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After the FTX scandal, many are wondering if cryptocurrency is just another scam fad that will pass with time. But despite the massive problems that exist in the world of cryptocurrency, there are still great technologies that could be very influential to the world in the future. So today, I wanted to focus on the cool technology behind Blockchain and explain why there is still hope for cryptocurrency in 2023.
What does ‘Cryptocurrency’ mean?
Cryptocurrency has become a catch all phrase that is used to describe any technology based on or documented using Blockchain methodology.
What is the Blockchain?
The Blockchain is a method for storing and documenting any type of data using using ‘blocks’ of data.
Each block of data serves 2 functions. It simultaneously stores it’s own data and validates the data of another block.
This method of data storage and data verification is done over and over again to create a ‘chain’ of blocks.
Once you have a block-chain of data that is large enough to represent multiple users, you have a block- chain network.
Are Bitcoin and Ethereum Blockchain Networks?
Yes. As mentioned above, Bitcoin and Ethereum are networks of Blockchain data where each block in the chain stores a piece of data and validates the data in another block.
There are 2 common methods of validating a block on the block chain. These methods are called Proof of Work and Proof of Stake.
What is Bitcoin?
Bitcoin was the first finance network that worked using Blockchain technology. Using a crypto wallet, you can store your any crypto currency purchased on the Blockchain and represent your ownership of that coin.
Why do you need a GPU or CPU to mine Bitcoin?
Each Bitcoin block is validated using a method called proof of work. The proof of work method requires computers to solve complex formulas to validate blocks inside the chain.
What is a crypto-wallet?
A crypto wallet is a digital technology used to store the certificates of ownership that are issued when you make a purchase on a blockchain network.
What is Ethereum?
Ethereum is the second most popular Blockchain network and is often used as the technological backbone for other decentralized finance applications like Polygon, AMP and more.
What is Proof of Stake?
Proof of Stake is the methodology that is most commonly used to validate blocks on a blockchain.
How does Proof of Stake work?
Proof of Stake works by asking a validator (a block or token on the network) to both validate a new block and validate existing blocks on the network.
As a reward, proof of Stake validators are often rewarded with a percentage of new tokens.
What is Proof of Work?
Proof of work refers to the validation process on a cryptocurrency network that is done by solving complex mathematical formulas.
The ‘mining’ of Bitcoin and other proof of work cryptocurrencies is done by computers with lots of graphical and computational power. As each block in a blockchain network is validated, there are rewards given to the validator of that block.
What is crypto-mining?
Cryptocurrency mining is the process of using graphics cards and CPUs to solve complex mathematical formulas in the pursuit of validating a block on a blockchain.
As of 2022, the only major blockchain technology Network that still uses proof of work to validate blocks is Bitcoin.
There are a limited number of bitcoins available, So eventually there will be no more Bitcoin left to validate through the proof of work validation method.
Is Bitcoin Mining Profitable?
Every few years, as more Bitcoin is mined through proof of stake, the rate of bitcoins awarded for validation is reduced in a method called halving.
What is halving?
Halving is the method by which the rewards for mining Bitcoin are cut in “half” as more validators are given rewards for validating the Blockchain.
The last significant “halving” event occurred in May 2020 when the reward for validating a Bitcoin block was reduced from 12.5 bitcoins per validation to 6.25 bitcoins per block validated.
When is the next Bitcoin halving?
Nobody knows for sure, but Bitcoin is expected to reduce the rate of returns more often as more bitcoins are validated on the Blockchain. The current rate for Bitcoin rewards is 6.25 bitcoins awarded for a block validation.
Is Bitcoin mining profitable?
The formula for profitability is [(current price of Bitcoin) X (current reward for validating a token) ] / [(cost of electricity to run a validator) * (validation speed of your equipment)]
Using the formula above, you can calculate the $ amount it will cost you to run a Bitcoin mine and see if the rewards you receive will be profitable.
For most consumers, Bitcoin mining is not a profitable investment because the computational power required to mine a Bitcoin is too expensive to purchase and too expensive to power to be profitable at the current Bitcoin price.
Some businesses may be able to turn a profit still in 2023 if they can qualify for business loans to help reduce the long-term cost of mining, can use cheap electricity to power their equipment, and can get access to bulk pricing of graphics cards and CPUs. But unfortunately, the current price of Bitcoin is not profitable anywhere in the continental US at the current price of graphics cards.
Like many other Blockchain technology investments, Bitcoin is risky and does not guarantee profitability. This article should not be seen as business, financial or legal advice and any risk incurred by investing in Bitcoin is your own.
What is Decentralized finance or DeFi?
Defi, or Decenfralized finance is the nickname the cryptocommunity has given to finance solutions that are provided with Blockchain technology.
Many consider Blockchain technology as a method for removing centralized banks and government currency controls from governing financial assets since the method for tracking purchases and assets is managed by the technology, not the bank.
Decentralized finance applications are referred to as DeFi Apps.
The term decentralized finance has grown with cryptocurrency to include services or products that are stored on the blockchain. The digital certificate of these products or services listed on a blockchain are called non-fungeable tokens or nfts.
What is an NFT?
Nft stands for non fungible token. And most often, and nft represents the certified ownership of a digital or physical good.
More and more often, non-fungible tokens are being used to represent digital art. For example on twitter, using blockchain technology you can own the profile picture used to represent your digital presence online.
Though non-fungeable tokens currently are used mainly to represent ownership of a digital product or digital service, it is speculated that businesses and governments will use nonfangible tokens to represent licenses, ownership deeds, and certificates of purchase.
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