A bit about bitcoin, mining, cloudhashing and my own bitcoin adventure :)

If you already fully agree with what bitcoin is for something, you can jump down to "My Bitcoin Adventure". To all those who do not know what Bitcoin is for something comes here - simmering, but hopefully comprehensive - description:

Pros and cons of bitcoin

Bitcoin is the largest digital decentralized currency, understood in the sense that no central authority or state stands behind, which means that the prices are completely liquid and decided by the market. The rainy power to process and secure transactions comes from a global network of volunteers who get a little bit of computing power, this is called "mining" and is described a little further down.

How are they stored?

You have their bitcoins in a digital wallet, either on their own computer, in an online wallet or printed on paper such as QR codes. An online bitcoin wallet is smart, but some of the security disappears when someone else can snatch your login and steal your money if you're very unlucky. However, if you have your wallet on your own computer, it is very important to have a backup on either a USB key or printed on paper, so you do not lose its bitcoins if you want to delete the wallet, it loses on computer crashes, viruses or hacker attacks.

How do you deal with bitcoin?

Bitcoin is traded online, for example on bitstamp.net, but online traders typically require passports to prove their identity and a bank statement to prove their address and it can be difficult. At Bitstamp it currently costs 0.5% to trade between dollars and bitcoins + $ 0.95 to withdraw money into a European bank account. Therefore buying bitcoins with friends and acquaintances locally - either for cash or bank transfer - can be very good.

What about bitcoin and inflation?

Unlike most other normal currencies, Bitcoin is deflationary as it will be issued at most 21 million bitcoins. The new bitcoins are issued at the same time as transactions are processed and are added to transaction fees, and therefore also apply to voluntary accounting. At the moment, 25 bitcoins are issued for a calculated block, but this is halved continuously (next time in 2017), so the system will eventually run exclusively through transaction fees.

If you only pay for the bitcoin system with fees, it will not be expensive?

However, it does not mean that it will be more expensive to trade with bitcoins, as computing power is becoming cheaper, moreover, Moore's law. Transaction fees are currently volunteers so you do not have to pay to send money - but it does help a lot of how fast a transaction is being processed - at the moment, a transaction is processed without delay in less than ten minutes with a charge of 0.0005 BTC , which corresponds to 2 kr. However, the transaction fee also depends on its size, so a transaction of 1000kr from one address to another will typically be processed quickly without fee. For example, I received a transaction of $ 12 without charge in about six hours a few days ago. However, if you send 100 kroner to 10 different addresses (accounts) at one time, a fee is expected in relation to the increased data size - ie the previously mentioned 2 kroner. It will therefore always be cheaper to shop with bitcoin than for example credit cards.

Pros and cons of bitcoin

The advantages of bitcoin are:

• You can send both big and small amounts to others without an intermediary
• Like cash, a transaction can not be withdrawn and the recipient can never withdraw more money, making it safer than for example credit card where the buyer can withdraw the transaction and the seller may abuse the credit card number.
• Like diamonds, bitcoin is worth because there are a limited number of them and there are many who demand them. The price of a bitcoin is therefore determined solely by their value as smart payment and how many use them - it also means that the price fluctuates much in relation to demand. In November and December, the price of 1 bitcoin rose to more than $ 1000 after the "wave" hit China. At the time of writing, a bitcoin costs 794 $
• Bitcoin is a semi-anonymous currency when you need external data to determine who an account / address belongs to
• You can trade bitcoins with friends, acquaintances and strangers on the street - typically just with a mobile phone at hand, so the sender can send and receive confirm that the transaction has started.
• No or very low transaction fees

The disadvantages of bitcoin are:

• Like cash, bitcoins can be used to trade in illegal goods
• Large fluctuations in the courses as they depend entirely on the market, so you do not have to put the savings in bitcoin. Even though the course almost only goes up right now there is no guarantee that it will continue. (See graph below from Bitstamp for the last six months)
• Like a normal wallet, a bitcoin wallet can be steal if you do not fit it

My bitcoin adventure

I personally think bitcoin is exciting, both because it's fascinating for my inner nerd, but also because it's a convenient and cheap alternative to credit cards. As a seller, I currently pay Nets a couple of dollars and a percentage per transaction + 1000 kr per year to receive payment in my webshop and at Paypal, I get a full 3.6% per transaction and it's expensive ... very expensive!

If I could pay for bitcoin, which I hope the accountant will soon say ok for, I would definitely not mind losing half of the savings to the customer - that's just common sense!

Bitcoin mining

"Bitcoin mining" is the term to provide computing power to the network to participate in the new bitcoins and transaction fees. A year ago, when I first looked at the possibilities with bitcoin, you could still get profits by offering computing power to the network with its regular computer and graphics card. However, it is completely over now, as it costs a lot more power than you get it - especially in Denmark where most give over 2kr / kWt. Since then, specialized chips on the market (ASICs) have been working exclusively with bitcoin calculations and other crypto currencies based on SHA-256 hashing like bitcoin. These chips make it possible to get a lot more computing power per watt, but unfortunately it is already changing now that it can not be paid in Denmark unless you buy new expensive hyperefficient hardware that costs less per unit of computing (Gigahash / s ) and requires less power (Watt / gigahash).

I have bought a device that currently offers profits, but it is unlikely that it can now earn itself home as there is a lot of new and more efficient computing power on the market all the time. My inner nerd, however, loves the fun of it and although it should give me a little bit of deficit, I've become much smarter and have had a lot of fun playing with the technique. Maybe I can sell my bitcoin mines to someone else who would like to try to "mine" later :)

It may seem that you can easily earn a lot of money on my bitcoins when driving the numbers through his head, but unfortunately there is something that quite a few online calculators forget or omit when they calculate if it can pay off - namely The "difficulty" of my bitcoins, because it is constantly rising as more and more computing power is coming on the network.

Bitcoin is technically screwed so that the severity adjusts to how much computing power is available and if there is much, it becomes harder (and requires more power). In short, the more it's about sharing the cake, the smaller each gets.

"Difficulty" has just risen to 2,193,847,870 and is adjusted approx. every 14 days and is determined by the amount of computing power that is currently approx. 17 petahases / s = 17,071,373 GH / s globally.

So even though it currently pays for me to run a machine, it will probably cost a lot more in current with current hardware than the pay-out pay. At the current level, the payout for a gigahash computing power is about 18.5 US cents, which means you have to have a machine that costs less than 18.5 cents per gigahash to give profits and much more to earn yourself home. For example, only a few weeks will take place before my hardware becomes obsolete and costs too much in power.
Therefore, be a warning before buying a bitcoin mines on the Blue Newspaper! Even though it looks like a surplus in kr / gigahash / watts, it may not be able to serve itself even though it can do it at the current level!

So around the rain - if you want to buy hardware for my bitcoins, you have to do it for fun and not to be ruling rich. Also, remember that if you expect the bitcoin to rise in price, it's no excuse for me, as you might as well have bought bitcoins and sit on them.

What is cloudhashing?

One last exciting thing is cloudhashing. In short, someone claims to have accumulated a lot of bitcoin hardware in a warehouse and offers it on market terms, so you can buy and sell ownership of the computing power as the price rises and falls - a bit like currency trading or shares. I found that exciting and have bought a pair of gigahashes at cex.io. Like the bitcoin itself, the price per gigahash fluctuates a lot and depends on what people are willing to pay per gigahash. Currently, the demand for computing power in the cloud is very high and the price is therefore much higher than you could buy your own hardware for - with a great advantage (!): If the price drops per gigahash in the cloud you can only sell it Again anytime and you do not therefore risk having a bundle of hardware you can not sell because it is too ineffective. Cex.io even offers that you can trade without fees and pay only a small amount of power (much less than in Denmark) and maintenance. Therefore, one can expect that if the price per gigahash does not fall, you can practically "my bitcoins" for free. In theory, the price per gigahash should obviously fall in relation to the market and new more efficient hardware, but at present demand is so much greater than the supply that the price has actually remained quite stable / rising over the last couple of weeks, so I actually got one crazy "interest" to have my bitcoins standing in gigahashes with them. However, I am very aware of the market, because prices may suddenly drop.

A gigahash currently costs about 190 kr, but you can only pay with bitcoins or buy them by someone you know - which puts it in your account. The smart thing would be to create an online wallet at, for example, blockchain.info, which you can pay off your profits forever unless you want to reinvest it.

If you make a quick calculation, give an example of 1 gigahash to 190kr approx. 1 penny in payout per day, so on current "difficulty" it will be earned home in 190 days - but remember now that difficulty is likely to increase. Therefore, you must be ready to sell its computing power in the cloud when it falls more in value than one earns a day. But right now 3.7% of weekly weekly payments on investment are very attractive and it also explains why the price per gigahash in the cloud can be kept up even though the price per gigahash in hardware is one-third to half.

Right now, it is a very good business to have its bitcoins standing in the rain in the cloud, but of course it adds an extra risk to just having its bitcoins standing on an account, so be careful if you try it and never put it more in the cloud than you can afford to lose! :)