anyone can invest in an ICO. You can buy it online on cryptocurrency exchanges that supports it. The newly created tokens can then be exchanged with existing popular cryptocurrencies such as bitcoin and ethereum or even with a fiat currency like dollar or rupee. They can also be traded on cryptocurrency exchanges. ICOs are not regulated. Thus, the companies issuing it do not need to inform an exchange, or adhere to any formalised rules as they have to for an IPO.

What you should do

To begin with, know that almost everyday a new cryptocurrency is generated for various purposes; and very few of these currencies stand the test of time. The ecosystem is such that various external factors can determine the demand for cryptocurrencies, which you might not be able to track.

ICOs are very risky. Before investing, you need to know whether the issuing company’s business plan is worth the investment. There have been instances of scams and frauds. Also, in the past, many ICOs have failed and investors have lost their capital. Like in any other investment strategy, venture into this space only if you know the product well. If you don’t understand its fundamentals, you are likely to risk your money. Hence, it is better to stay away from it.
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How To Become A Successful Cryptocurrency Investor

The hottest thing right now in the financial news is Cryptocurrency. Millions of dollars are being investing in cryptocurrencies and it is not hard to see why. Cryptocurrencies have been steadily gaining value for the past few years; what is more, it is far easier, safer and more affordable to invest in Bitcoin. Ethereum and other, similar currencies than it is to invest in mutual funds. Cryptocurrencies also offer you privacy that cannot be obtained when making other investments.

Additionally, you don’t need to be an investment wizard to get started. The following points can help you to see if you have what it takes to be a successful Cryptocurrency investor.

Getting to Know the Market

It is a good idea to get to know the market before investing in cryptocurrencies. You will want to decide what type of investments to make, how much money to put on the cryptocurrency market and at what point you want to sell. Following the market and keeping up with the latest cryptocurrency news can help you make wise decisions.

At present, you can either invest in the blockchain technology behind the cryptocurrency market or purchase one or more types of cryptocurrency outright. Following is an overview of what these options entail.

Investing in Blockchain Technology

Investing in blockchain technology can be less risky than purchasing a single cryptocurrency. Blockchain technology will automatically grow with the cryptocurrency market even if one or two particular currencies don’t make it in the future.

Professional help in this field can help you make wise investment choices and provide you with access to investment opportunities that are simply unavailable elsewhere. Blockchain Capital ran by Crypto Entrepreneur, Brock Pierce, is the leading venture capital firm investing in the technology behind various cryptocurrencies and the firm’s portfolio includes leading Blockchain companies such as Bitgo, Blockcypher, Ethcore, Gocoin and Kraken. Blockchain Capital encourages investors to diversify company investments by picking anywhere from five to ten cryptocurrency companies to invest in.

Investing in Actual Coins

blockchain technology

Alternatively, you may want to consider investing in one or more actual cryptocurrencies. Well known cryptocurrencies such as Bitcoin, Ethereum and Litecoin can be purchased from exchanges such as Coinbase, Kraken and Gemini. You simply need to provide some personal information to verify your account and then decide how to purchase the coins you want.

Those who want to invest in lesser-known cryptocurrencies can do so on Poloniex and Livecoin. However, these websites don’t accept traditional currencies. You will need to purchase Bitcoin or Ethereum coins first and then use these to trade for other up and coming cryptocurrencies.

Once again, it is wise to choose more than one investment option. A diversified investment will reduce risk and has the potential to yield good results. Cryptocurrencies that were of little value in the past are currently gaining value at an astounding rate so don’t overlook seemingly small investments.

Do You Have What it Takes?

Only you can decide if you have what it takes to be a successful cryptocurrency investor. There are risks involved as the market is relatively new and some currencies are volatile; even so, the potential rewards can be well worth the bumpy ride. What is more, these investments are not necessarily riskier than many traditional paper investments. Those who are interested in investing in cryptocurrencies and/or blockchain technology simply need to get acquainted with the market, choose their investment options with care and then get started.

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What is Cryptocurrency Game Theory: A Basic introduction

What is Cryptocurrency Game Theory? One of the greatest innovations of the 21st century is, undoubtedly, the advent of cryptocurrency.

What is that makes the blockchain technology such a breakthrough? Let’s look at the real world and how fiat currency is maintained and stored. No matter who you are, your money is going to be stored in a centralized location, i.e. the bank. The problem with this model is that you are giving your money over to an entity and it is at the risk of getting compromised because of a variety of reasons. The blockchain solves this problem by being completely decentralized and corruption free internally. The way it achieves this is by the incorporation of cryptography and game theory.

What are market structures?

What is Cryptoeconomics? An Intro to Game Theory

Image Courtesy: ThingLink

Before we understand the concept, we need to go through some basics first. The organization and fundamental characteristics of any market are called market structure. The market structures are differentiated based on many factors like a number of producers, control over prices and barriers to entry. Based on these factors, there are four different kinds of market structures:

  • Perfect Competition.
  • Monopoly.
  • Monopolistic Competition.
  • Oligopoly.

Perfect Competition

Perfect competition is a market place where it is easy for anyone to get into the market and individual sellers don’t have any power over the price of the product. Think of mangoes. It is easy for anyone to get into the market, all that anyone has to do is to grow mangoes. Plus, they can’t willingly change the price of the mangoes. If one person sells a mango for $10 then the buyer can simply buy it from someone who is selling mangoes for $5.

Monopoly

A monopoly is the polar opposite of a perfect competition. This is a market place which is dominated by one corporation and the barriers to entry are so high that nobody else can enter it. De beers diamonds are a great example of a monopolistic market.

Monopolistic Competition

This is a marketplace which has a lot of sellers and very low barriers. Their products are similar but not really identical. Think of the pizza delivery service. Now, dominoes and pizza hut have the same product with subtle differences. Obviously one can slightly price their product a little higher based on factors like customer preferences. However, if dominoes price their pizzas way too high, then people will simply go over to pizza hut. Consequently, if dominoes and pizza hut both start overcharging, since the barriers to entry is so low, another player can come in and take all the customers.

Oligopoly

Oligopolies are market places which are dominated by a few markets and the barriers to entry are high. One of the best examples of an oligopoly is the smartphone market. The market is dominated by few number of companies like Samsung, Apple, and Huawei. Much like monopolistic competitions, the products are similar but not identical. While this does give them some control over their prices, they don’t really have much of a leeway. If tomorrow, Apple decides to price their iPhones at $4000, apart from the Apple fanatics, most will simply opt for an Android phone. Obviously, they can always get together and decide as a group to mutually increase the prices, but this is called “collusion” and is illegal in many countries, including the United States.

So, when they can’t compete by changing prices, how can they get that edge over their competitors? They do so by “non-price competition”, which means competing without changing the price. How do they do that? They do so by changing the look and style of their products and giving a unique experience. However, the most recognizable form of non-price competition is advertising.

Advertising is one of the most effective ways of showing unique qualities of your products and to introduce new products. But then again, there is a problem. How many of the advertisements do you watch actually stick? Chances are that you have been bombarded by tons of ads today itself, how many of them do you actually remember? If you are a player in an oligopoly and you keep blindly advertising, you are going to be spending a lot of money.

As a result of that, in order to make up all that money, you are going to invariably have to increase the price of your products. If that happens, your buyers are simply going to go to your competitors. So how do you go about this? How do you advertise your products without losing out on your customers? You will have to basically take decisions based on the actions that your competitors will take. In order to do that, you will have to use Game Theory.

What is the Game theory?

What is Cryptoeconomics? An Intro to Game Theory

Game theory is the study of strategic decision making. This is how many corporations make decisions while keeping in mind the actions that their competitors will take. Game theory was devised by John Van Neumann and Osker Morgenstern in 1944 and was considered a breakthrough in the study of oligopoly markets.

Since then the game theory has found a life of its own and has seen widespread implementations in various other technologies and fields.

A game theory model has at least 3 components:

  • Players: The decision makers. Eg. The managers in the firms.
  • Strategies: The decisions they want to take to further their companies.
  • Payoff: Outcome of the strategies.

In game theory, there are two types of games.

  • Zero sum game: It is a game in which the gain of one player comes at the expense of another player.
  • Non zero sum game: A game where the gain of one player doesn’t come at the expense of another player.

So, how does one apply game theory? Let’s go back to what we were discussing again, should or shouldn’t a company advertise a particular aspect of their product. Suppose there are two firms A and B.

What is Cryptoeconomics? An Intro to Game Theory

The table that you see above is called a “payoff matrix”. The table basically reads like this:

  • If Firm A and B both decide to advertise then the payoff for both of them is 4 and three respectively.
  • If Firm A doesn’t advertise and B decides to advertise, then the payoff is 2 and 5.
  • If Firm A advertises and B doesn’t advertise then the payoff is 5 and 1.
  • If both Firms A and B don’t advertise then the payoff is 3 and 2.

So, what decision should both A and B take which will give them the best pay off? To solve this, we need to look at the scenario that serves both A and B.

Firstly, let’s look at Firm B.

  • Case 1: If Firm A advertises

Then Firm B has a payoff of 3 if they advertise and one they don’t advertise. So, obviously, their best payoff lies in advertising.

  • Case 2: If Firm A doesn’t advertise

Then Firm B has a payoff of 5 if they advertise and 2 if they don’t advertise. In this case their best payoff lies in advertising.

  • Conclusion: Regardless of what Firm A does, Firm B should advertise.

Now, let’s look at Firm A.

  • Case 1: If Firm B advertises

The Firm A has a payoff of 4 if they advertise and 2 if they don’t advertise. So, once again, their best payoff lies in advertising.

  • Case 2: If Firm B doesn’t advertise

In this case, Firm A has a payoff of 5 if they advertise and a payoff of 3 if they don’t advertise. Once again, their best payoff lies in advertising.

  • Conclusion: Regardless of what Firm B does, Firm A’s best strategy lies in advertising.

So, in this example, for both Firm A and Firm B, their most stable state will be if they both advertise, which is:

For both Firm A and Firm B, this is their dominant strategy. A dominant strategy is the best course of action for a player regardless of what the opponent does. In this example, (4,3) is also the Nash Equilibrium.

What is Nash Equilibrium?

What is Cryptoeconomics? An Intro to Game Theory

Image Courtesy: ICMIZER

The Nash equilibrium is a solution to a game where each player chooses their optimal strategy given the strategy was chosen by the other and they have nothing to gain by shifting their strategy. This was formulated by John F Nash who was portrayed by Russell Crowe in the movie, “A Beautiful Mind”. This has humongous implications in a distributed computer system like the blockchain. In fact, the blockchain is “cheat-free” because the entire protocol is in a Nash Equilibrium. We will discuss this later, but for now, let’s see the Nash Equilibrium in action in one of the most famous game theory concepts.

The Prisoner’s Dilemma

What is Cryptoeconomics? An Intro to Game Theory

Image Courtesy: “This Place” youtube channel.

Ahh.. the good old prisoner’s dilemma. Chances are that if you have any idea about game theory then you must have come across this problem. Anyway, let’s get right to it. Suppose Rob and Ben were caught stealing a liquor shop and during the investigation, it was discovered that both of them have committed a far more serious crime in the past, say a bank robbery. During the investigation, the cops interrogate both of them and present them with a proposition.

  • Proposition 1: If you both don’t rat the other guy out then you will both get four years in jail.
  • Proposition 2: If one of you rats the other one out then the person who confessed will get 0 years while the other gets seven years.
  • Proposition 3: If both of you confess then you will both get two years each.

So, to put this is a pay off matrix:

What is Cryptoeconomics? An Intro to Game Theory

Anything that is in RED is Ben’s and anything in BLUE is Rob’s.

So, now let’s analyze.

Obviously, Rob and Ben are hardened criminals and they won’t rat anyone out because there is “honor among thieves.” As romantic as that notion may sound, behavioral psychology and game theory tells us otherwise. Let’s look deep into it.

If they both confess, then the payoff matrix says that the outcome is (4,4). Meaning they both get 4 years each. However, that is a very unstable state because they both know that they have a better deal on the table. If they do rat the other person out, then they will have 0 years to serve. Because of this, this case is a very unstable scenario.

This is why, contrary to what pop culture tells us, in a situation like this, Nash Equilibrium happens when both of them rats the other one out. This is how Rob and Ben reach their optimal solution keeping the other’s strategy in mind.

But this brings us to a problem.

What if there is a scenario where the optimal solution for both the players lies in the scenario which has bad implication towards the society? Think of this scenario where Rob and Ben are planning a bank heist. Let’s make a matrix of positive payoffs that they will get in this scenario:

What is Cryptoeconomics? An Intro to Game Theory

As you can see, in this hypothetical scenario, the best and most optimal strategy lies in both Rob and Ben stealing. While this might be good for both of them, it is not a good scenario for the society.

This is where the idea of “punishment” comes in.

What is Punishment?

The world is not necessarily a kind and fair place. Men are generally very corruptible and if not kept under check. In the real world, people will generally have a lot of opportunities to get corrupted without any consideration for the society in general. So the way we keep things like this in check is by implementing a punishment strategy.

So suppose in the example shown above we have a punishment strategy that goes like this:

“For every -0.5 of utility taken from the public a punishment factor of -7 will be given.”.

In other words, every act that is considered “bad” for the society will have their payoff deduced by 7 and that will cost -0.5 in utilities for the society. Now, you may be thinking why will society do anything like that? There is a loss of utility for the society which can be money, time anything and on the other hand, the people who are committing a crime are getting a terrible punishment as well.

But the truth of the matter is that we, as a society, have always integrated this in our daily life. What adding the punishment factor does is that it reduces the payoff from “bad” activities and changes the matrix like this:

What is Cryptoeconomics? An Intro to Game Theory

See how the payoff from the “bad” activity for deduced by a factor of 7?

As you can see, by adding the punishment factor, the Nash Equilibrium changes from something that could have been bad for the society to something that is good for the society. So it changes from, Ben and Rob doing the bank heist to Ben and Rob doing the bank heist but also facing the consequences of a punishment.

So, going back to the question, what is the incentive for a society to go through the punishment? Why will they want to waste their utilities? The way that people have answered this question is by making punishment mandatory. In, other words, if someone is a society doesn’t go along with the punishment, then they themselves become criminals and are subject to punishment.

How does that apply in a civilized society? Think of a police force that is funded by tax taken from the people. In this case, we have a specialized force which will dole out the punishment and the way the society takes part in it is by paying their taxes which fund the force. If you do not pay the taxes, then you are subject to punishment as well.

Another interesting example of “punishing the non-punishable” is social ostracization. Think of a society where a person, says Max, has committed a crime. Instantly he becomes an outcast in the society. This is a scenario where everyone in that society is participating in the punishment. Now suppose, someone does mingle with Max, that person also, by association, will become “bad” and he/she, in turn, will be ostracized by the society as well.

It wouldn’t be a stretch to say that this very concept is the reason why we aren’t all dead right now.

The concept of Nash Equilibrium and Punishment has heavy implications in blockchain and keeping the miners honest. We will explore that in a bit. But before doing so, we must go through some more basic game theory models.

The Schelling (Focal) Point

The great economist Thomas Schelling conducted an experiment with a group of students asking them a simple question: “Tomorrow you have to meet a stranger in NYC. Where and when do you meet them?” He found out that the most common answer was, “Noon at the Grand Central Terminus.” This happened because the Grand Central Terminus, for New Yorkers is a natural focal point, the focal point is also known as a “Schelling point”.

So, to define a Schelling point: It is a solution that people will tend to use in the absence of communication because it feels special, relevant or natural to them.

Let’s demonstrate this concept with a game. Suppose there are two prisoners kept in two different rooms and they are given a random series of numbers. Then they are told to guess the number that they another prisoner will guess, without any communication between the two. If they guess the wrong number, then they will be killed (just to up the ante).

The numbers that they are given are:

  • 7816239, 676716313, 100000000 and 871823719.
  • Which number do you think they will choose?
  • 100000000.

Why? Because it is different and special when compared with the rest of the numbers and that is why it is Schelling point. Throughout our history, human beings have unknowingly sub consciously converged in various places such as bars, churches, community centers, etc. because in a society those places are common Schelling points.

A very famous example of the Schelling point in action is a game that we hope you have never played in your life called “The Chicken Game.” This is how it works, two people ride towards each other on a bike. If they collide head on, they die. However, the first person who swerves away from the incoming rider is a “chicken”.

So, in this game, there are two scenarios which can end in a crash:

What is Cryptoeconomics? An Intro to Game Theory

Image Courtesy: Mind Your Decisions blog

  • Case 1: Both riders head towards one another.
  • Case 2: One rider swerves left and the other swerves right.

Thomas Schelling gave the solution to this using the concept of focal points. He said, that the best solution to this game is to not look at the other rider in the eye (i.e. cut off communication with the other rider) but focus on one’s own instincts. Since, in the United States, people drive on the right side of the road, if we let our instincts take over, we will automatically steer the bike towards the right side, because that’s where our Schelling point lies.

Grim Trigger Equilibrium

In order to understand how a grim trigger equilibrium works we need to think of a scenario. Let’s imagine a social situation where monarchy still exists and it is believed that kings get to rule over others because of a divine right from the Gods. However, in a society like this, if the king is killed then automatically the law of divine right disappears because it will be apparent to everyone that the king is not a divine being. What this will do is that it will open all the floodgates.

Now that it is apparent to everyone that the king is killable, it will start an endless cycle of bloody revolutions where nothing can stop from all the subsequent future kings from getting murdered. The only way to stop this vicious cycle is by NOT killing the king in the first place and to maintain the notion of “divine right”. This is called a Grim Trigger Equilibrium.  Think of it as a state wherein if you deviate even a little bit you are going to cause an endless cycle of recursive punishment.

Coordination Problems

Consider this matrix:

What is Cryptoeconomics? An Intro to Game Theory

Now, if you see this matrix, there are two Nash Equilibria: (A, A) and (B, B), deviation from either of the state won’t benefit them. The idea of this game is how can you convince people to go from (A, A) to (B, B)? If there are a small group of people involved then that is relatively simple, you can simply coordinate via phone or emails. But, this changes when we are talking about a huge group of people.

The fundamental difference between prisoner’s dilemma and coordination problem is that in prisoner’s dilemma, both the players had to choose (B, B) because that was the choice that had the most payoff even though (A, A) is a morally better solution. In Co-ordination problem, it is not about the morality or the payoff, it is the incentive for a person to go from one state to another. Why should a huge group of people change the way they do things?

A coordination game fails when an only minority of the group change their state, and the majority don’t, and inversely, it is a success when a majority of the group changes their state. Let’s see that with an example.

Suppose we want to change the language to a symbol based language. Eg:

  • Original statement: “Give me your number?”
  • New statement: “#?”

If only you speak using this language, it will be a failure because the majority won’t understand what you are talking about and you will be shunned from conversations aka the payoff for you is very low, and you have no incentive to change.

However, if the majority of your society shifts to this language and use it exclusively, you will have to change your language otherwise you will never be able to fit in. Now the incentive for you to join is high.

Why do you think nobody speaks in ye olde English anymore? If you talk like that in your society, you will be shunned, and everyone will think “thou art a knave sirrah!”

 

The concept of Bounded Rationality

Imagine this scenario, Sarah goes to the grocer’s shop every single day and buys an apple. She does this every single day as a ritual. However, every day she faces a situation. Every day, whenever she is in the shop, the shopkeeper leaves for 5 mins and there are no security cameras in place. She can easily shoplift an apple and nobody will get to know about it. Yet she never does that.

What Sarah does here is called “Bounded Rationality”. Bounded rationality basically means that when given a choice, people will always follow a path that is simple and something they are used to. This path may not be what is best suited for them and it may not give them the highest pay offs, yet they will always follow the simplest path. The reason why Sarah chose the virtuous path of following her simple routine everyday instead of shoplifting and getting away with no repercussions is that the second scenario is a little more complex than her simple everyday routine.

Now that we have gone through some game theory models, let’s see its implication in cryptocurrency and how it helps keep the system floating.

Blockchain and Cryptocurrency Game Theory

A block is a series of blocks which contains individual transactions in it. Each block also contains the hash of the previous block and this, in turn, links each subsequent block to the previous block making a chain. Hence the term, “blockchain.” This is a rough visual representation of a blockchain.

What is Cryptocurrency Game Theory: A Basic introduction

Some terms:

  • Genesis block: The first block of the blockchain is called a “genesis” block.
  • Proof of work: The amount of computational work required to create the block.
  • Parent block: The block that immediately precedes a block is the parent block of that block. So in the diagram above, Block 50 is the parent block of Block 51.

Every block in the blockchain has a scoring function.

  • Score(genesis) = 0.
  • Score(Block) = Score (parent block) + Proof of work

The current state of the chain is the block with the highest score.

In a system based on blockchain Bitcoinitcoin there are two players:

Users, in bitcoin, have only two functions available to them:

  • Send coins.
  • Receive coins.

In order to do that they need two keys, the public, and the private key. What miners do is that they authenticate the transactions AND they do the process of mining. Mining is how new blocks are discovered and added to the blockchain.

Block Mining

Through a series of computations, miners find a block and add it to the blockchain.In Ethereum, adding the block gives the miner(s) a reward of 5 ether and In bitcoin, the mining reward is 25 BTC (both as of writing). Miners have a lot of power in the blockchain system and if they do choose to cheat for their own personal gain, they can cause havoc in the system.

To mitigate that, the blockchain uses game theory mechanics to keep the system bulletproof. In order to understand how game theory keeps the miners honest, let’s take a look at another peer-to-peer system which has allowed its users to, time and again, get away with cheating.

Torrenting is one most popular peer to peer systems in the world. While using torrents, users have two roles: downloading and seeding. After downloading a file, they are supposed to share it the network via a method called seeding. However, they get no compensation for seeding the said file and hence more often than not they refuse to do so. Most torrent users are “cheats” because they do not seed their files. They can get away with cheating because the system doesn’t have a “punishment model” the way blockchain does.

How can miners cheat?

  • They can include an invalid transaction and give themselves extra coins.
  • Add blocks randomly without worrying about Proof of work.
  • Mine on top of invalid blocks to get more BTC.
  • Mine on top of a sub-optimally scoring block.

Let’s take an example. Consider the block below:

What is Cryptocurrency Game Theory: A Basic introduction

The blocks in blue are the main chain. Now suppose there is a miner who, in blue block 51, spends 20 bitcoins to get 500 litecoins (hypothetically). And now he wants to create a parallel chain with a new block 51 (red), where in he never did this transaction. So, to simplify what he just did, let’s do a quick recap:

  • In blue block 51 spends 20 bitcoins to get 500 litecoins.
  • Creates a new chain (fork) from block 50 and in the alternate block 51, he doesn’t do the litecoin transaction.
  • In the end, he comes out with his original 20 BTC and 500 new litecoins.

What just happened here is called “double spending.” Obviously now miners can, theoretically, mine on top of the new red chain and keep double spending and mining extra bitcoins. As you can imagine, this can destroy the bitcoin system.

So why don’t miners do that? Is it because they are all good and honorable people? You can’t make a system based on the morals of a person, morality is not quantifiable after all. This is where the true genius of blockchain comes in. The blockchain was designed in a way that it is a self-enforcing Nash Equilibrium. The reason why that happens is that mining has a recursive punishment system.

The Nash Equilibrium in mining and the punishment system.

  • If a miner creates an invalid block then others won’t mine on top of it because of a rule that has been defined in blockchain mechanics. Any block that is mined on top of an invalid block becomes an invalid block. Using this rule, miners will simply ignore the invalid block and keep on mining on top of the main chain aka the blue chain in the diagram.
  • This similar logic stands for sub-optimally scoring block. Look at the diagram again. No miner will want to mine on Red Block 52 because the Blue Block 53 will have a higher score than the red block.

Both of these scenarios get mitigated because miners., as a group will choose the most stable state aka the state with a Nash Equilibrium. Obviously, you can make all the miners mine on the red block and make it the new blockchain, however, the number of miners is so vast that an event like that simply cannot be coordinated (we will talk about this in a bit). As the co-ordination game states, if a majority of the people in the group are not changing their state, the minority will not have any incentive to stay in the new state. Seeing this, why will a miner spend all their computation power and risk ostracization in a futile cause?

Why will users use the main chain instead of the other chain?

So, now that we have seen the reason WHY miners will prefer the blue chain…What about the users? In the blockchain game, there are two players, miners, and users. Why will users prefer the blue chain over the red chain? Once again, game theory mechanics come into play.

  • The first thing that you need to keep in mind is that cryptocurrency has value is because the people give it value. So, why will a normal user assign a value to coins coming out of the blue chain and not to the coins coming out of the red chain? The reason is simple. The main chain is a Schelling point from the users perspective. They give it value because the main chain seems natural and special to them.
  • Bounded Rationality: Another reason why users will value the main chain more is that they are simply used to it. Like bounded rationality states, people will simply opt for the simplest solution every time. Moving through a newer chain needlessly complicates things.

What is the Proof Of Work Takeover Problem?

Before we start explaining this, let’s bring back our old diagram again for reference:

What is Cryptocurrency Game Theory: A Basic introduction

Vitalik Buterin gave a great example of the Takeover problem and we are going to expand on it. Suppose, someone makes a hypothetical smart contract for an activity. The terms of the contract go like this:

  • Any miner can join the activity by sending a very large deposit into the contract.
  • The miners must send shares of the partially completed blocks that they have mined into the contract and the contract verifies it and also verifies that you are a miner and that you have sufficient hash power.
  • Before 60% of the miners in the system join you can leave anytime you want.
  • After 60% of the miners join, you will be bound to the contract until the 20 blocks have been added to the hard fork chain aka the red chain.

Yes, it is indeed very diabolical and you can see the problem that this attack can have. Not only will the new chain grow bigger and longer, since 60% of the entire miners are bound contractually to this new chain this will quickly make the original older chain aka the blue chain irrelevant. This will make double spends all over the place and the value of the currency will fall fast.

Now, you might be asking why miners will join in a takeover?

Well, let’s see their incentive for joining:

  • The possible reward at the end.
  • No risk of joining on their part.

What is their incentive to follow through with the contract?

  • The huge amount they have deposited in the beginning.
  • Once again, the possibility of a great reward.

Theoretically, a takeover like this can end any currency, but this is not that likely to happen because of…You guessed it…. game theory mechanics.

Grim Trigger argument to the rescue!

Think of our king argument when we first talked about grim triggers. If a king is killed and usurped, what will stop the new king from getting killed and from this becoming an endless bloody cycle? To stop this from happening, the best course of action is to not kill the original king in the first place.

Similarly, let’s use this logic for blockchains. If a blockchain is taken over and destroyed and the miners are diverted into a new chain, what is stopping that new chain from being taken over by the majority anytime soon? To stop these endless hardforks (aka the red chains in the diagram) from happening, it is important that we don’t do the takeover in the first place.

However, there are certain places where the Grim Trigger argument does fail, and obviously, there are places where it works pretty spectacularly:

  • The argument fails when the miners are not bound to singular currency. If the miners are working on several currencies, then they can simply group to take over a low-value currency.
  • The argument holds up if they are bound and loyal to a particular currency. After all, it is in their direct interest to uphold and maintain the value and legitimacy of the currency.
  • If the currency requires specialized ASICs, then the grim trigger argument holds up. If a currency can only be mined by specialized software, then miners will make sure that nothing happens to that particular currency and that it doesn’t lose value. Specialized ASICs after all, can only work for a particular currency. Otherwise, it is useless. Plus, they are expensive.
  • The argument doesn’t hold up if the currency can be mined using CPUs. CPUs are not expensive after all, and it can be used to mine other currencies.
  • However, if the miners who own the CPUs have a stake in the currency, the argument holds up because they don’t want to lose the stake that they have invested in the currency. This is a sort of proof-of-stake.

Conclusion

As can be seen, game theory mechanics are what make blockchains so special. Nothing about the technology or mechanics is new, but it is the marriage of these two fascinating concepts that has made cryptocurrency secure from internal corruption. Even if bitcoin and Ethereum do fail for whatever reason, cryptocurrency will always live on because of this path breaking a partnership.

 

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Blockchain Could Be the Answer to Stopping Climate Change

 

In Brief

Blockchain is a new technology that potentially has a game-changing impact on the way we fight climate change. It could allow us to work together and bypass big energy companies, as well as reward those who have met climate goals.

Blockchain’s Interpersonal Capabilities

Blockchain technology has the potential to revolutionize almost any industry it is applied to: we can take comfort that it can be used to ensure food gets to Syrian refugees, will soon experience the mountain of data it will give us on driverless cars, and could have the ability to rebalance the exploitive music industry. One of its most exciting implications, though, is to help combat the climate change that humans have caused over recent centuries.

According to We Forum, blockchain‘s key property in fighting climate continue reading…

An analysis of Crypto currencies and associated concepts

It is widely seen as a disruption for the traditional banking and financial institutions, crypto currencies have gained significant traction over the last half a decade, at the same time creating a regulatory nightmare for banking regulators across the globe. At present, there are around 969 crypto currencies in existence across the globe, with a total market capitalization close to 116 Billion USD.

    • The circulation of Virtual Currencies which are also known as Digital/Crypto Currencies has been a cause of concern.
    • This has been expressed in various fora from time to time.
    • Reserve Bank of India had also cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to vide it’s press releases dated 24th December, 2013 and February 1, 2017.
    • The committee will also include experts from the RBI, the central government’s think tank NITI Aayog and the country’s largest bank, State Bank of India.
    • The panel has been asked to submit its report within three months and its terms of reference require it to take stock of the present status of virtual currencies both in India and the world over, examine the existing regulatory and legal structures governing them and suggest measures for dealing with such currencies.
    • The committee, the ministry said, will necessarily examine how to cope with money laundering opportunities as well as consumer protection concerns that could arise from the use of virtual currencies.

Background

    • A virtual currency or virtual money has been defined in 2012 by the European Central Bank as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”
    • Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
    • It’s the first example of a growing category of money known as crypto currency.

What you need to know about the crypto currencies?

    • Founded as a peer-to-peer electronic payment system, crypto currencies enable transfer of money between parties, without going through a banking system.
    • These digital payment systems are based on cryptographic proof of the chain of transactions, deriving their name, Crypto currency. These employ cryptographic algorithms and functions to ensure anonymity (privacy) of the users (who are identified by an alphanumeric public key), security of the transactions and integrity of the payment systems. “Decentralized Digital Currency” or “Virtual Currency” is also interchangeably used for a crypto currency.

 

How are they used?

    • Crypto currency is fundamentally a decentralized digital currency transferred directly between peers and the transactions are confirmed in a public ledger, accessible to all the users.
    • The process of maintaining this ledger and validating the transactions, better known as mining, is carried out in a decentralized
    • The underlying principle of the authenticity of the present to historical transactions is cryptographic proof, instead of trust; different from how it happens in the case of traditional banking systems.

What makes it different from normal currencies?

    • Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
    • However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it isdecentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who prints it?

    • No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.
    • Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.
    • This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

What are Blockchains?

    • Blockchains are a new data structure that is secure, cryptography-based, and distributed across a network.
    • The technology supports cryptocurrencies such as Bitcoin, and the transfer of any data or digital asset. Spearheaded by Bitcoin, blockchains achieve consensus among distributed nodes, allowing the transfer of digital goods without the need for centralized authorisation of transactions.
    • The present blockchain ecosystem is like the early Internet, a permissionless innovation environment in which email, the World Wide Web, Napster, Skype, and Uber were built.
    • The technology allows transactions to be simultaneously anonymous and secure, peer-to-peer, instant and frictionless.
    • It does this by distributing trust from powerful intermediaries to a large global network, which through mass collaboration, clever code and cryptography, enables a tamper-proof public ledger of every transaction that’s ever happened on the network.

continue reading…

What you need to know about cryptocurrency mining?

Cryptocurrency news has been hot of late, thanks in no small part to the skyrocketing prices of Bitcoin and Ethereum, the two largest cryptocurrencies right now. Litecoin and other cryptocurrencies are also up in value, and given the prices on graphics cards that are supposed to be useful for gaming, some of you will inevitably wonder: should I get into the mining business?

That’s a big, open-ended question, and the answer depends on many factors. I’m not going to try and cover every aspect, because Google is your friend, but let’s quickly go over the basics of what you would need to get started, and I’ll include some rough estimates of how much money you can make at the end.

Blockchains and the block reward

The core of mining is the idea of block rewards. For most coins, these are given to the person/group that finds a valid solution to the cryptographic hashing algorithm. This solution is a mathematical calculation that uses the results of previous block solutions, so there’s no way to pre-calculate answers for a future block without knowing the solution to the previous block. This history of block solutions and transactions constitutes the blockchain, a sort of public ledger.

What is a block, though? A single block contains cryptographic signatures for the block and the transactions within the block. The transactions are collected from the network, typically with a small fee attached, which also becomes part of the block reward. There’s a difficulty value attached to the solution for a block as well, which can scale up/down over time, the goal being to keep the rate of generation of new blocks relatively constant.

For Bitcoin, the target is to generate a block solution every 10 minutes on average. For Ethereum, block solutions should come every 16 seconds. That’s obviously a huge difference in approach, and the shorter block time is one reason some people favor Ethereum (though there are others I won’t get into). Simplistically, the number solution has to be less than some value, and with 256-bit numbers that gives a huge range of possibilities. The solution includes the wallet address for the solving system, which then receives all the transaction fees along with the block reward, and the block gets written to the blockchain of all participating systems.

Think of it as panning for gold in a stream—you might get lucky and find a huge gold nugget, you might end up with lots of flakes of dust, or you might find nothing. If the stream is in a good location, you make money more quickly. The difference is that with cryptocurrencies, the ‘good location’ aspect is replaced by ‘good hardware.’

Setting up the software

There are many options for cryptocurrency mining. Some algorithms can still be run more or less ‘effectively’ on CPUs (eg, Cryptonight), others work best on GPUs (Ethereum, Zcash, Vertcoin), and still others are the domain of custom ASICs (Bitcoin, Litecoin). But besides having the hardware, there are other steps to take to get started with mining.

In the early days of Bitcoin and some other cryptocurrencies, you could effectively solo-mine the algorithms. That meant downloading (or even compiling) the wallet for a particular coin and the correct mining software. Then configure the mining software to join the cryptocurrency network of your choosing, and dedicate your CPU/GPU/ASIC to the task of running calculations. The hope was to find a valid block solution before anyone else. Each time a block is found, the calculations restart, so having hardware that can search potential solutions more quickly is beneficial.

These days, a lot of people forego running the wallet software. It takes up disk space, network bandwidth, and isn’t even required for mining. Just downloading the full Bitcoin blockchain currently requires over 45GB of disk space, and it can take a while to get synced up. There are websites that take care of that part of things, assuming you trust the host.

In theory, over time the law of averages comes into play. If you provide one percent of the total computational power for a coin, you should typically find one percent of all blocks. But as Bitcoin and its descendants increased in popularity, difficulty shot up, and eventually solo-mining became an impractical endeavor. When you’re only able to provide 0.00001 percent of the mining power, and that value keeps decreasing over time, your chance of finding a valid block solution becomes effectively zero. Enter the mining pools.

Join our mining guild!

If solo mining is like solo gaming in an MMO, block rewards have become the domain of large mining guilds, called mining pools. For blockchain security reasons, you don’t want any single group—a mining pool or an individual—to control more than 50 percent of the computational power (hashrate) for the coin network, but for mining purposes, being in a bigger pool is almost always better.

The reason is that, unlike block rewards where everything goes to the winning system, mining pools work together and distribute the rewards among all participants, usually based on a percentage of the mining pool hashrate. Your hardware gets smaller portions of work from the pool, and submits those as shares of work. Even if you only contribute 0.00001 percent of the hashrate, you still get that percentage of every block the pool solves.

To give a specific example, suppose a coin has a total network hashrate of 1Phash/s (peta-hash), but you only provide 0.1Ghash/s. Your chance of mining a block solo is about as good as your chance of winning the lottery. If you join a pool that does 25 percent of the network hashrate, the pool should find 25 percent of blocks, and you’ll end up with 0.00004 percent of the block rewards. If a block is worth 50 coins, that’s 0.0002 coins from each block the pool finds—often minus a small (1-3) percentage for the pool operators. That might sound like a pittance, but when coins are worth hundreds or even thousands of dollars, it can add up quickly.

There are many places that will provide calculators for cryptocurrencies, so you can see how much you could potentially earn from mining. But ultimately, you’ll want to join a mining pool. As a side note, I’d recommend using a new email address for such purposes, and then I’d create a unique password for every pool you happen to join—because cryptocurrency thefts are far too common if you’re lax with passwords. #experience

If you want to actually collect a coin, like Ethereum, you’ll need to take the additional steps of downloading the Ethereum client, syncing up to the blockchain, and setting up the mining pool to pay out to your wallet. It’s possible to have pools deposit directly to a wallet address at a cryptocurrency exchange, but again, there are risks there and long-term I wouldn’t recommend storing things on someone else’s servers/drives.

If all this sounds time consuming, it can be—and the people who are really into cryptocurrency often do this as a full-time job. And the real money often ends up in the hands of the pool operators and exchanges, but I digress.

Doing the actual mining

You’ve got your hardware, you’ve joined a mining pool, and you’re ready to rock the cryptocurrency world. All that’s needed now is to download the appropriate software, give it the correct settings for your hardware and the pool, and then away you go. Sort of.

Most pools will provide basic instructions on how to get set up for mining, including where to download the software. But all software isn’t created equal, and even things like drivers, firmware revisions, and memory clockspeeds can affect your mining speed. So if you’re serious about mining, get friendly with scouring places like Bitcointalk, Github, and other forums.

The easiest way to mine a coin is to just point all your mining rigs at the appropriate pool and load up the necessary software. The problem is that the ‘best’ coin for mining is often a fleeting, ethereal thing—Ethereum’s real value came because other market forces pushed it from $5-$10 per ETH up to $200+ per ETH during the past several months. Prior to that, it was only one of many coins that were potentially profitable to mine. But switching between coins can take a lot of time, so there’s other software that will help offload some of that complexity.

One popular solution is Nicehash, which will lease hashing power to others that will pay for it in Bitcoin. In effect, it transfers the job of figuring out which coin/algorithm to mine to others, though again there are fees involved and the going rates on Nicehash are lower than mining coins directly. The benefit is that you don’t end up holding a bunch of some coin that has become worthless.

A more complex solution is to set up multi-algorithm mining software on your own. To do this, you would typically have accounts for all the coins you’re interested in mining, and then create rules to determine which coin is best at any given time. Sites like WhatToMine can help figure out what the currently best paying option is, but naturally others would be seeing the same data.

Bottom line—what’s it cost and what can you gain?

The thing you need to know with cryptocurrency mining is that beyond the initial cost of the hardware, power and hardware longevity are ongoing concerns. The lower your power costs, the easier it is to make mining a profitable endeavor. Conversely, if you live in an area with relatively expensive power costs, mining can seem like a terrible idea.

When many people think about cryptocurrency mining, the first thought is to look at Bitcoin itself. Now the domain of custom ASICs (Application Specific Integrated Circuits), Bitcoin isn’t worth mining using GPUs. Where a fast CPU can do perhaps 40MH/s and a good GPU might even hit 1GH/s or more, the fastest ASICs like the Antminer S9 can do 14TH/s. But the Antminer S9 costs $2,100 or more, and still uses around 1350W of power (so you need to add your own 1500W PSU)—and you’ll net about $8 per day.

Can you do better with mining using graphics cards? As you might have guessed given the current prices of RX 570/580 and GTX 1060/1070, the answer is yes, though not necessarily at the currently inflated GPU prices. But let’s start with a basic system cost. You’ll need a cheap CPU, motherboard with six PCIe slots, 4GB DDR4 RAM (maybe 8GB if you want), budget hard drive, six PCIe riser adapters, and 1350W 80 Plus Platinum PSU. For the case, you’re usually best off building a mining rig using wire shelving and zip ties or something similar. Add all of that up and it will cost around $560 (with 4GB RAM).

The sticking point is the graphics cards. If you could buy RX 580 at the original MSRP of $230 for the 8GB card, $200 for the 4GB model, or $170 each for the RX 570 4GB—yeah, those are the actual launch prices!—that would be $1,380, $1,200, or $1,020. With prices skyrocketing on the RX cards, GTX 1070 became the next logical target, with prices increasing from $350 per 1070 a few months ago to $450+ per card today.

I’ve got good news for gamers, as I’ve put together a table showing expected returns using various forms of mining, using current graphics card and ASIC prices. Some of these (like the Antminer L3+) are difficult to find or are still pre-order, but you can sometimes pay a significantly higher price to get one. Here’s what things currently look like:

Is there still money to be made as a cryptocurrency miner? I think a lot of this goes back to what happened with Ethereum this past year, with the value going from under $10 per ETH to a peak of nearly $400 per ETH. Selling all the coins you mine can earn money, but if you had the foresight to mine and hold ETH and sold near the peak value, you literally just hit the jackpot. Or if you prefer mining slang, you hit the motherload.

Ethereum prices have since dropped down read more…

The Risks And Benefits Of Investing In Cryptocurrency

Should you put money into cryptocurrency as opposed to traditional forms of investments? What are the risks and the benefits of this type of emerging investment tool?

There are questions that investors ask when they first hear about cryptocurrency. A fear of the unknown is one concern. Are cryptocurrencies here for the long haul? Excuse the pun, but it’s essentially asking if we can trust the new kid on the block—chain?

The best way to figure out whether or not you should add cryptocurrency to your investment portfolio is to get answers to some frequently asked questions by new investors:

What Is Cryptocurrency?

This is a digital currency, and it can also be called a virtual currency. While Bitcoin was first created by Satoshi Nakamoto (a pseudonym for a person or group) in 2009, there are now numerous types of competing cryptocurrencies like PPCoin, Litecoin, Namecoin, Ethereum, Zcash (ZEC), Dash, Ripple, and Monero. The current market value of the Bitcoin blockchain, as of July 27, 2017, was just over $41 billion. A blockchain is a digital ledger that chronologically and publicly records cryptocurrency. Meaning Bitcoin, as of late July 2017, trades at $2,500+ per unit.

How Does One Get Cryptocurrency?

The first way to obtain your cryptocurrency of choice is to head to an exchange site and buy a quantity you feel comfortable with. At which point you can spend them or you can watch exchange rates and sell them when you decide your desired level of profit has been reached.

Another way is to begin mining bitcoin by finding and verifying transactions on the web. A transparent hosted hashpower provider like Genesis Mining delivers the means through which people can find transaction blocks, which make up the blockchains and make a commission for locating them.

What are the Risks and Benefits of Cryptocurrency?

Risks:

1. Like other currencies, there is no precious metal like gold to back up cryptocurrency, just math and computers. And unlike other currencies, there are no actual physical notes or coins and no central repository. Consequently, since it is a virtual currency, a backup copy is necessary of all holdings in the event of a computer crash. Without one, a balance could be irrevocably wiped out.

2. Wild market fluctuations do occur with cryptocurrencies. So, just like any other volatile market, money can be gained or lost. For example, between July 1, 2017 and July 27, 2017 Bitcoin has traded (rounded to the nearest dollar) at a high of $2,832 and a low of $1,868.

3. Theft can occur through hacking. There is a constant battle being waged between cybersecurity experts and hackers, some call them “White Hats” and “Black Hats.”

Benefits:

1. It is easy and secure to transfer funds between two people or businesses in a transaction. Public and private keys are used to keep the transaction secure. Fund transference fees are kept to a bare minimum.

2. The blockchain (as noted above) is an online ledger that can be transferred to all computers and keeps everyone honest. The ability to verify transactions this way provides a fairly good level of transparency.

The Future of Cryptocurrency

The future for cryptocurrency looks increasingly better read more…

What is cryptocurrency?

Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated maths problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets. 

Cryptocurrencies and applications of blockchain technology are still nascent in financial terms and more uses should be expected. Transactions including bonds, stocks and other financial assets could eventually be traded using the technology.

What are the most common cryptocurrencies?

  • Bitcoin: Bitcoin was the first and is the most commonly traded cryptocurrency to date.  The currency was developed by Satoshi Nakamoto in 2009, a mysterious figure who developed its blockchain. It has a market capitalisation of around $45 billion as of July 2017.
  • Ethereum: Developed in 2015, ethereum is the currency token used in the ethereum blockchain, the second most popular and valuable cryptocurrency. Ethereum has a market capitalisation of around $18bn as of July 2017. However, ethereum has had a turbulent journey. After a major hack in 2016 it split into two currencies, while its value has in recent months reached as high as $400 but crashed briefly to as low as 10 cents.
  • Ripple: Ripple is another distributed ledger system that was founded in 2012. Ripple can be used to track more kinds of transactions, not just of the cryptocurrency. It has been used by banks including Santander and UBS and has a market capitalisation of around $6.3 billion.
  • Litecoin: This currency is most similar in form to bitcoin, but has moved more quickly to develop new innovations, including faster payments and processes to allow many more transactions. The total value of all Litecoin is around $2.1 billion.

Why would you use a cryptocurrency?

Cryptocurrencies are known for being secure and providing a level of anonymity. Transactions in them cannot be faked or reversed and there tend to be low fees, making it more reliable than conventional currency. Their decentralised nature means they are available to everyone, where banks can be exclusive in who they will let open accounts.

As a new form of cash, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum over night.

But the same works the other way. People look to invest in cryptocurrencies should be aware of the volatility of the market and the risks they take when buying.

Because of the level of anonymity they offer, cryptocurrencies are often associated with illegal actvity, particularly on the dark web. Users should be careful about the connotations when choosing to buy the currencies.

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