How transaction works? - Recap {Post-31}

If you didn’t pay attention to the last posts then you’ve gotten another chance at understanding the Bitcoin transaction.
Let’s say you want to purchase some product with Bitcoins. When you surf the product page you will be given a QR code to scan. The reason a QR code is given is that the addresses to which you have to send are rather long and have jumbled letters so the possibility of entering the wrong address
is very much there. This is why the entire process has been simplified with the use of QR codes. Once you scan the QR code into your wallet software, the QR code is analysed to give you the address and cost of the item along with the label column where you can see the particulars of the transaction. If
you’re into shady transactions then all you will see is the address and the amount, labels are optional. Once you hit “send”
in your client, the details are patched to
the nearest node of the Bitcoin network, this is then multicast till the address to which you want to send the money is located.

This may take a ridiculous amount of time depending on where the receiving address is
and what kind of network it is situated in. High-privacy networks like Tor take a much longer time for transactions to reach their final destination. Moreover, there is often a transaction fee which the sender has to pay for which is minimal. All transactions can be easily tracked in the Bitcoin ecosystem. Each Bitcoin that has ever been generated can be tracked right down to the current owner. Which is why scamming the system is very difficult but scamming people is quite easy. The decimal trick is the easiest, Bitcoin
transactions take place in numbers that have 8 decimals. So by shifting the decimal point scammers make quite the buck, so all clients now have an exchange index which shows the actual value in dollars at the moment so any foul play with the decimal pops up instantly.

Bitcoin-Reliability {Post-30}

The whole centralized aspect of Bitcoins brings a debilitating effect to it and that is reliability. The wallet is the one place where your Bitcoins stay, there is no backup unless you make one. Real world has banks that offer insurance but none of the applications you download or the web-services
you opt for gives you any guarantee. Quite simply because they can’t, while the transactions can be tracked easily the identity of the person owning the account cannot be unless they choose to. So that being said, the software based clients hosted on your machines are the safest. You can make plenty of backups and sync them whenever you make a transaction. The probability of losing all backups simultaneously is pretty low. Mobile apps are similarly reliable but certain apps were removed from their respective stores [Coinbase was removed from the App store] so that’s there. This doesn’t mean loss of Bitcoins but those who’d downloaded it could still use it. Also losing your mobile phone meant you’d lose your Bitcoins to some lucky pickpocket.
Websites can go down at any moment and should be used as an intermediary if you care about privacy. Hosting your Bitcoins solely on a web service is the least recommended option.

Storing Bitcoins - Wallets {Post-29}

Image taken from Coindesk

Now that the gloomy, boring and rather discouraging part about trading is over, let’s get into the thick of the whole trading business. Before you start with anything you’d want someplace to store your Bitcoins. While real world currency has a whole centralized system in place the digital currency is more decentralized.

The first step is to get a wallet for yourself. The wallet is from where you
send and receive Bitcoins. There are multiple websites and software that allow you to set up a wallet. But you need to remember that with all the crackdown on various services a third party system could go down any day and with that all your Bitcoins will disappear. That’s a worst case scenario but something that has been happening. There are three types of wallets you can go with.

1. Software based
These are software that you download onto
your system and let’s you start immediately. There are plenty of software available with Bitcoin-Qt, MultiBit, Armory

and Electrum being the most popular ones.

2. Mobile wallets
Adding an extra layer of flexibility gives
you the option of carrying your Bitcoin
wallet around with you on your smartphone. Most of these clients are free and
some of them link up to your NFC so you
can pay using the same at stores that
accept Bitcoins.

3. Web-service
If you don’t want to worry about hosting
your precious Bitcoins on your personal
computer or mobile device then you have
the option of web-services where all you
need to do is make an account.

Indian situation of Bitcoins {Post-28}

While mining and trading has been going on for quite some time and that too at a level similar to what most countries have, the prospect of exchanging Bitcoins into real world cash has been more or less difficult.
Ever since the whole hullabaloo over black money, trading is somewhat risky as it does put traders under the scrutiny of the authorities. There wouldn’t be anything wrong with it but reports of Bitcoins being used for funding the cause of anti-social elements has led to some inconvenience. The recent notice by the RBI [can be read here https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30247 
has led to a lot of Indian Bitcoin exchanges shutting shop or temporarily suspending services. Few of them said services have restarted their services but the uncertainty of trusting a new player in the market always exists.

Why Bitcoin is a good investment? {Post-27}

There are multiple factors to something being a good investment, while we aren’t investment gurus it isn’t rocket science to figure out what could possibly be a good thing to invest in. Let’s take a look at the facts, this is a
cryptocurrency that has been around for slightly over 6 years now and in this period it has grown immensely. So it’s a well performing concept. The number of coins that can be mined is limited to 21 million coins. So there is never going to be a dilution as is the case with stocks. In fact the parameter of difficulty which we went into in the last chapter ensures that the mining
process is maintained at a constant pace till all 21 million coins are in circulation. 

Also since the quantity is limited the rate per Bitcoin is only going to go up. This makes it similar to ever natural resource we have on earth which happens to be limited and thus gains value over time. The final aspect that adds value to something is acceptance; and Bitcoin has been well received over the years. Online retailers have started accepting Bitcoins, donation services have started accepting Bitcoins. Even the Singapore government is currently planning to tax Bitcoins so even official channels have opened up and finally Bitcoin ATMs are now being rolled out. What more of a justification could one need to deem Bitcoins as worthy of investment.

Trading Bitcoin {Post-26}

This new crypto-currency doesn’t
adhere to the normal system that we
have in place. Here is how it works.

we don’t really have to say that something which appreciated in value by approximately 850% over the last six months is one of the best investments you can get into. However, the valuation of Bitcoins has gone up and down like a roller coaster ride over the same period. Very similar to a stock market this
commodity has had severe ups and downs with the worst in recent times being a drop of 61% If you wish to picture that in your mind then think of Wiley E. Coyote falling off a cliff. And just like the fantastic Mr. Coyote even Bitcoins have risen just as easily. Bitcoins gained immense publicity last year which was the most well performing year for the currency. Billionaires have arisen and disappeared with the inventor of the cryptocurrency being the first billionaire having a net worth of $1.1 Billion. Unfortunately, he isn’t featured on the Forbes list since he is only a billionaire each time the bitcoin exchange rate touches $1000. Also, there is the likely possibility

that this person doesn’t exist since the name Satoshi Nakamoto has been hailed as pseudonym.

Mining Bitcoin cgminer example {Post-25}

Let’s say you’ve finally got the hardware together and are ready to mine a few bitcoins. We’ll walk you through a simple cgminer command line. At each pool you’ll get a pool URL and a PORT. Aside from that you need to get the following ready.

-->Hardware [GPUs/FPGA/ASIC]

-->Appropriate drivers installed

-->For GPUs you need to install the OpenCL package from the respective manufacturer

AMD

http://developer.amd.com/tools-and-sdks/opencl-zone/amd-accelerated-parallel-processing-app-sdk/

If your cgminer windows looks likes this once you run the command then you’ve got it right!

NVIDIA

https://developer.nvidia.com/opencl

Have cgminer installed Command line: For mining in a single pool all you need to do is use the following command line and replace the pool:port with the url given to you and the username and password with the appropriate worker ID and PASSWORD.
cgminer -o http://pool:port -u username -p password For multiple pools you need to chain the commands one after the other and create a huge command with all URLs, worker IDs and PASSWORDs. Multiple pools: cgminer -o  http://pool1:port -u pool1username -p pool1password -o http:// pool2:port-u pool2usernmae -p pool2password Press enter and if all goes well, you should start mining and see something like the image on the previous page. There are a lot more clients and covering each and every usage scenario for all of them wouldn’t be possible so it would be best to join an online Bitcoin community and find out if others with your same hardware have found a convenient software to use. That’s about it for generating bitcoins. Once you’ve started on this you need to figure out how to use that currency. The next posts will focus on usage of bitcoins and other cryptocurrencies.

Mining Bitcoin Join a pool {Post-24}

If the numbers weren’t convincing enough then we’re letting you know that solo mining is as good as dead. You need to join a pool in order to actually get something out of all the effort you’re going to be putting in. There are plenty of pools out there but you need to join up in a pool with a lot of participants. The following four have the highest number of participants and the highest output.

--> Slush’s pool (mining.bitcoin.cz)

-->BTC Guild

-->Eligius

-->GHash.IO

When you register an ID at each pool, you will be given a worker ID and PASSWORD. For each worker [i.e. individual machine] you need to create a new worker ID and PASSWORD. If you own 5 ASIC machines then 5 IDs and
PASSWORDS will be needed, one for each. You can join multiple pools as well and then gather different worker IDs and PASSWORDS from each pool.

Software for mining Bitcoins {Post-23}

The hardware is just one part of bitcoin mining. You need to worry about the software as well. There are quite a few software but we’ll mention the more popular ones that are widely supported.1. BFG            
2. BitMiner       
3. BTCMiner       
4. cgminer        
 5. Diablo          
 6. EasyMiner       
7. gMinor         
8. GroupFabric    
 9. MPBM            
 10. Phoenix          
 11. poclbm                    
Not all of them support GPUs and ASIC and lastly, FPGA mining. One that does all three is cgminer, however, it may be a bit difficult for beginners to fiddle with since there is a fair bit of tweaking involved in getting it to work. We don’t know if you’ve noticed but the GPU lists in the previous
posts did not feature recent GPUs, that is because the high end GPUs have undergone a slight architectural change and it will be a short while before these software start working on those GPUs. If you are going to be using ASIC or FPGA then you need to figure
out which software out of these is supported by your hardware. As for those you wish to mine on their computers, cgminer should be more than sufficient.

Mining Bitcoins solo-Pool-Rental {Post-22}

Mining is by no means an easy task. In the next few lines you will come to know how difficult mining solo is so why don’t we look at some numbers. Let’s say you have a good rig which can handle three AMD HD 7970 cards in CrossFire configuration. Each card gives an estimated 700 MHash/s but the CrossFire configuration will give you 1950 MHash/s on an average. The electricity cost per kWh in India is roughly 20 paise / kWh when generated. Consumer rates are even higher and vary from place to place.The current Bitcoin generation difficulty is at 1,789,546,951. Under these conditions we
can calculate the rate of generation.

As you can see, with such a configuration that has three GPUs totaling  USD 1520.68 you only end up with USD 0.01 per day after subtracting electricity costs. This is ridiculously depressing for someone who spent close to USD 1520.68 for purely mining these coins. If you aren’t part of a pool then your profitability goes down even further since you will only generate one block every 124 years. That’s right, more than a century is needed and that is why solo mining is only for those who have a supercomputer(s) at their disposal. Pool mining is another aspect where you do have the same rig but there are a lot many folk just like you who come together to form the pool. This pool then cumulatively works to solve one block and thus the success rate is much higher and increases as the number of participants in the pool goes up. While this also means that the share that each user gets is way low, it does guarantee to certain extent that you will mine some bitcoins out of the venture rather than solo mining wherein uncertainty looms over you for 124 years. The last option is to rent processing power. Imagine that there are people who can get you the hardware resources but don’t have the money to fund themselves. They turn to consumers and start offering rental services. In this method, you pay to get a certain processing power. They do everything for you so that all you need to worry about is getting your money’s worth in time. That is the problem with upcoming hardware and services. There isn’t any guarantee and some only accept payment in Bitcoins, so there is

no way of getting your money back. Butterfly Labs is one company that has delivered on their promises and are now seeking customers to buy into the rental business. They charge USD 10.53 / [GHash/s]. So if you do spend the
same amount as for the triple crossfire AMD setup then you pay close to USD 2,499. Let’s run the calculation again now. 

Now power costs are irrelevant since you are not paying for that and all you are investing is for the processing power. This means that in just 49 days you will mint enough bitcoins to break even. Everything after that is pure profit. The rental agreement lasts for one year so that means USD 16,817 of profit over a year. Seems too good to be true? Well, these calculations are based on the current difficulty rate and as time goes by this will

increase and you will find it more difficult to mine. That means that the returns reduce significantly. There are plenty of tools available online to help you get estimates on your hardware. Check out http://www.bitcoinx.com/ for a well thought out calculator.

Mining Bitcoin ASIC {Post-21}

Application-Specific Integrated Circuit” are basically designed from the ground up
to do just one particular task. They are absolutely useless for any other function. These are the fastest sort of mining hardware at the moment. There are some manufacturers like Avalon, ASIC Miner, Butterfly Labs etc, who have released hardware based on ASIC chips which are

highly evolved for bitcoin mining. For a little comparison on which hardware is better

you can check the following link https://en.bitcoin.it/wiki/Mining_hardware_comparison

Mining Bitcoin - FPGA {Post-20}

A Field Programmable Gate Array is a chip that comes as a blank slate. You can mount the chip and then program it to do whatever you want to get done. This is the reason why the “Field Programmable” part of the name exists. Now these are fabricated according to order as the number of logic gates on each chip can be customized. Also there are a lot of FPGA packages available for cheap, you can simply purchase them in bulk and start programming each chip to mine bitcoins. They are also quite cheap but since the design isn’t streamlined, it
isn’t as fast as the ASIC but it is way faster than a CPU and comparable to a GPU.
We can see that the Mini Rig by Butterfly Labs is as good as an ASIC miner even
though it is FPGA. And most of the FPGA are comparable to GPUs.

Bellow are some FPGAs Listed with their speeds.

Mining Bitcoin-GPU {Post-19}

The Graphics Processing Unit is the processor that sits in the heart of your graphics card or more recently on your main CPU itself in the form on on-chip GPU. GPUs are more focused towards mining since they have a reduced instruction set compared to CPUs. CPUs are designed to calculate a wide variety of instructions hence the focus is more on compatibility and less on volume. GPUs on the other hand have a much reduced instruction set in comparison and can crunch out a lot of numbers in a short amount of time.

Needless to say, AMD cards are way better than NVIDIA’s offerings and this is because of the architecture they have. AMD’s GPUs have many simple shaders that run at low clock frequency while the NVIDIA design has a lot lesser CUDA cores which run at a relatively higher frequency.So AMD gets

the upper hand by having way more parallel processing throughput, when we compare the AMD 6990 to the NVIDIA 590 we can see that   --> AMD Radeon HD 6990: 3072 ALUs x 830 MHz =2550 billion 32-bit instruction per second
-->  Nvidia GTX 590: 1024 ALUs x 1214 MHz = 1243 billion 32-bit instruction per second 

Right off these numbers we can see that AMD is ahead by twice the margin. Another factor is how the instruction sets are implemented in the two competing devices. AMDs instruction set is capable doing what NVIDIA’s instruction set does in number of steps. This significant advantage in terms of time combined with the sheer raw output puts AMD ahead of NVIDIA.

Mining Bitcoin- CPU {Post-18}

The CPU is simply the Central Processing Unit or your computer’s processor. This is
the easiest and the most commonly obtainable hardware. Also it would be prudent to
mention that you don’t need to go and get a separate processor at this moment. The problem with using your CPU is that it isn’t designed for the volume of calculations involved. You will be able to mine coins in the long run but the costs associated with
it will be astronomical and in no way will you be able to break even. The only place where CPU based mining becomes feasible
is for criminals who have botnet that mine Bitcoins on all infected computers.

Few models of CPU's are mentioned bellow 

remember "Mhash/s higher is better"

Mining Bitcoin {Post-17}

Anybody can mine bitcoins, there is a lot of material available online which
can guide you through your choice of hardware and software. We’ve gone through some of them to curate all the methods and the time taken to generate bitcoins with each of them. First, we will look at the different hardware
that is available in the market for mining bitcoins. There are different types of hardware available in the market. You can
use your ordinary computer [or your super-awesome-rig, whatever you call it] to mine or you can purchase specialized hardware made for mining and nothing else. The hash calculation process is very simple but the sheer volume of calculations is quite taxing on the system. We have four popular options on a broad scale. Along with each hardware type will be a chart detailing different models of each hardware available in the market and the hash rate it offers in MHash/second(higher is better).

Important terms related to Bitcoins-2 {Post-16}

Hash: The output generated by a hash function is called a hash. 

Hash Function: It is a computer algorithm which takes any input data

and then runs it through a few calculations and shifting processes before generating a fixed length output called the hash. Passwords are commonly stored as a hash so that your actual password is never stored anywhere.Depending on the algorithm used, the probability of two inputs having the same hash does exist. In the Bitcoin system, a hash is difficult to produce but easy to verify and forms the backbone of the whole mining process.

Hash Rate: The number of hashes calculated by the hardware is the hash rate. Commonly used indices are Megahashes/second and Gigahashes/second.

Miner: It is a computer software or a hardware that is designed to calculate the hashes needed for the inception of a new block. The miner also

gets a reward in the form of bitcoins and transaction fees for aiding in the

creation and the maintenance of the bitcoin blockchain.

Node: Every participant is a node in the bitcoin network, certain client allow you to save a copy of the blockchain on your computer while some don’t. Nevertheless, they are both nodes.

Satoshi: The smallest unit of a Bitcoin which amounts to 0.00000001 BTC is called a Satoshi after the creator of Bitcoin i.e., Satoshi Nakamoto.

Transaction free:This is a fee that is added voluntarily to any transaction so as to add the transaction to the block. The fee also determines whether a transaction will be added or not since a higher transaction fee gains priority over lower transaction fee. Since it is voluntary it may be added with

any transaction but it is the sender who always pays the fee since bitcoin transactions are always one sided. For transactions that are large which means a high addition needs to be done to the blockchain a fee is expected and charged by most online services.

Virgin Bitcoin: When a miner generates a block that has never been spent a Virgin bitcoin is produced as a reward. Thus it is the only true anonymous portion of the bitcoin system. All subsequent transactions can be traced back to the virgin bitcoin.