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The economics of Bitcoin mining pools

The economics of Bitcoin mining pools submitted by bitireland to bitcoin_ireland [link] [comments]

My proposed theory of the economics of Bitcoin Mining and why mining for profit is not going to happen for the end consumer.

After investigating as many sites, stats, auctions, etc as I could find, I have a theory on what is happening:
With the advent of ASICs, companies have now captured control of something I don't think was meant to be captured. Specifically, ASIC manufacturers have a tremendous advantage to the public-at-large.
ASIC manufactures miners. When they declare a product, they open up pre-orders. The pre-orders pay for the manufacturing...AKA NO RISK. They project the difficulty by hiring someone to investigate pipelines with competitors to calculate the price they should charge for their units and do maybe a 5 or 10% profitability to the end consumer. So, with this price, you can somewhat calculate the ACTUAL delivery date of the product. Namely, look for what the difficulty would need to be for you to make a 10% profit...use that number to back into the date.
Here is the painful part. Now, imagine you the end user wants to do this...you have one unknown. The actual date when the unit is available and just how many are there. Because burn-in allows the company to earn BTC, they simply have a QA. In most dev orgs, QA is a sunk cost of development. But in this case, QA is actually profitable!
Wanna really screw with the manufacturers, let the IRS know because it is likely they are taking the R&D write-offs but not declaring the profits earned in BTC while they are testing.
SO, as I mentioned once before in a more venting manner, the ASIC manufacturers have found a way to take over BTC production and effectively gain the largest share of coins. They do it in the lab with equipment paid in pre-orders without risk of development, that has already been sold and ready to deliver to a willing customer. Its like buying a new car, disconnecting the odometer, using it for 50,000 miles as a taxi cab driver making the profits for that mileage, and then selling it as new to the used car customer.
submitted by AureliusBP to BitcoinMining [link] [comments]

The Economics of Bitcoin Mining

The Economics of Bitcoin Mining submitted by thussprach to Bitcoin [link] [comments]

The Economics of Bitcoin Mining, or, Bitcoin in the Presence of Adversaries [PDF]

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The Economics of Bitcoin Mining

The Economics of Bitcoin Mining submitted by BitcoinAllBot to BitcoinAll [link] [comments]

The economics of Bitcoin mining

The economics of Bitcoin mining submitted by properal to btc [link] [comments]

Princeton University: The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries

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The Economics of Bitcoin Mining Centralization

The Economics of Bitcoin Mining Centralization submitted by vlarocca to Bitcoin [link] [comments]

The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries (WEIS 2013 paper)

submitted by Fredfin to programming [link] [comments]

Economic viability of bitcoin mining using a renewable-based SOFC power system to supply the ... (current BTC/USD price is $9,702.08)

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Hijacking Bitcoin: Routing Attacks on Cryptocurrencies

arXiv:1605.07524
Date: 2017-03-24
Author(s): Maria Apostolaki, Aviv Zohar, Laurent Vanbever

Link to Paper


Abstract
As the most successful cryptocurrency to date, Bitcoin constitutes a target of choice for attackers. While many attack vectors have already been uncovered, one important vector has been left out though: attacking the currency via the Internet routing infrastructure itself. Indeed, by manipulating routing advertisements (BGP hijacks) or by naturally intercepting traffic, Autonomous Systems (ASes) can intercept and manipulate a large fraction of Bitcoin traffic. This paper presents the first taxonomy of routing attacks and their impact on Bitcoin, considering both small-scale attacks, targeting individual nodes, and large-scale attacks, targeting the network as a whole. While challenging, we show that two key properties make routing attacks practical: (i) the efficiency of routing manipulation; and (ii) the significant centralization of Bitcoin in terms of mining and routing. Specifically, we find that any network attacker can hijack few (<100) BGP prefixes to isolate ~50% of the mining power---even when considering that mining pools are heavily multi-homed. We also show that on-path network attackers can considerably slow down block propagation by interfering with few key Bitcoin messages. We demonstrate the feasibility of each attack against the deployed Bitcoin software. We also quantify their effectiveness on the current Bitcoin topology using data collected from a Bitcoin supernode combined with BGP routing data. The potential damage to Bitcoin is worrying. By isolating parts of the network or delaying block propagation, attackers can cause a significant amount of mining power to be wasted, leading to revenue losses and enabling a wide range of exploits such as double spending. To prevent such effects in practice, we provide both short and long-term countermeasures, some of which can be deployed immediately.

References
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submitted by dj-gutz to myrXiv [link] [comments]

Bitcoin miners won't upgrade to BU or Segwit until market forces make it an imperative

I want to talk about the economics of bitcoin mining for a bit. I hear a lot of confusion and debate about why it's taking so long to move bitcoin forwards, regardless of what path it takes, and there some important economic factors that I think help to explain it.
Miners can't afford to think about the future. A lot of miners are operating on very thin margins, in many cases buying the hardware they use to mine with loans to be paid by those same machines. In some cases it gets worse, they pre-sell bitcoins to be mined, so even if the value goes up, they may not reap all the benefits. This forces them to be very concerned about bitcoin's price today, and next week, much more so than in five years, or even one year. In order to survive they must be focused on the very near term. It can also place an oversized emphasis on tx fees.
Yes. Transaction fees matter. Yes, I know it represents a fraction of the reward for mining a block, but in arrangements like the one above that's where the profit is. They have to make sure the machines they already have running are going to pay for themselves, before the next antminer comes out and the global hash rate jumps again. It's a competitive marketplace, and that forces margins way down.
The point is that even if they are true bitcoin believers, and you need to be to get into the business in the first place, their thinking is driven by the need to stay in business, so they're going to prefer whatever guarantees their profits. If there were only one proposal overwhelmingly supported by all parties it might be different, but as it is they have every incentive to do nothing at all until they are forced to choose.
It's a testament to bitcoin's strength that even as hampered as the network is we're still seeing massive growth in the price of bitcoin. But miners will continue doing exactly what they've been doing right up until the moment where they stop making money, and then the network will upgrade. Probably after a big correction/crash that sees a lot of smaller miners selling off their hardware to larger pools who are able to reach consensus. As long as the price keeps going up though, it'll stay like this. I don't know how big the correction/crash will have to be to force a change, but until then this is what we get.
submitted by Twoehy to btc [link] [comments]

Bitcoin-NG: A Scalable Blockchain Protocol

arXiv:1510.02037
Date: 2015-11-11
Author(s): Ittay Eyal, Adem Efe Gencer, Emin Gun Sirer, Robbert van Renesse

Link to Paper


Abstract
Cryptocurrencies, based on and led by Bitcoin, have shown promise as infrastructure for pseudonymous online payments, cheap remittance, trustless digital asset exchange, and smart contracts. However, Bitcoin-derived blockchain protocols have inherent scalability limits that trade-off between throughput and latency and withhold the realization of this potential.This paper presents Bitcoin-NG, a new blockchain protocol designed to scale. Based on Bitcoin's blockchain protocol, Bitcoin-NG is Byzantine fault tolerant, is robust to extreme churn, and shares the same trust model obviating qualitative changes to the ecosystem.In addition to Bitcoin-NG, we introduce several novel metrics of interest in quantifying the security and efficiency of Bitcoin-like blockchain protocols. We implement Bitcoin-NG and perform large-scale experiments at 15% the size of the operational Bitcoin system, using unchanged clients of both protocols. These experiments demonstrate that Bitcoin-NG scales optimally, with bandwidth limited only by the capacity of the individual nodes and latency limited only by the propagation time of the network.

References
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submitted by dj-gutz to myrXiv [link] [comments]

Personalized Difficulty Adjustment for Countering the Double-Spending Attack in Proof-of-Work Consensus Protocols

arXiv:1807.02933
Date: 2018-07-09
Author(s): Chi-Ning Chou, Yu-Jing Lin, Ren Chen, Hsiu-Yao Chang, I-Ping Tu, Shih-wei Liao

Link to Paper


Abstract
Bitcoin is the first secure decentralized electronic currency system. However, it is known to be inefficient due to its proof-of-work (PoW) consensus algorithm and has the potential hazard of double spending. In this paper, we aim to reduce the probability of double spending by decreasing the probability of consecutive winning. We first formalize a PoW-based decentralized secure network model in order to present a quantitative analysis. Next, to resolve the risk of double spending, we propose the personalized difficulty adjustment (PDA) mechanism which modifies the difficulty of each participant such that those who win more blocks in the past few rounds have a smaller probability to win in the next round. To analyze the performance of the PDA mechanism, we observe that the system can be modeled by a high-order Markov chain. Finally, we show that PDA effectively decreases the probability of consecutive winning and results in a more trustworthy PoW-based system.

References
[1] Satoshi Nakamoto, “Bitcoin: A peer-to-peer electronic cash system,” Consulted, vol. 1, no. 2012.
[2] Ephraim Feig, “A framework for blockchain-based applications,” arXiv preprint arXiv:1803.00892, 2018.
[3] Marta Piekarska Harry Halpin, “Introduction to security and privacy on the blockchain,” in Symposium on Security and Privacy Workshops, 2017 IEEE European Symposium on. IEEE, 2017.
[4] Ayelet Sapirshtein, Yonatan Sompolinsky, and Aviv Zohar, “Optimal selfish mining strategies in bitcoin,” in Financial Cryptography and Data Security. 2017, pp. 515–532, Springer.
[5] Ghassan Karame, Elli Androulaki, and Srdjan Capkun, “Two bitcoins at the price of one? double-spending attacks on fast payments in bitcoin.,” IACR Cryptology ePrint Archive, vol. 2012.
[6] Ghassan O Karame, Elli Androulaki, Marc Roeschlin, Arthur Gervais, and Srdjan Capkun, “Misbehavior in bitcoin: A study ˇ of double-spending and accountability,” ACM Transactions on Information and System Security (TISSEC), vol. 18, no. 1.
[7] Tobias Bamert, Christian Decker, Lennart Elsen, Roger Wattenhofer, and Samuel Welten, “Have a snack, pay with bitcoins,” in Peer-to-Peer Computing (P2P), 2013 IEEE Thirteenth International Conference on. IEEE, 2013, pp. 1–5.
[8] Chrysoula Stathakopoulou, “A faster bitcoin network,” 2015.
[9] Adrian E Raftery, “A model for high-order markov chains,” Journal of the Royal Statistical Society. Series B (Methodological), pp. 528–539, 1985.
[10] Andre Berchtold and Adrian E Raftery, “The mixture tran- ´sition distribution model for high-order markov chains and non-gaussian time series,” Statistical Science, pp. 328–356, 2002.
[11] Waiki Ching, Michael K Ng, and Shuqin Zhang, “On computation with higher-order markov chains,” in Current Trends in High Performance Computing and Its Applications, pp. 15–24. Springer, 2005.
[12] Michael K Ng and WK Ching, Markov Chains: Models, Algorithms and Applications, Springer, 2006.
[13] Wen Li and Michael K Ng, “On the limiting probability distribution of a transition probability tensor,” Linear and Multilinear Algebra, vol. 62, no. 3.
[14] Jen-Hung Tseng, Yen-Chih Liao, Bin Chong, and Shih-Wei Liao, “Governance on the drug supply chain via gcoin blockchain,” International Journal of Environmental Research and Public Health, 2018.
[15] Shih-Wei Liao, Boyu Lin, and En-Ran Zhou, “Gcoin:wiki, code and whitepaper,” https://g-coin.org and github.com/OpenNetworking/gcoin-community/wiki/Gcoinwhite-paper-English, 2014.
[16] Meni Rosenfeld, “Analysis of hashrate-based double spending,” arXiv preprint arXiv:1402.2009, 2014.
[17] Joshua A Kroll, Ian C Davey, and Edward W Felten, “The economics of bitcoin mining, or bitcoin in the presence of adversaries,” in Proceedings of WEIS, 2013, vol. 2013.
submitted by dj-gutz to myrXiv [link] [comments]

Pitchforks in Cryptocurrencies: Enforcing rule changes through offensive forking- and consensus techniques

Cryptology ePrint Archive: Report 2018/836
Date: 2018-09-05
Author(s): Aljosha Judmayer, Nicholas Stifter, Philipp Schindler, Edgar Weippl

Link to Paper


Abstract
The increasing number of cryptocurrencies, as well as the rising number of actors within each single cryptocurrency, inevitably leads to tensions between the respective communities. As with open source projects, (protocol) forks are often the result of broad disagreement. Usually, after a permanent fork both communities ``mine'' their own business and the conflict is resolved. But what if this is not the case? In this paper, we outline the possibility of malicious forking and consensus techniques that aim at destroying the other branch of a protocol fork. Thereby, we illustrate how merged mining can be used as an attack method against a permissionless PoW cryptocurrency, which itself involuntarily serves as the parent chain for an attacking merge mined branch of a hard fork.

References
  1. J. Bonneau. Why buy when you can rent? bribery attacks on bitcoin consensus. In BITCOIN ’16: Proceedings of the 3rd Workshop on Bitcoin and Blockchain Research, February 2016.
  2. J. Bonneau. Hostile blockchain takeovers (short paper). In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
  3. K. Croman, C. Decker, I. Eyal, A. E. Gencer, A. Juels, A. Kosba, A. Miller, P. Saxena, E. Shi, and E. G¨un. On scaling decentralized blockchains. In 3rd Workshop on Bitcoin and Blockchain Research, Financial Cryptography 16, 2016.
  4. I. Eyal, A. E. Gencer, E. G. Sirer, and R. van Renesse. Bitcoin-ng: A scalable blockchain protocol. In 13th USENIX Security Symposium on Networked Systems Design and Implementation (NSDI’16). USENIX Association, Mar 2016.
  5. I. Eyal and E. G. Sirer. Majority is not enough: Bitcoin mining is vulnerable. In Financial Cryptography and Data Security, pages 436–454. Springer, 2014.
  6. A. Gervais, G. O. Karame, K. W¨ust, V. Glykantzis, H. Ritzdo rf, and S. Capkun. On the security and performance of proof of work blockchains. In Proceedings of the 2016 ACM SIGSAC, pages 3–16. ACM, 2016.
  7. A. Judmayer, A. Zamyatin, N. Stifter, A. G. Voyiatzis, and E. Weippl. Merged mining: Curse or cure? In CBT’17: Proceedings of the International Workshop on Cryptocurrencies and Blockchain Technology, Sep 2017.
  8. A. Kiayias, A. Miller, and D. Zindros. Non-interactive proofs of proof-of-work. Cryptology ePrint Archive, Report 2017/963, 2017. Accessed:2017-10-03.
  9. J. A. Kroll, I. C. Davey, and E. W. Felten. The economics of bitcoin mining, or bitcoin in the presence of adversaries. In Proceedings of WEIS, volume 2013, page 11, 2013.
  10. K. Liao and J. Katz. Incentivizing blockchain forks via whale transactions. In International Conference on Financial Cryptography and Data Security, pages 264–279. Springer, 2017.
  11. P. McCorry, A. Hicks, and S. Meiklejohn. Smart contracts for bribing miners. In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
  12. Narayanan, Arvind and Bonneau, Joseph and Felten, Edward and Miller, Andrew and Goldfeder, Steven. Bitcoin and cryptocurrency technologies. http://bitcoinbook.cs.princeton.edu/, 2016. Accessed: 2016-03-29.
  13. K. Nayak, S. Kumar, A. Miller, and E. Shi. Stubborn mining: Generalizing selfish mining and combining with an eclipse attack. In 1st IEEE European Symposium on Security and Privacy, 2016. IEEE, 2016.
  14. J. Teutsch, S. Jain, and P. Saxena. When cryptocurrencies mine their own business. In Financial Cryptography and Data Security (FC 2016), Feb 2016.
  15. Y. Velner, J. Teutsch, and L. Luu. Smart contracts make bitcoin mining pools vulnerable. In International Conference on Financial Cryptography and Data Security, pages 298–316. Springer, 2017.
  16. A. Zamyatin, N. Stifter, A. Judmayer, P. Schindler, E. Weippl, and W. J. Knottebelt. (Short Paper) A Wild Velvet Fork Appears! Inclusive Blockchain Protocol Changes in Practice. In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
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An Incentive Analysis of some Bitcoin Fee Designs

arXiv:1811.02351
Date: 2018-11-11
Author(s): Andrew Chi-Chih Yao

Link to Paper


Abstract
In the Bitcoin system, miners are incentivized to join the system and validate transactions through fees paid by the users. A simple "pay your bid" auction has been employed to determine the transaction fees. Recently, Lavi, Sattath and Zohar [LSZ17] proposed an alternative fee design, called the monopolistic price (MP) mechanism, aimed at improving the revenue for the miners. Although MP is not strictly incentive compatible (IC), they studied how close to IC the mechanism is for iid distributions, and conjectured that it is nearly IC asymptotically based on extensive simulations and some analysis. In this paper, we prove that the MP mechanism is nearly incentive compatible for any iid distribution as the number of users grows large. This holds true with respect to other attacks such as splitting bids. We also prove a conjecture in [LSZ17] that MP dominates the RSOP auction in revenue (originally defined in Goldberg et al. [GHKSW06] for digital goods). These results lend support to MP as a Bitcoin fee design candidate. Additionally, we explore some possible intrinsic correlations between incentive compatibility and revenue in general.

References
[1] M. Babaioff M, S. Dobzinski, S. Oren and A. Zohar. On Bitcoin and red balloons. In ACM Conference on Electronic Commerce, EC ’12, Valencia, Spain, 2012, pages 56-73.
[2] J. Bonneau. Why buy them when you can rent- bribery attacks on Bitcoin-style consensus. In Financial Cryptograpphy and Data Security - FC 2016 International Workshops, BITCOIN, VOTING and WAHC, Christ Church, Barbados, 2016. Revised Selected Papers, pages 19-26.
[3] M. Carlsten, H. A. Kalodner, S. M. Weinberg nd A. Narayanan. On the instability of Bitcoin without the block reward. In Proceedings of the 2016 ACM SIGSAC Conference on Computer and Communications Security, Vienna, Austria, 2016, pages 154-167.
[4] A. V. Goldberg, J. D. Hartline and A. Wright. Competitive auctions and digital goods. In Proceedings of SODA 2001, pages 735-744
[5] A. V. Goldberg, J. D. Hartline, A. R. Karlin, M. E. Saks and A. Wright. Competative auctions. Games and Econommic Behavior, 55(2): 242-269, 2006.
[6] J. K. Kroll, I. C. Davey and E. W. Felten. The economics of Bitcoin mining, or Bitcoin in the resence of adversaries. In Proceedings of WEIS, Volume 2013.
[7] G. Huberman, J. D. Leshno and C. C. Moallemi. Monopoly without a monopolist: An economic analysis of the Bitcoin payment system. https://ssrn.com/abstract=3025604, 2017
[8] R. Lavi, O. Sattath and A. Zohar. Redesigning Bitcoin’s fee market. arXiv: 1709.08881v1 [cs.CR] 26 Sep 2017.
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Bitcoin Q&A: The Economics of Mining Pools - Andreas Antonopoulos

Bitcoin Q&A: The Economics of Mining Pools - Andreas Antonopoulos submitted by LightningPlus to Bitcoin [link] [comments]

Summary of Block size debate. What did I miss?

I think we're far enough into the debate now to understand the arguments from both sides. This is going to massively generalize the opinions into 2 categories, moderates and extremists.
Extremist anti's are against any change in protocol that would affect the economics of Bitcoin mining. The thing to understand about this small group of people is that they probably control a larger portion of mining power than the other groups. Their costs for network bandwidth and speed and their percentage of orphaned blocks (if they don't self limit) will increase. They are invested with the understanding of the current economics of scale. When the blocks start filling up people will pay to go first. The day when fees replace the subsidy is looked forward to by every Bitcoin miner. It is simply more profitable for them to live in a world of scarcity than abundance. This has to be addressed or some faction of miners WILL disrupt any attempt at a fork.
Moderate anti's have a significant problem with 20MB right off the bat, one time, see what happens, proposal. These antis seem to be much more comfortable with 8MB now that some math and a stress test has been performed. This is good progress towards consensus. While these anti's are concerned about Bitcoin's scalability, they do worry about disrupting the delicate economics of Bitcoin.
Those who are for the block size increase are rightfully concerned with scalability in a world where consumer level payment processors handle insane levels of transactions per second. In a perfect world Bitcoin would out class them and we'd live in a world with a single universal uncorruptible money.
These are the extremists of the pro debate. Their Bitcoin investment seems to depend on Bitcoin eventually being this universal global payment processor, handling every cup of coffee and international forex simultaneously. Their investment in Bitcoin seems to rest on it doing everything and so we must rush to compete with Visa and Paypal.
The moderates of the pro debate understand that like any protocol other protocols may be built on top of it and so Bitcoin doesn't need to be everything to everyone. However, it does need be possible for Bitcoin to grow at some pace. Hardware and networking will continue to improve and so we inevitably will see some increase. These individuals simply want to focus on when and how much is appropriate.
We desperately need to move past this and get on with discussions about adding side-chaining or tree-chaining. Have I missed anything?
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Bitcoin Q&A: The economics of mining pools | Blockchained.news

Bitcoin Q&A: The economics of mining pools | Blockchained.news submitted by Thornsb to BLOCKCHAINEDNews [link] [comments]

AANTONOP: Bitcoin Q&A: The economics of mining pools

AANTONOP: Bitcoin Q&A: The economics of mining pools submitted by sexyama to crypto_currency [link] [comments]

aantonop - Bitcoin Q&A: The economics of mining pools

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[VIDEO] by Andreas Antonopoulos Bitcoin Q&A: The economics of mining pools

[VIDEO] by Andreas Antonopoulos Bitcoin Q&A: The economics of mining pools submitted by a36 to AllThingsCrypto [link] [comments]

What Is Bitcoin Mining? A complete guide Is mining Bitcoin profitable? Basic economics of cryptocurrency mining (Excel) Samson Mow  Bitcoin Mining Today  Consensus: Distributed 2020 Bitcoin Economics Explained - Is Bitcoin For the Poor or Rich? Are Babies Dying? Bitcoin Q&A The economics of mining pools

Bitcoin mining centralization has been a point of concern in the community for a while now. People are worried that the growing size of mining firms will continue until one of them attains 51% or The economics of mining Bitcoin Stefan Dorresteijn. Nov 22 '17 Updated on Feb 25, 2020 ・4 min read. #bitcoin #cryptocurrency #mining. CryptoCurrency has been getting a lot of attention in mainstream media lately, leading to a large influx of people wanting to get in on the action. As a co-founder of a CryptoCurrency index fund, a blockchain Bitcoin is a new technology and as such there is little to tell us at what point the spread between the price of Bitcoin and the cost of mining will force a correction. Tracing the source Just like your phone and your computer, the production of Bitcoins is driven by economics. This article aims to break down the various factors so you understand Bitcoin better. Like many things you own, most of the bitcoin in your wallet was probably made in China. In fact, more than half of the world’s hashing power is concentrated in China, held by the biggest mining Also read: Bitcoin Mining vs Gold Mining: A Comparison. Because of the dangers associated with bitcoin mining centralization, community members have demanded a solution to growing mining firms. They say that, of course, the most ideal solution would be a change to the Bitcoin protocol that would place some kind of limit on the size of mining firms.

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What Is Bitcoin Mining? A complete guide

We want to put bitcoin in a wider perspective, to reflect on what it means for society, politics and economics, as well as how it helps us think about money both a social and a technical phenomenon. Since the scrapping of banking ban on cryptocurrency, crypto mining in India has been a growing industry. It is the process of processing transactions and adding them to the blockchain. Verifying ... There are many people that understand the computer science aspects of Bitcoin and cryptocurrencies but fail to understand the economics and economic impact that it could have on the world if it ... Today we investigate some simple economics of blockchain regarding mining difficulty and hashrate and the profitability of mining using various ASICs on three blockchains. The next video is starting stop. Loading...

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