Cryptocurrency Mining For Dummies. Peter KentЧитать онлайн книгу.
tied to those transactions via AML (anti-money laundering) and KYC (know your customer) data collection procedures required by law in the United States (and other countries). They’ll have the address that the exchange used to store those Bitcoin, right? Well, now they can trace the transactions from that address through the blockchain using a blockchain explorer. And different addresses can be associated with each other in certain ways, so it would be possible for someone with the information — a tax authority, for example, or police agency — from a single starting point, to create a picture of a person’s Bitcoin transactions. So, Bitcoin as it is commonly used today is not fully anonymous. Other currencies, such as Monero or Zcash, claim to get much closer to true anonymity. However, improvements to Bitcoin, such as conjoin and Layer 2, are likely to make Bitcoin more anonymous in the future.
So that’s the crypto in cryptocurrency! You can control money in the blockchain anonymously through the use of cryptography, using public and private key pairs and associated addresses, by cryptographically signing messages.
The Basic Components of Cryptocurrency
The following sections take a look at how the basic components of cryptocurrency fit together.
What’s in a wallet?
The wallet is where everything begins as far as your cryptocurrency is concerned. When you create a wallet file, the wallet software will create a private key. That private key is used to create a public key, and the public key is used to create an address. The address has never before existed in the blockchain and still doesn’t exist in the blockchain yet.
After you have an address, you have a way to store cryptocurrency. You can give the address to someone from whom you’re buying cryptocurrency or an exchange, for example, and they can send the cryptocurrency to that address — in other words, they send a message to the blockchain saying “Send x amount of crypto to address x.” Now the address exists in the blockchain, and it has cryptocurrency associated with it.
A wallet program is a messaging program that stores your keys and addresses in a wallet file. The wallet program does these primary things:
It retrieves data from the blockchain about your transactions and balance.
It sends messages to the blockchain transferring your crypto from your addresses to other addresses, such as when you make a purchase using your cryptocurrency.
It creates addresses you can give to other people when they need to send cryptocurrency to you.
Private keys create public keys
The private key in your wallet is used to create the public key that is used to unencrypt your messages sent to the blockchain. Private keys must be kept private; anyone with access to the private key has access to your money in the blockchain.
Public keys create blockchain addresses
Public keys are also used to create addresses. The first time an address is used, someone’s wallet software sends a message to the blockchain saying “Send x amount of cryptocurrency to address x from address y.” Until this point, the address did not exist in the blockchain. After the wallet software has sent the message, though, the address is in the blockchain, and money is associated with it.
The private key controls the address
The private key controlling the address is a hugely critical concept in cryptocurrency, and people who lose access to their cryptocurrency, or have their cryptocurrency stolen, don’t understand this (see Figure 1-4). In this book, we won’t be going into detail about protecting private keys, but make sure you protect your private keys! Don’t lose them and don’t let other people discover them!
FIGURE 1-4: The cryptocurrency is associated with an address in the blockchain; the address is derived from the public key, which is associated with a private key … which is kept safe in a wallet.
“FORKING” CRYPTOCURRENCIES
A fork occurs when one cryptocurrency splits into two. That is, the network nodes fall out of consensus, and a copy is made of the cryptocurrency software, a change is made to the copy, and the two different software sets then build separate blockchains Thus, for example, in January 2015, a copy of the DASH code, named DNET, was made. Both DASH and DNET then continued development as separate cryptocurrencies, and DNET was later renamed PIVX (Private Instant Verified Transaction).
Where Does Crypto Come From? The Crypto Mines (Sometimes)
So where does cryptocurrency come from? Cryptocurrency can be mined – the least common form, though the one you’re evidently most interested in based on your interest in this book — or it can be pre-mined.
To say that a cryptocurrency has been pre-mined, or is nonmineable, simply means that the cryptocurrency already exists. The blockchain is a ledger containing information about transactions. When the blockchain was first created, the ledger already contained a record of all the cryptocurrency that the founders planned for. No more will be added; it’s all there in the blockchain already.
In fact, although we hear a lot about cryptocurrency mining, the majority of cryptocurrencies (at the time of writing, more than 2,000 different flavors) are pre-mined: 74 or so of the top 100 cryptocurrencies are nonmineable, and overall, around 70 percent of all cryptocurrencies cannot be mined.
An example of a pre-mined currency is XRP, often known as Ripple, which is currently the second biggest cryptocurrency (in terms of market capitalization — that is, the value of all the cryptocurrency in circulation). XRP is stored within the RippleNet blockchain.
When the Ripple blockchain was created, 100 billion XRP were already recorded in the blockchain, although most had not been distributed. The founders of Ripple held 20 percent, and even now almost 60 percent of the currency is not in circulation.
Another example is Stellar, a payment network originally funded by the Stripe payment service, which at the time of writing was the fourth largest cryptocurrency. Stellar has a total supply of more than 100 billion lumens, 2 percent of which were assigned to Stripe for its investment.
So, no, not all cryptocurrencies can be mined (in fact, most can’t). But that’s not why you’re reading this book, now, is it?
The good news, though, is that you can mine around 600 cryptocurrencies (though you’ll never want to mine the vast majority). To decide which ones to mine, see Chapter 8.
Chapter 2
Understanding Cryptocurrency Mining
IN THIS CHAPTER
