What do cryptocurrencies and Bitocin mean? Why were they produced? How are they used?
I wanted to prepare a Bitcoin and crypto money guide for beginners . In this guide you can find a wide range of information, from bitcoin to altcoins and mining.
Content Guide
What is Crypto Money?
What is Bitcoin?
Advantages of Using Bitcoin
For What Purposes Can I Use Bitcoin?
What is Altcoin?
Why Altcoin is Produced?
Should Altcoins Be Preferred?
What is Bitcoin Mining?
The History of Bitcoin Mining
What awaits mining in the future?
What is Cloud Mining System?
How to Trade (Buy / Sell) on Bitcoin Exchanges?
What is Crypto Money?
To understand the concept of crypto money, first of all it is necessary to know what cryptography is. Cryptography; is a set of mathematical methods that work to provide information security concepts such as privacy, authentication, and integrity. These methods aim to protect the information from active or passive attacks that may be encountered during the transmission of information, thus the information as well as the sender and receiver of the information. In other words, cryptography can be expressed as all of the techniques used in transforming a readable information into an unreadable form by undesirable parties.
With the development of cryptography science, the importance of the security of information transferred on the internet has started to increase. These developments led to the emergence of crypto money as a software. The first emerging “Bitcoin” is a cryptocurrency that works with this logic and is the most popular of the cryptocurrencies.
Unlike real money, crypto money is not a value that is handled in a leather wallet. No state or private institution has a say in the production of these coins, as it is developed through a decentralized system. All the money we use in the classical sense is objects produced by states and having a “certain value” because there is state support behind them. However, the newly developed cryptocurrency technology has been produced by individual users all over the world without any government support and has acquired a “certain value”.
What is Bitcoin?
Bitcoin is thought to have been developed in 2008 by a group or a person called the Satoshi Nakamoto nickname. In January 2009, mining and transfers started by creating the first block (Genesis block). With Bitcoin, people can be transferred directly from person to person (P2P) and no intermediary is needed. In transfers, it is difficult to identify the sending source and the receiver. If necessary security measures are taken, no one except you can control or confiscate your accounts and all accounts are stored in digital wallets.
In short, it is a completely free virtual currency. This system, by its very nature, removes the money from being a purpose and makes it a tool. In this respect, Bitcoin is a new experimental technology that the current financial system is trying to ignore but fails! If you are looking for detailed answers about how Bitcoin works and what it is, I recommend you to take a look at this article , which is the most comprehensive resource ever written .
Bitcoin in a nutshell;
It is a digital currency and has no material / physical counterpart.
Bitcoin is a network interaction, has no center, and provides digital money transfer from person A to person B.
It can be transferred from any point with internet.
There is no agent or broker.
Bitcoin is written in open source code and is open to everyone, and the owner of the system is anyone who uses it.
It is used in all countries and personal account cannot be interfered.
There are no limiters, such as terms of use, pre-restriction contracts or terms.
Bitcoin is produced by a free program called miner.
Bitcoin to be produced is limited, a total of 21 million will be produced.
In order to control the production rate, the “difficulty level” that determines the Bitcoin removal rate is continuously adjusted within the framework of certain protocols. The difficulty is determined by the production density in the network.
Every user has a digital wallet and account.
Your Bitcoin transfers are signed with a unique signature and are checked and approved by miners in order for their accuracy and uniqueness. Thus, the same Bitcoin cannot be used a second time and the duplicate payment is prevented.
You do not pay any extra to sell products with Bitcoin. No prerequisites are required from you.
Bitcoin; It can be converted to many currencies such as TL, USD and EURO.
Advantages of Using Bitcoin
Bitcoin is a peer-to-peer digital payment system and it is first and unique due to its many features. It has many advantages over traditional payment systems such as bank transfer, EFT or credit card:
There is no time limit. There is no time limit for the person who wants to transfer Bitcoin, transfer can be made from any point on the internet via online wallets.
There is no space limitation. In traditional systems, it is possible to go to the bank or ATM to send or receive money orders (except for sending over the internet). For example, in transfer systems such as postal transfer and Western Union, the person must go to such centers and make the transfer. To realize bitcoin transfer; the person does not need to go somewhere physically and be there.
Transfers are very fast. It responds to natural human weaknesses such as impatience, money transfers are very fast.
It is very easy to store and carry. You can carry Bitcoin worth thousands of dollars with you with a virtual wallet that you can download to your smartphone at any time.
It can be processed in all regions of the world. Thus, exchange (money exchange) costs with foreign currencies are not applied.
It goes and costs like the printed money. Money printed by the traditional method; In many respects such as expenditures on transportation, storage and security, it creates plus costs and expenses to governments. In addition to such costs, there are no obstacles such as bureaucracy in Bitcoin.
It is not affected by the economic or sociopolitical situation of the countries. It is not subject to interference or pressure from the central bank of any country; therefore it is not affected by the economic or sociopolitical ups and downs of the countries.
There is no lower limit for payments. In Bitcoin, even very small amounts of micro payments can be made that cannot be made using payment systems such as credit cards or wire transfers.
Fees and commissions are not applied. In Bitcoin, transfers take place between networks, directly from one address to another, without a central authority. For this reason, there are no fees or commissions on transfers made in traditional ways.
It eliminates the transaction costs of companies. There are many charges such as authorization, commission, security, transaction and account fees applied by banks for companies that do e-commerce and therefore receive credit card payments.
For What Purposes Can I Use Bitcoin?
Bitcoin and cryptocurrencies have many uses. If you have some Bitcoin in hand, you can trade your crypto money as an investment tool by trading on crypto exchanges. Another area of use is shopping. You can buy something online or in exchange for Bitcoin.
It is the money sending tool functionality, which is the most popular and crypto purpose of use. In other words, you can easily transfer international money to the person you want by getting rid of the high commission or shipping fees received by banks and brokerage houses. In addition to these areas we are talking about, it is planned to be used in other fields other than finance thanks to Blockchain, the infrastructure of Bitcoin. Within this framework, applications that create added value and make life easier can be developed with blockchain technology in other fields such as health, culture, science and art.
What is Altcoin?
With the increasing interest in Bitcoin, the cost and difficulty of extracting Bitcoin increased, however, special equipment related to mining business started to be produced. Increasing difficulty level, high cost and interest in cryptos led to the emergence of Bitcoin derivatives. In this sense, cryptocurrencies other than Bitcoin, which has a different algorithm structure, are called "altcoin". In other words, Bitcoin-like / derivative are cryptocurrencies. As of the beginning of 2015, there are more than 600 altcoins and these are very popular on Bitcoin exchange sites. The most preferred altcoin algorithms are as follows;
The Sha-256 encryption type is the encryption algorithm used by Bitcoin. Litecoin, which is the most important focus on the agenda and accepted as the 2nd largest cryptocurrency, uses the Scrypt encryption algorithm. Keccak algorithm, on the other hand, became famous and started to be used with Maxcoin. Maxcoin is a highly profitable coin with mining programs that are developed primarily for CPU based systems and work with graphics cards, and has fixed its place on the agenda. Ipo type encrypted coins, which are famous for ripple coins, earn you according to the rate of Shares you send.
Why Altcoin is Produced?
The first reason is that the difficulty level, which is the most important issue for mining, is low in altcoins. An altcoin of close to 1 difficulty can be generated much faster and earned. However, since Bitcoin and Litecoin currencies are digged at a very high level of difficulty, lower levels of new “clone coins”, namely altcoins, are produced. It sees value on exchange sites according to the supply / demand ratio. You can produce low difficulty coins according to this value and convert it to Bitcoin according to the current rate. However, you may not find all kinds of coins on exchange sites. The reason for this is that the market volume of altcoins in general has not yet reached sufficient saturation and has not yet exceeded the required demand limit.
Should Altcoins Be Preferred?
Altcoins should definitely be preferred. However, there are a few points to consider. Not all altcoin exchanged sites can be added. Altcoins that will attract attention and appeal to the user should be preferred in a short time. In this regard, newly introduced altcoins have started to try various ways to attract the attention of miners and investors. With the increasing competition, every altcoin released to the market either tries to support itself with a game or exits with the promise of supporting the major social view and movement. Before entering this market, it is necessary to conduct serious research and to understand the risks in general. After all, there is a fact that should not be forgotten at every step. The world of Bitcoin and altcoin is an experimental project with all its instruments, and the risks are very high.
What is Bitcoin Mining?
One of the key points of what makes Bitcoin such an important technology and a great invention is the concept known as Proof-of-Work. In fact, extracting Bitcoin, that is, getting some bitcoin by mining is not the only purpose of mining. Bitcoin miners also serve to keep a decentralized ledger called Blockchain, one of the features that make Bitcoin the same. To summarize Bitcoin mining, it consists of searching for and getting a feature that is specific to your computer, and what makes this number important is that it is very difficult to find and it is increasingly difficult to find. The reason why it is difficult and difficult is not by chance. This is because it was a security measure set by Satoshi Nakamoto when designing the Bitcoin protocol. This security measure exists so that not everyone can perform "Bitcoin printing" and / or manipulate Blockchain according to their heads. In other words, what is called mining is a game of chance that you play on your computer or, as written above, in a pile of numbers, again, looking for a needle with numbers. Here, each search move you make is directly proportional to your processor power. In this case, the more processor power you put into this job, the more likely you will be to find a needle in the hay stack. again to look for a needle made up of numbers. Here, each search move you make is directly proportional to your processor power. In this case, the more processor power you put into this job, the more likely you will be to find a needle in the hay stack. again to look for a needle made up of numbers. Here, each search move you make is directly proportional to your processor power. In this case, the more processor power you put into this job, the more likely you will be to find a needle in the hay stack.
Meanwhile, imagining that the digital hay stack is huge and the needle is tiny will help you grasp the event. And it is not possible to “start searching from one corner of the haystack” and shorten your process / increase your chances by using optimization methods like this. This will be a bad example, but imagine that the needle is constantly and randomly displaced.
In the current situation (at the level of difficulty and reward set by the Bitcoin protocol for today), the miner who found this pin (ie "winning the draw") wins 25 Bitcoin prizes. This figure was 50 in the early days of Bitcoin and will gradually decrease. As a result, mining is difficult and requires a lot of processor power, its difficulty is increasing and the amount of rewards is decreasing.
Apart from this, if you personally buy any mining device and enter the BTC mining event, 99% probability will result in financial damage. However, this does not mean that the same applies to all coins. You can choose other coins for mining.
The History of Bitcoin Mining
Bitcoin mining has been getting harder and harder starting from day one, and this challenge continues to increase. The reason for this is that more and more people around the world are increasingly investing in processing power. Accordingly, the system automatically adjusts its level of difficulty in order to slow down the launch of a large number of Bitcoins in a short time and maintain 1 block rate in 10 minutes.
CPU Mining; is to get Bitcoin by making use of the power of the computer's CPU, that is, the central processing unit of the computer. In the early days of Bitcoin, it was possible to mine with any computer; (it is still possible, of course, but it is not financially profitable at all, because its cost is much more than its income), but it cannot be done right now because of the difficulty. But other factors played a role in the end of the CPU mining era.
GPU Mining;graphics cards solve the mathematical problems required for mining Bitcoin (and some other coins), and are more efficient than processors (CPUs). The reason for this is that the GPUs (Graphics Processing Unit), that is, the processors hosted by the graphics cards, are more efficient in floating point calculations and the operations required to extract Bitcoin use these calculations intensely. To explain this, in other words, the reason why GPUs are more effective in mining than CPUs will be understood by those who do not know the subject; “If GPUs are strong and fast mining workers, CPUs are more skilled, white collar workers. CPUs are perhaps more educated and knowledgeable, but GPUs for mining are much more effective. ” It can be summarized as. In short; After the knowledge that GPUs, that is, graphics cards work much faster and more efficiently in this kind of process, to the masses, which coincides with the days when the efficiency of CPU mining (due to the increase in Bitcoin difficulty) has decreased, people have had huge GPU mining rigs ( private computers collected for mining). GPU miners have had their golden days with these rigs, which are created by many graphics cards connected to a computer and / or by pooling and pooling the GPU power of many computers. We can say that this process lasted very profitably from late 2010 to early 2013. Nowadays, Bitcoin mining has now reached the level of difficulty that only ASICs can achieve profitability.
ASIC Mining; Based on the mining worker example above, if the question of what is ASIC miner (about application-specific integrated circuit mining) is, we can say the following for an ASIC miner device; Consider a worker who has been trained for mining, even just mining a special substance (coin) since his birth. ASICs (application-specific integrated circuit), in other words, application-integrated integrated circuits can be considered as processors specially produced only for the tasks that are expected to perform, and they work both faster and more efficiently than any other processor type (especially heat). and energy consumption).
ASIC devices specially produced for Bitcoin mining started to meet with users since the beginning of 2013 (intensely from April to May), and Bitcoin mining has changed irreversibly. The faster and advantageous GPU mining is compared to CPU mining, we can say the same for the difference between ASIC - GPU. That's why GPU and CPU miners have now become useless, and the cycle has been the cycle of ASIC devices. The disadvantage of ASIC devices is that specific coins cannot be used for a job other than mining.
What awaits mining in the future?
For now, it seems that the speed war of ASIC manufacturers will continue for a while. The manufacturers announce their new products every 3-5 months and receive the pre-orders and deliver the products to the customers after months. Why companies that manufacture and sell Bitcoin mining equipment do not produce Bitcoin with these equipment but sell machines has always been a matter of curiosity for users who are just starting to use Bitcoin. For this reason, production costs, namely electricity and space expenses, are often mentioned. Apparently, some things will change now.
For example, the KnCMiner company, which produces Swedish-based Bitcoin mining equipment, has announced that it will stop its equipment sales in 2014, and will make its own mining with the machines it produces. The biggest reason for KnCminer to take this decision can be shown as profitability. In other words, selling a machine is less profitable for this company than Bitcoin mining with that machine. Calculations show that the Bitcoin value to be produced in the next few years will be around $ 2 billion, according to the current price, only about 1,310,400 Bitcoin will be released in the next year, with companies producing large volumes of equipment worth almost $ 500 million (at the current exchange rate). It swells the appetite.
This may not always be the same for every company; because the production cost, namely electricity fee and space expenses differ between countries. For this reason, KnCMiner, who is currently mining in a helicopter hangar in Boden, Sweden, has expanded his production areas and headed to Iceland, where the electricity fee is much lower.
As is known, Iceland is very rich in natural thermal resources and electricity is produced from these resources at very low costs. The electricity charge provided to homes and businesses is almost free, so much electricity is produced than the country can use, which leads Iceland to search for new markets like Europe. However, Bitcoin miners should not worry immediately; because for large manufacturers in Europe, America and China, electricity and therefore the cost of production is still high, so sales of devices have to continue.
What is Cloud Mining System?
Cloud mining can be defined briefly as the user's mining package rental through the datacenter of a company anywhere in the world. In cloud mining, the customer rents a processor power for a certain price and receives daily, weekly or monthly payments in line with the crypto coins produced; but in general it is a well-known fact that the negativities expressed about cloud mining are very high. It may not be clear whether some companies are actually producing and it is not clear, it is necessary to pay attention to this issue.
The cloud mining process briefly begins with a user wanting to do cloud mining purchasing a processor power pack or mining stake from the mining company. After the purchase, repayments are made to investors as a result of sharing the amount issued hourly, daily or weekly by share. Some companies may charge maintenance and repair fees per share, so before investing in a cloud mining company, a detailed review of cuts and commissions is required.
How to Trade (Buy / Sell) on Bitcoin Exchanges?
Bitcoin and other cryptocurrencies are widely used as investment tools in addition to the usage areas mentioned above. Cryptocurrencies can be considered as the same gold, when the price drops, it is sold when it is released, and after these transactions, it becomes possible to earn money. Most users who are interested in bitcoins and altcoins try to make money by buying and selling on the exchanges that are open 24 hours a day, 7 days a week.
To be able to trade on the stock exchanges, you must first be a member of an exchange site (Bitcoin or altcoin exchange). Then, if you have crypto money, you can transfer it to your account on this site and start trading. If you have just started cryptocurrencies and you do not have Bitcoin or any altcoins, you can exchange money with cryptocurrencies by sending money (TL, Dollar or Euro) to the exchange site and then placing a purchase order within the site. In exchange (exchange) transaction, the site, the brokerage company, does not sell or buy crypto money in any way to you, the exchange transaction is made only between users. In other words, let's say you have some Bitcoin and you want to sell it and convert it to TL, for this you need to enter the amount of Bitcoin and the sale price and place a sale order. After performing this transaction, another user must place a purchase order corresponding to your sales order for the sale to take place so that the transaction takes place. The transaction takes place whenever the purchase and sale prices in the site match, that is, the same value. In exchange, the exchange site receives some commission from the buyer and seller. In other words, the main purpose of the exchange site is to combine the buyer and seller on the same platform to ensure safe trade.
Users who buy and sell cryptocurrencies aim to make profit by performing these transactions continuously in the short or long term. Buying and selling is not recommended for beginners, it is very important to understand the world of Bitcoin and crypto and to know the market well.