Despite cryptocurrency, such as Bitcoin, becoming more and more part of the mainstream, there is still some confusion as to what exactly cryptocurrency is. While many of us know of the concept of cryptocurrency, many of us don’t truly understand what steps are needed to acquire and to use them.
Time for an Example
So, let’s say Frank wants to buy something from Steve. Steve only takes Bitcoin, because of course he would. So, Frank goes and buys some Bitcoin and transfers it to Steve as payment for the album. Here’s where cryptocurrency and traditional currency deviate and as such this isn’t a traditional transfer of funds you may be used to. Traditionally, your funds are backed by an institution which verifies the funds exist and are available, moreover for the most part the transfer occurs seamlessly. However, since there is no centralized ‘bank’ for cryptocurrency, there needs to be a way to verify the cryptocurrency Frank paid Steve is real and available to transfer to Steve’s account. The job of the cryptominer is to validate the transaction, allowing the funds to be transferred to Steve’s account.
I know, I know. Here we go: cryptocurrency, such as Bitcoin, isn’t a physical object, like cash money. There are no vaults full of gold to ‘back’ it. Cryptocurrency is a mathematical concept people have granted value to. So, in order to assure the Bitcoin is real, it must be verified, only there’s no institution that is able to do this. This is where the cryptominers come in. Your transaction along with many others are in a lockbox of a sort, called a blockchain and until the specific ‘block’ containing your transaction is opened, your transaction can’t be completed.
The purpose of the miner is to search for the solution of a mathematical problem (your transaction), based on a cryptographic hash algorithm. The algorithm corresponds to the “lock box” or block containing your transaction and once solved, will open it. Doing so verifies that the Bitcoin is ‘real’, the transaction is legitimate, and the sale can proceed. Unlike the instant transactions we’re used to say on Amazon or PayPal, it can take approximately 10 minutes for a cryptocurrency transaction to be confirmed. This is the average time it takes for the algorithm containing the transaction to be solved.
For solving the algorithm, the miner who found the correct key receives Bitcoin as payment. Remember these are two separate events, the process of mining doesn’t create new Bitcoins for the miner. This isn’t like traditional mining where there is a product released after the dig and the miner keeps it. Instead, the purpose of mining is to validate that a transaction can proceed. As a ‘payment’ for validating the transaction, the miner is paid/rewarded in Bitcoins.
A Computer and A Dream
Sounds like easy cash, right? We all have computers, why don’t we just mine Bitcoin? As of this month, one Bitcoin is worth $8,230. Moreover, the computer is just sitting there doing nothing most of the time anyway, may as well make some money. The problem is there are people who mine Bitcoin for a living and most likely have way better tech than you may have. It simply is no longer cost-effective for the average individual to mine for cryptocurrency, as ironically the currency for everyone has become the currency for the few who can afford it.
Ther’s gold in them hills.
Remember the Gold Rush of 1849? At first, the gold was easy to find and many individuals could go to the stream and ‘pan’ for gold. However, as more and more people started looking, it became not only more difficult to extract the gold, but more expensive. So expensive in fact that individuals simply could no longer compete and even lost money, particularly those who were late arriving. The larger organizations had the resources to continue pulling gold out. Cryptomining has reached the same tipping point.
So if you’re thinking about cryptomining for profit, you’re too late. Organizations with access to not only space, equipment, expertise and most importantly cheap electricity, are the only ones able to make a profit now. However, for many of them, profits aren’t what they used to be. For example, Chelan County Washington provides cheap hydroelectric generated power, which made it a logical choice for an industry that requires a vast amount of electricity. So for a while, there were profits to be made, but more and more power companies are catching up with technology. As they do so, they are doubling their rates specifically for high usage users to address the use of Bitcoin miners.
Should You Care About Cryptomining?
We think so, because as most things involving technology, sooner or later it will affect how you do business and interact with your customers. One effect of cryptomining has been the dramatic increase on the cost of graphics cards, when in turn increases the overall cost of computers and your ability to replace outdated machines according to schedule, due to an increase in cost.
Graphics cards became a hot commodity as cryptominers realized they could use inexpensive (at the time) video cards to mine more efficiently than their CPUs. This led to a rush to grab as many GPUs as possible and create mining farms. As business people, we understand the dynamics of supply and demand, which affects everyone down the line. So, as you can see, even if you never read anything about cryptomining and cryptocurrency again, it can and will have an effect on you and your business.
If you’re concerned about how best to protect your hardware investment in a volatile technological environment, KT Connections offers the Hardware as a Service, or HaaS, which is similar to that of leasing or licensing. With HaaS, Managed Service Providers lease equipment such as servers, computers, and hardware, for a flat fee every month. This is usually tied into a monthly managed service agreement in which a client never has to worry about technology breaking down or being out of date ever again. For more information, call us today at 605-341-3873 or complete the contact form on the right.