What's the mining process, and why is it so important to the bulletproof portfolio strategy?

aotearoa (67)in #cryptocurrency • 7 years ago (edited)

On this second part of the series How to build a bulletproof cryptocurrency portfolio (101) we will talk about some serious mining companies.

bitcoin image.jpeg

Image Source: https://medium.com/@paladini/por-que-o-bitcoin-e-tao-importante-para-o-mundo-5fd789d9ce59

Mining is one of the most important parts of the blockchain and cryptocurrencies, since it's what backs up the scalability and security of the blockchain technology itself.

As illustrative (and educational purposes) and as descriptive purpose, I will use the Bitcoin mining process, which is based on the concept of Proof of Work aka POW.

Well, the mining process consists in the registration (and validation) of the Bitcoin`s transactions on the network. To be able to register and validate this transactions, one must have specialized computers (aka GPUs (graphic cards)), and download the bitcoin core software on this computer.

Those GPUs, will compete among all the Bitcoin's network to try to solve a really complex mathematical problem and, the reward for solving (and registering the solution of it on the blockchain network) is what gives miners to be rewarded with new Bitcoins. Bitcoin was designed to produce 12.5 BTC in each block, which is created in average every 10 minutes. Also as the way BTC was designed, every 2 years there's a process called halving, where BTC's 'production' is cut to half. The last halving took place in 2017, and the next one will probably take place in 2019. Also this problem is calibrated, so the BTC's 'production' rate keeps always the same (according to its original plan).

Image Source:

To view the current situation on BTC`s global mining stats, please refer to the link http://www.bitcoinblockhalf.com/

But one could ask the following question: What the heck is a block?

A block is a set of transactions that took place in the last 10 minutes on the Bitcoin's network. And blockchain is the series of blocks, where all blocks are tied to all the previous ones. That works as a ledger, and that's why the mining process has been so far incorruptible. This is what generates the security on the system, because if one wants to hack one block, this block will surely have to be validated and registered by a miner. So the only solution to hack the system is to hack all the computers on the network simultaneously (and also change all the previous blocks), to be able to be successful (which is almost impossible to be done). If one is not able to do those two things simultaneously, the fake block will surely be rejected by the miners. So this is the feature that provides security to blockchain system and to Bitcoin core's network.

blockchain image.png

Image Source: http://www.jenitennison.com/2015/05/21/blockchain.html

Regarding the bulletproof cryptourrency portfolio creation, in my opinion mining should be taken into account, because it's the easiest (and safest way) to earn any cryptocurrencies). As previously stated, one can buy one or more than one GPU and conduct its own mining operation at home if he will, but, in some cases, this is will probably not be a smart thing to do, since machinery and electrical power consumption will turn this operation impracticable.

The best way then (in my opinion), to be able to mine some coins, is through a mining pool (which will also require one to have the machinery) or through cloudmining companies.

Regarding the second category, one also must take care on which company(ies) will be the chosen ones, since there are many ponzy/pyramid schemes around.

A legit mining company is NOT ABLE TO GIVE OVER THAN 7-9% ON A MONTHLY BASIS, because of the costs previously mentioned. Also one must take into account the referral programs for the companies. Companies that give OVER THAN 5% bounty with its affiliate program will surely be scams. BEWARE!!!

I personally pur 25% of my total cryptocurrency portfolio on strong and reliable cloudmining companies, so I can help to bulletproof my portfolio (since the first quarted was allocated in coin stacking (as previously mentioned on the first section of this series of posts). I personally divide this 25% of the global portfolio money on those 3 companies.

Remember that the higher the ROI, the higher the risk is. So, according to this principle, mining helps a lot to bulletproof the portfolio, because its ROI is way lower than trading activities (which can give around 40 to 50% on a monthly basis (with the lowest leverage possible)).

So, that's it for now. On my next post I will start talking about legit cloudmining companies (Genesis Mining, Eobot and Plan-C), in complete tutorials for each one of those companies.

What's the mining process, and why is it so important to the bulletproof portfolio strategy?

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