Decentralization Is the Way Forward for Cryptocurrency Mining – Here’s Why

Cryptocurrency mining – the power behind our decentralized currencies – has reached a fork in the road of its young life. Giga Watt filed for bankruptcy in late November this year, Genesis Mining is facing hard times, and Bitmain’s future is in limbo.

But despite massive depreciation, and miners leaving the cryptocurrency space en masse, it’s not all doom and gloom for cryptocurrency as a whole. Institutional investors are coming into the crypto space, and the recent decline in mining could be good for persistent miners, mining farms and pools worldwide.

 

How Centralized Mining Failed

If there’s one lesson for miners to learn from in this bear market, it is keeping down the cost of mining, with emphasis on efficiency over scaling up. Over the course of the year, mining has been increasingly unprofitable even for some enterprise miners. There are a number of compounding factors for the dry spell such as:

  • recent decline in the cryptocurrency market
  • strict regulations and increased power rates for cryptocurrency mining
  • rapid increase in mining difficulty – faster than market demand and cryptocurrency adoption
  • cost of outlays in running the business increase with size (e.g. bigger facilities, cooling systems, power consumption, hiring more employees for maintenance and upkeep)

Diminishing returns over a period of time (e.g., Bitcoin rewards halve every four years) coupled with volatility in the cryptocurrency markets makes it very risky for miners to scale up beyond a certain threshold. In many cases, mining profitability is only as good as the market conditions. The recent turn of events with the price of cryptocurrency, and the equivalent of approximately 1.3 million Antminer S9 units turning off as of late proves how large-scale miners have become so dependent on cryptocurrency markets in terms of mining profitability.

The arms race towards bigger mining facilities and acquiring more efficient but expensive mining hardware also tends to backfire for some mining businesses who are now struggling to pay off their debts. State regulations have also put a lot of strain to the mining industry by imposing higher rates for cryptocurrency mining. This, along with rapid increase in network hash rate/difficulty, and a long drawn-out bear market spells disaster for many businesses in the cryptocurrency mining industry, particularly those who have overspent with expectation of higher returns through market demand and cryptocurrency adoption.

Enterprise-level miners might have increased their mining power with a large share of the network hash rate which might have previously worked but because of the way proof-of-work cryptocurrencies such as Bitcoin are built large-scale miners are running into difficulties. Miners are finding with increased network hash rate there will come a point where mining and maintenance costs start to eat up their gains unless they find access to abundant or much cheaper energy source as soon as possible, or if cryptocurrency continues to gain widespread adoption. (Imagine if every miner in the world does the same thing and Bitcoin suddenly drops to $1,000. How long can these enterprise miners hold on until Bitcoin goes back up again to $20,000 or until mining difficulty drops significantly lower?)

Lastly, centralized mining puts a lot of strain to the power grid that governments won’t have much of a choice but impose exorbitant rates for mining operations in order to “force” miners to slow down, or run the risk of overloading the grid, severely affecting all other industries in the country. The only option for large-scale miners at this point is scaling down and help redistribute hash power to the cryptocurrency network, e.g. shipping their mining rigs to places with abundant and more affordable energy source. (In Venezuela, it only costs $531 to mine Bitcoin).

 

Why Decentralized Mining Is Crucial for the Cryptocurrency Space

More secure compared to centralized mining. Centralization of mining power misses the whole point of having a decentralized cryptocurrency such as Bitcoin. Cryptocurrency mining was never meant to be a centralized endeavor, but a shared obligation to secure the network where one’s willingness to share computing power to mine transactions and prevent double spend attacks is rewarded with cryptocurrency. Centralization creates weaknesses to an inherently secure decentralized network by establishing a single point of failure and opens up the possibility of double spends and censoring transactions. (This inevitably results in weaker adoption and/or the cryptocurrency’s demise.)

Distributes risks and rewards to miners. Higher hash rates do make a difference who gets the mining reward. But at the end of the day, it all boils down to probability. Suppose every miner in the world mines at exactly the same hash rate. The way Bitcoin’s algorithm was designed meant that there is no particular way to tell who will be the first to find the next hash since they would all be making random guesses at a given rate. Higher hash rates increases the likelihood of being the first to make the right guess, but so is the risk (power consumption = money lost). A better alternative to mining centralization is by using mining pools or by having small mining farms spread out to places where cost of running the mining the business is much cheaper.

 Distributes power consumption. With less centralization in mining power, miners will be able to utilize cheaper electricity instead of relying solely on the power grid. It would also encourage miners to be more creative and explore ways to make cryptocurrency mining a lot greener, or, as mentioned earlier, find places with abundant supply of energy source (e.g. hydroelectric, geothermal, solar, etc.)

 

Final Thoughts

The 2018 bear market has been an eye-opener for all of us, not only in terms of volatility and value of cryptocurrency, but also the dangers and consequences of going beyond what is intended for in cryptocurrency mining – decentralized and cost-effective. Bitcoin was just as secure back when people mined them in their PCs and laptops as it is today with more powerful ASIC miners and GPUs. It’s just a matter of perspective. Hopefully, this year has brought us some important lessons to help us with our journey in cryptocurrency for the year 2019.

Should You Be Worried About The State of Cryptocurrency?

Markets crash every so often, whether it’s stock, commodity, or cryptocurrency. Just recently, Amazon stock has lost 25% of its value in a span of 3 months. Nearly 40% of Facebook’s share value has been wiped out since July; Google lost 19%. Apple is down by 26% since October. By and large, 2018 has been particularly bearish, not just for cryptocurrencies, but tech stocks as well – quite the opposite of what we’ve seen last year.

 

“What Goes Up Must Come Down” 

Market cycles are normal with any type of investment vehicle. The price crash on both cryptocurrency and stock in Q4 strongly suggests that we are indeed going through a market downturn or a bear market. In other words, the fact that both cryptocurrency and investment funds are down suggests there isn’t anything wrong with cryptocurrency but instead it’s just a natural market fluctuation.

Bitcoin, has lost around 75% of its market price from its all-time high of $19,309 in December 2017. Speculation for Bitcoin’s price is considered as one of the main reasons for the run-up resulting in a price crash after further gains became unattainable.

 

Making the Most from a Price Crash

Market volatile in cryptocurrency is something experienced traders and investors have all been accustomed to. Truth is, what we’re seeing right now with Bitcoin and other cryptocurrencies is just one of the many examples of a price downturn in recent years. Here are some ways we can get by in a cryptocurrency bear market. As always, please note that this is not investment advice and is written solely for informative purposes.

HODL. Hodling is another one of those internet sensations that came about because of the immediacy of Twitter. For the unaware, it is essentially a “buy and hold” strategy used by cryptocurrency users and investors. Hodling can take a lot of patience, and mental resolve, with an almost stoical attitude towards cryptocurrency investment. In other words, they’re not into crypto just for the short-term gain, but look forward to using it more as it slowly reaches worldwide adoption.

Dollar Cost Averaging (DCA). Regarded as one of the most conservative and safer approach to cryptocurrency investing, which allows investors to accumulate crypto-assets over time. Similar to hodling, DCA requires discipline, and the ability to stick to the plan regardless of price actions in the market. It usually involves a fixed amount spread over a period of weeks or months. DCA can be considered as a “contrarian” approach to investing because investors can have more during a bear market and buy less during a bull market – the opposite of what most people tend to do which is giving in to fear of missing out (FOMO) and herd mentality.

Entry and Exit Strategies. A lot of cryptocurrency traders have an exit strategy such as placing stop loss orders below their entry points in order to minimize potential losses. Here’s an example of how an entry and exit strategy can be used during a bear market. Unfortunately, there is no guarantee that investors would be able to recoup their losses since it would all depend on future price actions. We’ll be using Bitcoin in this particular scenario.

From this hypothetical situation, it is entirely possible for traders and investors to recoup or even take some profit off of the bear market. However, it’s also possible for Bitcoin markets to go much deeper, exacerbating one’s losses and making it more difficult to recover. We don’t recommend this method unless you truly understand the cryptocurrency market and are quite familiar working with exchanges. Also, please bear in mind that selling cryptocurrencies for profit is a taxable event under state laws regarding cryptocurrencies.

Educate Yourself about Cryptocurrency. Spending some time learning about this emerging technology could be one of your most valuable investments in this day and age. Cryptocurrency will continue to evolve and will be more accessible to millions of users in years to come. Read books about cryptocurrency, enroll in blockchain and cryptocurrency courses, and steer clear from get-rich-quick schemes and cryptocurrency scams. Having a better grasp of cryptocurrency and its underlying technology (blockchain) helps clear out all the noise and drama surrounding cryptocurrency and allows you to make wise investment decisions.

 

 

**Please note that this is not investment advice and should no way be treated as such. It is for informational purposes only. Before you make any trade or investment you should consult a licensed financial advisor who is familiar with your current situation.

The Top Cryptocurrency and Blockchain Projects in 2018

There’s been a change in the outlook for cryptocurrency during the past few months. People seldom talk about the markets or the price of Bitcoin. Volatility has been causing a lot of uncertainty, and mainstream adoption came to a virtual standstill.

Nonetheless, the cryptocurrency space showed remarkable resilience as blockchain projects continue to expand its borders with more lateral thinking and “out-of-the-box” blockchain solutions. We’ll explore some of their use-cases and find out whether these currencies and platforms are the next big thing.

 

Why People Invest in These Projects

Despite the recent lull in cryptocurrency trading and mining, blockchain projects and ICOs are very much in the business for 2018. Investors and tech companies remain optimistic about the future of the cryptocurrency space amidst tightening restrictions and negativity. In fact, according to Coindesk, the amount of money raised in ICOs in the first quarter alone exceeded the total amount last year.

Most ICOs and blockchain projects didn’t end up well for a lot of investors (more than 90% failed to deliver). However, there are a few examples like Binance and EOS which turned out as good investments. Binance became one of the leading cryptocurrency exchanges with a BNB market cap of over $1 billion – the second most valuable token on Coinmarketcap. EOS, on the other hand had a successful, albeit controversial mainnet launch, and is now a full-fledged decentralized application platform second only to Ethereum.

Smart investors consider the current state of affairs as a golden opportunity to hunt for new projects with the greatest potential, particularly in their early stages when they are mostly undervalued. Investing early on has the advantage of maximum gains with the least amount of exposure. For instance, a hundred dollars’ worth of investments at ten cents per token won’t break the bank if things go south. But if it turns out to be a real investment, gains will be exponential (e.g., BNB and EOS tokens are worth a hundred times more than their initial price in 2017)

 

 

Blockchain Projects to Watch for in 2018

Finding a good investment can be a real challenge since we’re dealing with dozens of new blockchain projects and ICOs every month. If you’re lucky enough, you might be able to land on some big winners from a list of projects. But before anything else, please bear in mind that this is not investment advice, and you are solely responsible for any gains or losses. That said, here are five of the most talked-about blockchain projects in 2018.

 

Zilliqa (ZIL). Launched in January, the project puts a lot of work in building a highly scalable decentralized platform using a method known as “sharding.” Unlike in Bitcoin, each node will be working in parallel within a group of nodes called “shard,” verifying a subset of all the transactions occurring at the same time (also called parallel processing). Sharding works perfectly in many centralized systems (Ultima Online, Google, etc.). However, it presents an immense technical challenge when applied on a decentralized environment. Ethereum has been working hard on it as part of its on-chain scaling solution in hopes of solving the security/scalability/decentralization trilemma. Zilliqa’s entry into the whole sharding scene threatens to steal the thunder from Ethereum by becoming the first to come up with a workable solution. Some estimates it to be around January 2019. Key features include:

  • faster transaction throughputs (speed improves as the network grows)
  • employs practical Byzantine Fault Tolerance as a consensus mechanism
  • reduced energy consumption (mining is spaced a hundred blocks apart)
  • maintains a decentralized network structure (a new shard is created for every 600 nodes)

Basic Attention Token (BAT). Cutting the middleman goes beyond peer-to-peer transactions to include decentralized, blockchain-based digital advertising in the form of an open-source, ad-free browser with its own currency. Brave Browser is one of today’s hottest Internet browsing software because it allows users to block ads and trackers completely free. In fact, as many as 3 million people have already been using Brave, becoming one of Google Play’s top ten in the Android browser category. The project is moving towards the creation a decentralized advertising platform using its own currency – Basic Attention Token – to incentivize both content creation and user attention. It works in some ways like Google Ads but in a more transparent and decentralized manner. The key advantages of BAT from an investor’s point of view include:

  • good potential for adoption (sold out BAT worth $35 million in 30 seconds)
  • strong support from the community (Brave browsing experience receive a lot of positive feedback from users)
  • a solid team of experienced developers (founded by no less than the co-founder of Mozilla, Firefox, and creator of JavaScript)

Kin (KIN). Canadian messaging app company Kik Interactive is making headway into cryptocurrency adoption with the launching of Kinecosystem. The company hopes to build a community of users and developers sharing resources, and making digital goods and services. However, unlike most blockchain startups with no real users, Kin’s integration into the Kik Messenger meant its value could potentially rise with over 300 million active users.  The company is now moving towards the next phase, inviting all developers and content creators in building the ecosystem for large KIN payouts. Gains will take time, but you might want to consider its advantages, namely:

  • KIN’s practical use-case as a digital currency on an existing application (Kik has been in use since 2010)
  • user base is mostly made up of digital-natives (teens, millennials, and active mobile users)
  • Kik’s emphasis on anonymity

DeepBrain Chain (DBC). Blockchain companies like DeepBrain Chain sees decentralization as the future of the AI industry. Development of AI applications use up a huge amount of computing power. DeepBrain Chain works by utilizing computational resources across millions of nodes on the neural network in building AI applications which are then published onto the blockchain. Nodes that successfully deploy mirror images will receive payouts in DBC. It plans on migrating out of NEO to its own mainnet in Q4, with its own consensus algorithm (proof of importance and delegated proof of stake). The goal is to become the deep learning machine for the AI industry. Successful adoption is achievable through:

  • growth in people’s interest in the AI industry
  • reduced computational cost of AI companies through resource-sharing
  • secure, decentralized method of storing AI information.

Wormhole. Bitcoin Cash might soon be able to run smart contracts through its proposed protocol layer known as Wormhole. Developers plan on forking the Omni Layer to create a platform for smart contracts on top of Bitcoin Cash. Much of it is still in the works as of this moment, but news is, they’re going to issue a token named “Wormhole Cash.” Investors and crypto-enthusiasts are keeping track of its progress since it is expected to have a very high demand upon release.

 

Conclusion

The cryptocurrency space has been constantly evolving even as the noise and the hype surrounding cryptocurrency have mostly faded. Cryptocurrency is here to stay, and we’ll be seeing more projects in the near future that will bridge the gap between the average user and blockchain technology.

Stock Exchanges Vs. Cryptocurrency Exchanges: What’s the Difference?

In the traditional sense, exchanges are marketplaces where securities, commodities, and financial instruments are traded. Stocks and foreign exchange markets are traded in exchanges such as NYSE, or in the case of Forex, international banks and dealers working with exchange rates.

Cryptocurrency exchanges borrowed the idea from traditional exchanges. But instead of securities like stocks and bonds, traders deal with fiat and virtual currencies over the Internet. To have a better understanding of how cryptocurrency exchanges work, we will give some examples from real-world exchanges.

Exchanges are an essential part of the whole cryptocurrency ecosystem. They provide easy access to anyone who wants to trade digital assets apart from cryptocurrency mining. You’ve probably came across some of them, the most popular ones being GDAX (via Coinbase), Bittrex, and Poloniex.

At the moment, there are more than a hundred exchanges operating in many countries across the world today. We will take a closer look at how cryptocurrency exchanges work, and some basic information on how to use them.

 

How Exchanges Have Evolved

Savvy business owners and investors are always looking at markets for opportunities to further their business and financial goals. To a business owner, they can be used to raise capital by issuing bonds and shares to investors. Think of publically traded companies like Facebook, Amazon, and Microsoft. An investor sees exchanges as opportunities to make more money by purchasing stocks that would eventually grow in value.

However, there’s a certain limit to the number of shares a company could issue based on its total market value, and companies may choose to hold some of them for future use. Once it goes public, these stocks are traded in exchanges and investors can start buying and selling them through brokerages. (Chapter 3 explains how ICOs work in many ways like IPOs)

The first stock to trade on the NYSE was The Bank of New York in 1792 and still operates in Manhattan under the name Bank of New York Mellon.

For decades, trading floors were the center of activity for many traders and investors. Over time, traditional exchanges have evolved and most trading floors are now replaced by online trading platforms and automated trading software. The NASDAQ Exchange, which started out as an electronic price quoting service, was the first to implement automation to an exchange without the need for physical trading floors.

This transition provided the right environment for cryptocurrency exchanges to thrive in the outer reaches of the cyberspace. Cryptocurrency exchanges don’t have physical trading floors like NASDAQ or NYSE, but they provide greater access to millions of people across the world to buy, sell, and trade cryptocurrencies at a much cheaper cost.

Cryptocurrency exchanges also don’t require a sizeable amount of money to start trading, and fees are way much lower compared to traditional exchanges. In traditional exchanges, you usually need at least $1,000 to open and maintain a brokerage account, and you’ll have to pay commissions on each trade, maintenance fees, and low-balance penalties.

In contrast, cryptocurrency exchanges can be accessed directly on a person’s PC or smartphone without going through these brokerages. Anyone with access to the Internet can set up their own cryptocurrency exchange account at no cost and with no minimum deposit.

However, you need to familiarize yourself with exchanges since you’re basically doing all the research and hands-on trading all by yourself. Moreover, cryptocurrency exchanges don’t have the same level of government regulation as do traditional exchanges, and thus involve some risk.

There’s also a limit to certain privileges on most regulated exchanges depending on your account verification level. Typically, the longer you stay or trade on your exchange account, and the more information you give about yourself, the better your chances are at getting verified and increase your trading limits and withdrawals.

 

Familiarizing Yourself with Exchanges

Cryptocurrency exchanges borrowed many terminologies from traditional exchanges. Experienced traders know these terms by heart, but for those who are just learning the ropes, some words and phrases are a bit baffling. We’ll explain them here in layman’s term and provide some examples as needed.

Order Book – A list of all the buy and sell orders of traders in a market. It specifies the total number of bids and asks on a trading pair (e.g. BTC/USD), their quantity (size) and price, and presents them in graphical form. Order books play an important role in “price discovery” where the majority of traders agree on a certain price, thereby filling those orders and setting the current price of a given asset. Order books are now fully automated, capable of handling millions of buy and sell orders instantaneously. The process can be observed in real time in exchanges like GDAX, Bittrex, and Poloniex.

 

Trading Pair – Two different currencies traded on a market. With ETH/BTC trading pair, people are either buying Ethereum with Bitcoin, or selling them for Bitcoin. Traders set the bid and ask price of the currency they want to trade with using another currency. To put into perspective, in an ETH/BTC trading pair, ETH is the “commodity” being bought and sold, and BTC is the “currency” used to pay for them. Although, not an exact analogy, people who are new to cryptocurrencies and trading might be able to understand better using a more simplistic approach (both ETH and BTC are digital assets, and thus, barter transaction would be more appropriate). In a BTC/USD pair, it’s a lot easier to grasp since we’re talking here of a digital asset and a real-world currency (fiat). Also, in a trading pair, a currency can increase or decrease in value relative to its pair – much like Forex in a sense. In an ETH/BTC pair, if more ETH orders are being filled and greater quantities are sold at a higher price, it will be valued higher in BTC, and vice versa. In the grand scheme of things, a currency’s value is summed up based on how it performed across all online exchanges where it’s listed. (See https://coinmarketcap.com/ for a list of all exchanges.)

 

Bid/Ask  – Bids specifies the price traders are willing to pay on a trading pair for a given quantity of cryptocurrency. Asks, on the other hand, specifies the price traders are willing to sell their cryptocurrencies for. Bids and asks are usually shown in graphical form in order books as the “bid and ask wall” juxtaposed against each other, often resembling a valley – also called “market depth.” The lowest point is where traders agree on a certain price. Orders placed somewhere near the current price (“market orders”) are often filled almost immediately, while those placed further away (“limit orders”) may take some time. Traders may cancel their orders and move them elsewhere if it takes them too long, or if they want to take advantage of a major price action days or weeks ahead.

 

Bid-Ask Spread – A gap formed when both sides of the market don’t agree on a common price and no orders are being filled. It is the difference between the lowest bid and ask price on a trading pair. For instance, a trader wants 0.1 BTC for $1000, and another wants to sell his at $1,010. We have a price spread of $10. The bigger the difference, the wider the bid-ask spread. Too wide of a bid-ask spread will have an impact to a market’s liquidity.

 

Trading Volume – The total amount of cryptocurrency traded in the market at any given time. For instance, in a BTC/USD trading pair, the trading volume for an hour of trading could be $35,000,000, closing at $10,000 per BTC. They’re usually shown as multi-coloured or monochrome bars at the base of a price chart. In a multi-coloured price chart, green-coloured bars meant the closing price is higher than the previous one; for red-coloured bars, it’s the other way around. A dark-coloured bar meant the closing price is equal to the previous one. In most cryptocurrency exchanges, viewers can change the duration from a 1-minute, 5-minute, 30 mintue, 1-hour trading volume, and so on. Markets with high trading volumes are considered to have high levels of liquidity.

 

Price Chart – A graphical representation of the price actions with respect to time. Price charts reveal whether a currency’s value is on an uptrend (“bullish”), downtrend (“bearish”), or has undergone periods of stagnation, high volatility, parabolic moves (market bubble), and sell-offs. They can be shown in candlestick or line format. Candlestick charts also have a colour scheme (green for “bullish” and red for “bearish”) that matches the trading volume. Sometimes bearish candles will close at a higher position relative to the previous one resulting in colours which are opposite to the trading volume. In a line format, each point represent the closing prices. Viewers can also change the duration from a 1-minute, 5-minute, 30-minute, 1-hour price chart, and so on.

 

Circulating supply – The best approximation of the number of coins circulating in the market and in the general public’s hands (https://coinmarketcap.com/faq). In traditional exchanges, these are the total number of publicly traded stocks as opposed to locked-in stocks withheld by the company or shareholders. Circulating supply helps determine the total market value (market capitalization) of a cryptocurrency.

 

Maximum Supply – the total supply of cryptocurrency that will ever be produced. Most cryptocurrencies are deflationary in nature, i.e., they have a fixed supply. Bitcoin is set at 21 million BTC, while some premined coins such as Ripple has a maximum supply of 100 billion XRP, 55% of which is being held in escrow by the company.

 

Market Capitalization – The total market value of a cryptocurrency, determined by multiplying the circulating supply with the current market price of each coin or token. It’s the equivalent of a company’s total market value in a public exchange, which is also determined by multiplying the total number of outstanding shares with the market price of each share.