How to Make Money with Bitcoin
How to Make Money with Bitcoin
There are plenty of ways to make money with Bitcoin outside of the traditional investment routes that you’ve probably had promoted to you ad nauseam by now.
As the old saying from the gold rush goes, “You can either mine for gold or you can sell pickaxes.” In this article, we’ll outline how to make money off Bitcoin using 4 different pickaxe strategies:
- Bitcoin websites
- Products & Services
The cryptocurrency industry is still relatively young, and there aren’t many resources online to learn more about it. As interest in Bitcoin continues to grow, the demand for cryptocurrency writers and content creators will increase with it.
As a cryptocurrency writer, you may be able to charge a premium for your services because of the complexity of the topics and the recent boom in popularity.
Beyond writing informational content, several blockchain product companies pay active forum contributors to promote their product across popular platforms like Reddit and Facebook.
Another strategy to make money from Bitcoin is by starting a Bitcoin website. Once again, you can provide relevant content to visitors on your site that focuses on anything from market trends and coin performance (like CoinMarketCap) to explanations of advanced trading strategies.
There’s an endless amount of possible website subjects.
With enough visitors to your site, you can monetize the traffic through referral links and advertisements.
Although not as popular as normal trading, some exchanges let you loan out your Bitcoin to other users. On Bitfinex and Poloniex, you can make money from your Bitcoin through margin funding.
When you margin fund, you provide Bitcoin to other traders who are making leveraged margin calls.
If you have a higher risk tolerance, you can take advantage of a program like SALT. SALT is a relatively new platform that provides cash loans when you give your cryptocurrency assets as collateral.
Using the lending program, you can take your cash loan and re-invest it into the crypto market with the goal of increasing your position before your loan expires. Once again, this is a risky strategy that may result in you losing both your loan and blockchain assets if the market does poorly.
Products & Services
As with any new industry, there’s ample opportunity to create products and services that fill a gap in the market. Whether it’s a portfolio tracking app, a new cryptocurrency, or even a blockchain-based game about cats, there’s plenty of options for you to choose.
The key to coming up with a great idea is by keeping your eyes and ears open to the pain points people (including yourself) are experiencing, and finding a way to address or circumvent them.
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What is DogeCoin
Dogecoin is a cryptocurrency featuring a Shiba Inu from the «Doge» Internet meme on its logo. It was introduced on December 8, 2013. Compared to other cryptocurrencies, Dogecoin has a fast initial coin production schedule: there will be approximately 100 billion coins in circulation by the end of 2014 with an additional 5.2 billion coins every year thereafter.
As of 10 October 2014, over 94 billion Dogecoins have been mined. While there are few mainstream commercial applications, the currency has gained traction as an Internet tipping system, in which social media users grant Dogecoin tips to other users for providing interesting or noteworthy content. Many members of the Dogecoin community, as well as members of other cryptocurrency communities, use the phrase «To the moon!» to describe the overall sentiment of the coin’s rising value.
Dogecoin was created by programmer Billy Markus from Portland, Oregon, who hoped to create a fun cryptocurrency that could reach a broader demographic than Bitcoin. In addition, he wanted to distance it from the controversial history behind Bitcoin, mainly its association with the Silk Road online drug marketplace. At the same time, Jackson Palmer, a member of Adobe Systems’ marketing department in Sydney, Australia, was encouraged on Twitter by a student at Front Range Community College to make the idea a reality.
What is bitcoin?
Bitcoin is a cryptocurrency created in 2009. Marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies.
Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2017.
Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.
Buy on an Exchange
Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. But security can be a concern: bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.
People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 12.5 bitcoins roughly every 10 minutes.
Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC.
Wallet in cloud: Servers have been hacked. Companies have fled with clients’ bitcoins.
Wallet on computer: You can accidentally delete them. Viruses could destroy them.
The anonymity of bitcoin
Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.
Bitcoin’s future in question
No one knows what will become of bitcoin. It is mostly unregulated, but some countries like Japan, China and Australia have begun weighing regulations. Governments are concerned about taxation and their lack of control over the currency.
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How Bitcoin Mining Works
Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn’t have a central government.
With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.
Bitcoin is Secure
Bitcoin miners help keep the Bitcoin network secure by approving transactions. Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure.
- We Use Coins — Learn all about crypto-currency.
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- Bitcoin Knowledge Podcast — Interviews with top people in Bitcoin
Bitcoin Mining Hardware Comparison
Currently, based on (1) price per hash and (2) electrical efficiency the best Bitcoin miner options are:
- Overview — Table of Contents
- Mining Hardware Comparison
- What is Bitcoin Mining?
- What is the Blockchain?
- What is Proof of Work?
- What is Bitcoin Mining Difficulty?
- The Computationally-Difficult Problem
- The Bitcoin Network Difficulty Metric
- The Block Reward
Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.
Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
What is Bitcoin Mining?
What is the Blockchain?
Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.
The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a «subsidy» of newly created coins.
This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.
Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
What is Proof of Work?
A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.
Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.
What is Bitcoin Mining Difficulty?
The Computationally-Difficult Problem
Bitcoin mining a block is difficult because the SHA-256 hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the network.
This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.
The Bitcoin Network Difficulty Metric
The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.
As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.
The Block Reward
When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply.
Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.
B-money was an early proposal created by Wei Dai for an «anonymous, distributed electronic cash system». Satoshi Nakamoto referenced b-money when creating Bitcoin. In his essay, published on the cypherpunks mailing-list in November 1998, Dai proposed two protocols. The first protocol is impractical as it requires a broadcast channel that is unjammable as well being synchronous.
In the first protocol in the essay, the use of a proof of work function is proposed as a means of creating money. Dai’s B-Money was proposed in the context of cypherpunks mailing-list discussions relating to possible applications of Hashcash, the first symmetric proof-of-work function, which was itself also published on the same mailing-list, the previous year — May 1997. (Like the B-money proposal, bitcoin itself also uses the hashcash cost-function as the proof-of-work during coin minting). In B-Money, money is transferred by broadcasting the transaction to all participants, all of whom keep accounts of all others. Contracts can be made with possible reparation in case of default, with a third party agreeing to be the arbitrator. If there is no agreement, each party broadcasts arguments or evidence in its favor and each of the participants determines the reparations/fines in his accounts for himself.
The second protocol has only a subset of the participants (the «servers») keeping accounts, which they have to publish, and the participants who do transactions verifying their balances by asking many of them. The participants also verify that the money supply is not being inflated. An amount of money as bail is required to become a server, which is lost if the server is found to be dishonest.
An alternate method of creating money is proposed, via an auction where participants bid on the solution of computational problems of known complexity.