Virtual Currency, Miners & Mining Contracts

Virtual currency, also known as cryptocurrency, is a form of online money that exists and is traded solely in the virtual world, though now cryptocurrencies can also be used to make some select purchases in the real world. Users typically store virtual currency in digital wallets or accounts, which unlike bank accounts, are decentralized.

What is Bitcoin?

Bitcoin is currently the world's most popular cryptocurrency (other cryptocurrencies include Ethereum, Litecoin, Ripple, etc), and was the pioneer decentralized digital currency in the world. It was invented by an unknown entity, either a single person or a group of people, that went by the name of Satoshi Nakamoto. The open-source software was released to the world in 2009. Transactions using Bitcoin are stored on a public ledger known as a blockchain.

How do you mine and purchase Bitcoin?

Bitcoin is either purchased, invested in, or acquired through a process called mining , where computers work on solving complex mathematical problems using a preset algorithm, and are rewarded with Bitcoin. The total number of Bitcoin that can be mined is capped at 21 million coins. This market cap gives Bitcoin some tangible value, as it is not an infinite resource. To prevent over-mining of Bitcoin quickly, there is a protocol in place that halves the reward received for adding a block to the chain via mining, which comes into effect every time a certain number of coins have been mined. There are several models and brands of miners such as AMD, Antminer, ASIC, Avalon, Bitmain, Gridseed, NVIDIA, etc. However, users who do not want to mine Bitcoin can also purchase them online through various channels such as exchanges or directly from miners (hence a mining contract). Bitcoin can be used to make purchases online whether in the form of goods or services, and carry a fluctuating value when converted to real life currency.

How do you store Bitcoin?

Bitcoin, once mined or purchased, need to be kept in a digital wallet either on a computer, on an online cloud service, or on a physical storage drive. These wallets do not actually store the coins per say. Instead, they store the keys that hold information about the coin transactions, which are stored on a blockchain. Even so, a loss of these wallets would mean that the access to the coins is also lost. A digital wallet on a computer would mean the keys are kept in an application on the computer's hard drive, accessible via the operating system. An online digital wallet is stored on a cloud service, and is accessible from any device which can access the Internet and the cloud service. The last option, a physical storage drive, is an external hard drive that connects to any computer through USB. Each of the different wallet storage options (computer, cloud, or hard drive) have their own upsides and downsides. Because of this, users should carefully research all the options and determine which one will be suitable for their needs and habits.