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Crypto Academy

A short crash course on cryptocurrencies

Chapter 1 - Crypto

For some, crypto means the future of our financial system, for others they are intangible or even represent a threat. As an investor, you should understand cryptocurrencies, because their influence on the financial market will continue to increase in the next few years.

Basically, cryptocurrencies are a form of digital cash that allow people or companies to transfer value in a digital environment.

Currencies such as the euro or US dollar are also called fiat currencies. The latter are usually based on physical trading, the assets are backed by institutions and, in the case of a purely digital transfer, they are monitored centrally. Cryptocurrencies, on the other hand, are a new form of value exchange and are not issued by a central bank. They are based on decentralized blockchain technology.

“Every informed person should know about Bitcoin because it could be one of the most important developments in human history.” (Lean Louw, two-time Nobel Prize nominee)

The beginnings of blockchain technology go back to the 1970s. The basic idea behind various cryptography experiments was to create a decentralized database that enables tamper-proof digital entries through cryptographic encryption. The blockchain generates forgery-proof originals from digital data (e.g. account balances).

Banks would no longer be needed, at least for money transactions. While a bank stores data on central servers that can be manipulated and which only have a few backups on other servers, with cryptocurrencies a copy is stored on so many nodes that they are always available. Values ​​can be transferred virtually without permission without the intervention of third parties. Anyone with an internet connection can transfer money. This decentralization ensures that payment flows are completely automated. Money transactions will become cheaper, faster and more secure.

A blockchain is a very special type of database in which data can only be added, but not removed or changed. Data is added as a block. The blocks are linked into a chain (blockchain) and each block contains a unique fingerprint (hash) of the previous block. Changing individual blocks would mean that you would also have to change all subsequent blocks, which seems almost impossible since countless copies of the blockchain exist on nodes and are rejected in checks. On the other hand, if the node receives a valid block, it passes this information to the entire network.

“Bitcoin is a remarkable cryptographic achievement and the ability to create something in the digital world that cannot be duplicated can have enormous value.” (Eric Schmidt, former CEO Google)

There were already attempts with digital cash programs in the 1990s, but it wasn't until 2009 that the first cryptocurrency was released: Bitcoin. To date, the true identity of the creator, who goes by the pseudonym Satoshi Nakamoto, remains unknown.

Bitcoin triggered a real hype and gave rise to a large number of subsequent cryptocurrencies, at times more than 20,000 different ones, 90% of which were without Added value. Behind some successful cryptocurrencies are complex, state-of-the-art companies and technologies, mostly supported by well-known experts in the respective industries, all with the aim of creating real added value for the digital world.

At first glance, tokens and cryptocurrencies appear identical, as both are traded on exchanges and can be sent back and forth between blockchain addresses. While cryptocurrencies serve as money, a medium of exchange or a coin in which each unit is worth the same, a token can be used to implement a variety of decentralized applications and is therefore more flexible. Millions of identical tokens can be minted, which also serve as currency like cryptocurrencies, but individual ones can also have unique properties. They are conceivable as receipts, shares in companies or loyalty points.

A distinction is made between cold wallets, a specially developed hardware such as a ledger similar to a USB stick or an application on your PC / smartphone. Wallets basically contain a private key and the public key to your digital assets. Using a crypto wallet, you can store cryptocurrencies, send or receive money and record transactions.

Chapter 2 - Crypto Mining

Satoshi Nakamoto, the creator of Bitcoin, once proposed the so-called proof-of-work system, which would allow anyone to propose a block to attach to the blockchain. To advance this new block, users must sacrifice computing power to solve complex algorithms in order to ultimately be rewarded. It is a proven system for reaching consensus among users. In addition to Bitcoin, well-known cryptocurrencies such as Ethereum Classic, Litecoin, Dash and Kadena rely on proof-of-work.

This is countered by the proof-of-stake system, which Ethereum has joined since mid-September 2022. Since then, Ethereum can no longer be created by miners. Values ​​are built through the staking principle. You receive rewards by maintaining values ​​over a usually predefined period of time.

The proof-of-work process is called mining. If the miner finds a solution to a cryptographic puzzle (algorithm), the block he essentially built will extend the chain (blockchain). As a result, you receive a reward for your miner, the so-called block reward.

Well, it's not quite that simple. You don't create a block alone and you join a so-called mining pool. Thousands of miners pool their computing power and share the block reward.

Before we talk about mining hardware, it should be made clear at this point that it takes many times less electricity to produce a Bitcoin through mining than that same value in e.g. euros in banking. When selecting the mining method and hardware, however, the location with its local energy prices plays the biggest role when it comes to evaluating whether a miner mines profitably or not.

We will help you purchase suitable, powerful and at the same time efficient miner. So-called ASIC miners (Application Specific Integrated Circuit) are primarily used for this, which are designed precisely for such mining operations. At the same time, we know specialized data centers, so-called mining farms or mining hotels, to operate your mining hardware in an optimal environment with low energy costs.

In a mining pool, a large number of miners are joined together to form a common network. The aim is to generate the necessary hash rate, i.e. a bundled amount of computing power, in order to generate block rewards together.

These profits are then automated and distributed to the participants in the mining pool in accordance with the hash power used distributed. Bundling computing power also gives smaller miners the chance to get a piece of the cake. There are currently around a dozen relevant pools for currencies such as Bitcoin, Ethereum Classic, Litecoin and Kadena.

We recommend the F2Pool for Bitcoin, Etherium Classic and Kadena and NiceHash for Litecoin. We support our customers in setting up these mining pools.

The hash rate is a common metric in the area of ​​cryptocurrencies, where all types of data can be uniquely encoded and transferred using so-called hashes (a combination of numbers and digits). This is done on the basis of an algorithm such as the SHA-256 algorithm in Bitcoin. The hash rate (hash power) provides information about the computing power of miners and is given in hash per second (H/s). The greater the computing power of the crypto miner, the more calculations can be carried out per second to create a hash that is identical to the specific “nonce” (number used once) of a block. The block is then considered validated.

The mining difficulty is a variable value that describes the effort that must be provided within a network in order to create an additional block and attach it to the blockchain . The higher the difficulty, the more computing power has to be used for a block reward. It must also be continually adjusted so that the creation and validation of a block remains constant over time and no falsifications can occur in the network.

The acronym ASIC stands for Application Specific Integrated Circuit.

ASIC miners are high-performance computers that were designed only for the purpose of crypto mining and cannot be compared in any way with ordinary home computers or servers. An ASIC miner usually consists of several hashboards on which the ASIC chips are attached, passive heat sinks and a control board. The latter collects the data from the hashboards and connects the crypto miner to the Internet.

Special high-performance fans are required for sufficient cooling. Due to the high power consumption of the hashboards, a lot of waste heat is generated within the housing and its surroundings. Both the high energy consumption and the necessary air conditioning require the miners to be hosted in special mining farms.

There is no general answer to how long the lifespan of an ASIC miner is. We are planning for 3-5 years for ourselves, and there are many factors that come together here. Regular maintenance and care, a healthy indoor climate (warm exhaust air and cool supply air) and a stable power supply help to extend the life expectancy of an ASIC miner until one day the hash power is no longer sufficient to mine profitably.

ASIC miners are large, weigh up to 20kg, are extremely loud, they consume a lot of electricity and also get very warm during operation. So you can confidently say that a crypto miner is extremely unsuitable for placing in your own living room, basement or garage. In particular, the rising energy costs would not allow profitable crypto mining.

For the professional operation of an ASIC miner, an equally professional environment is required within the framework of special data centers that offer an optimal room climate as well as a stable, inexpensive power supply and a constant internet connection. In addition, trained personnel are available in the mining farms for services such as security, monitoring, cleaning, repair, etc.

The advantages of miner hosting in a suitable farm are not just cheap electricity and a secure infrastructure and regular maintenance. In particular, your contact with us as a personal contact with years of experience and expertise creates understanding, trust and confidence. We're here to help you whenever you need us.

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