Monday, 20 January 2014

SHA256 scrypt and CPU

The Second Wave

There are several types of Cryptocoins and methods of getting them apart from spending some cash (fiat currencies)

The first and best known is the SHA256 algorythm as used by Bitcoin miners. Unless you are an expert in cryptographic mathematic all you need to know is that they involve a lot of very complex calculations.
Bitcoin was originaly mined by ordinary computers but the difficulty of finding blocks soon forced the use of GPUs (video cards) and later FPGA boards and then ASICS machines.

ASICS are pieces of hardware with dedicated chips designed specifically for mining Bitcoins. They can be very expensive and rare.
They are sold in advance with a delivery time of months. This means thyat by the time you receive your $20,000 machine the difficulty of mining has increased and you probably need a more powerful one.

This rules out the possibility of Bitcoin mining for most small operators.

Some other cryptocurrencies started to appear that were a lot easier to mine. They also have an increase of difficulty with time built in.
The upside is that it is very unlikely that new ASICS will be developed for those.
Those currencies use an algorythm called scrypt.

There are also a small number of Coins (e.g. Quark) that can only be mined using a CPU.

So now I could start mining.
That is after doing all the research into which coin to use, which scrypt to setup, getting a wallet, etc..

In a nutshell this is the basic process:

Once you selected a Coin you need to download the corresponding wallet. This is the equivalent of a saving account. The wallet lets you generate addresses for sending and receiving the corresponding coins.

Then you have to wait until it has downloaded the "Block Chain" This is the complete list of transactions for that coin. This can take a long time...

Next you choose a pool to mine for. Although it is possible to mine solo this is not advised as it could take weeks before you find any coin.
A pool is a group of miners working together to increase their chances to find a valid block (and earn coins)
You get a share of the rewards according to the amount of calculations you provided. Known as hash/s and Khash/s even Ghash/s
When you join a pool you are given the actual links to start mining as well as the proper scrypt for your hardware.
There are different scrypts for NVIDIA and AMD cards as well as CPU
You also need to create a "worker" for each piece of hardware. And finally you give your pool account a deposit address from your wallet.

When you have a properly setup the miningr rig you will start seeing <yay!!!> in the display. This means that your miner has found a piece of the puzzle and you get credited with a number of shares from the pool.

The pool usually calculate the amount of coins that you earn and you will see "unconfirmed" transactions. Which will later become "confirmed" and accumulate until you reach the minimum amount needed for a transfer to your wallet.

Monitor your computer miner as well as the pool and your wallet for a couple of days...

Ok now that you have some coins what to do with them?

You need to find an Exchange to trade your coins. Generaly all the alternate coins are traded against Bitcoins.
The exchanges have transactions fees and some have restrictions on the minimum amount needed before you can withdraw your funds.
Always double read the fine print.

Trading at the exchange is like trading on a share market or on FOREX.
You can see the price and volume charts and the market depth of buyer and seller. And prices change in real time.

You can speculate on the prices of your coins going up or you can sell them as you go.

Once you have a few Bitcoins you can also keep them and speculate on a price rise or sell them for fiat money.
There is a website accepting Bitcoins for Australian dollars with a minimum transaction amount of $50 AUD

The downside of all of that is the electricity costs. A powerful rig can chew up a lot of Kw and give you a nasty surprise on your next power bill.

A lot of people will say in the forum that it is not profitable to mine any coins on a home computer.

My view is that I spend electricity money to generate Bitcoins instead of purchasing tyhem directly.

There are too many scams trying to sell crypto-coins and the reputable exchanges ask a lot of transaction fees.

NOTE: I didn't supply links to any website, forum, pools, exchanges, etc.. and leave it to you to do some research.

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