The decentralization of Bitcoin is what enabled it to become so successful, but the concept behind it was much more complex than most of the currencies that came before it. For people just learning about digital currencies, the idea behind no centralized intermediary is hard to grasp. Instead of having a single entity handle all transactions on the network, there is a virtual ledger of each transaction that is handled peer to peer, known as the blockchain. Blockchain technology not only eliminates the need for centralization, but it also enables Bitcoin users to mine the coin. The blockchain is made up of individual blocks that are just a handful of pending transactions. When the coin is mined, the information of each transaction is encrypted and decrypted by computers that are doing the mining. Eventually the pending transaction will become confirmed and added to the blockchain. The process of mining rewards users for confirming transactions. Each time a sender makes a payment, there is a transaction fee that goes to the miner, which perpetuates the growing incentive to participate in mining. There is also a small portion of newly generated Bitcoin that is awarded to the miner as well, which has caused more people to be skeptical about mining for profit. At the beginning of the year, there were approximately seventeen million coins in circulation out of a possible total of twenty-one million (Statista 1). With Bitcoin’s recent success, more people are using it which means more transactions are being generated daily. But because each miner is profiting with Bitcoin that is brought into circulation, the amount that they receive must diminish over time. Satoshi Nakamoto foresaw this problem, and to handle it he programmed the reward rate to diminish based on the total number of coins in circulation, making the profitability a function of time; therefore, if one were to mine Bitcoin five years ago, they would be rewarded significantly more than if they were mining today (Eduardo 7). On top of that, the hardware that actually manages the encryption is becoming more expensive. ASICs, application specific integrated circuits, are designed for specific use. In the case of Bitcoin, these circuits are designed to maximize the efficiency of solving the algorithms required to mine. The manufacturers of these chips have recognized how profitable their product actually is, and because of that they are able to fluctuate the price of the entire mining industry. Graphics card, another piece of hardware used for mining, have also become increasingly expensive due to the surge in cryptocurrency users. In April of 2017, the Nvidia GeForce GTX 1060 was set at a retail price of $200, but just one year later, the price of that graphics card have more than doubled due to its high demand. The company that manufactures the card is failing to keep up with the demand because the mining industry purchases over half of their supply (Martindale 5). This has resulted in most enthusiasts to veer away from mining and investing in cryptocurrency, leaving wealthy businesses and server companies to mine in mass quantities. Most people who still have an interest in mining turn to renting out hardware from a mining company. These companies usually have large server farm with dedicated hardware and ASICs for the most efficient mining, but it still is a very expensive alternative.
With mining becoming impractical for a majority of crypto enthusiasts, people are investing in smaller cryptocurrencies known as altcoins. Altcoin investing is much more recent than Bitcoin, but it has proven to be just as profitable as Bitcoin was when it first started. An altcoin is essentially any cryptocurrency that is not Bitcoin, hence the name “alternative coin”. These coins, like Bitcoin, are all a form of digital cash that (generally) serve a more niche industry. For example, Basic Attention Token, a cryptocurrency priced at approximately twenty cents, is a blockchain-based altcoin that is used to sell advertisements on the Brave browser (BAT 2). The company that owns the browser made this coin in order to sell advertisements on their browser, but it also is used as a commonly traded coin. There are thousands of these coins listed on multiple exchange websites, and each has a unique purpose like Basic Attention Token. The appeal to these coins is not necessarily the technology behind it, though. Instead, investors purchase these coins due to the price per coin. Many altcoins are listed under a dollar for a single unit, making them analogous to penny stocks. However, those who invest large amounts into these coins believe that they are much safer because the technology behind each coin is progressive and will have some function in the world, which arguably makes them safer than penny stocks. Beyond that, decentralized coins immediately stand out because blockchain technology can potentially have many more uses in the future. This makes it a safer long term investment. The other component that makes altcoins profitable is the volatility for each cryptocurrency. In one day some coins can see a rise of five hundred percent while other days it can fall five hundred percent. Large risks like these deem the coins profitable with proper chart analysis and trading techniques. This is where the algorithmic trading bot comes into use.
For as long as I can remember, I’ve always been interested in computers and programming. When I was twelve, I built my first computer which really helped to further my interest in programming and computing hardware. About a year later, in 2013, I heard about Bitcoin through a geeky online forum that I’m an active member of. Many of the people that I knew from that site were involved in cryptocurrency, so I did more research and found myself trading with it that year, during which the price ranged from twenty to two-hundred dollars (BuyBitcoinWorldwide 1). Because so many members of that community had invested in Bitcoin, it was largely accepted as a form of payment for freelance work on that website. At the time I had been putting a majority of my birthday and Christmas money into Bitcoin and using it as an acceptable form of payment for my freelance graphic design work. During the same year, my dad was using his computer to mine Bitcoin because it was much more profitable and required less intensive hardware. I was able to learn the ins and outs of mining and became heavily involved in online communities that speculated the future of Bitcoin. The blockchain technology behind it rendered it to be a potentially successful coin, and I stuck with it for the years to follow. Eventually more cryptocurrencies were being launched following the success of Bitcoin’s traction. Exchange websites like Bittrex were being made to trade altcoins and the cryptocurrency industry skyrocketed with the
recent surge in Bitcoin’s price. The crypto world is slowly becoming more mainstream, and its untapped potential is just starting to be recognized throughout the world. This causes websites like exchange sites to grow faster, which makes trading easier and more accessible. As the exchange site that I use grew, they began to offer support for trading based on a script, similar to the bot that I am programming. The script would trade a certain coin based on a parameter that is chosen. For example, it could trade on six hundred second intervals and trade according to the moving average. These scripts led the most used exchange sites to support trading bots, which provide a lot more functionality and customization. The site that I’m using offers a precoded API that I can use in my code, and it also has instructions on how to implement the API for the most efficient means of generating profit.
I have been investing in alt coins for a little over a year, so I am very familiar with trends in altcoin and how it is affected by Bitcoin. There is a direct correlation between the price of Bitcoin in altcoin, making the trading of altcoin more predictable. The price of each altcoin is not measured in USD. Instead, each coin’s price is measured by its value compared to Bitcoin. Going back to the example of Basic Attention Token, the price of one coin is equivalent to twenty cents, but its really worth 0.00002813 BTC. By taking this number and multiplying it by the price of Bitcoin in USD, the USD price of Basic Attention Token can be calculated. Because of this, the altcoin and Bitcoin price are directly related. If Bitcoin were only worth a dollar, then Basic Attention Token is only worth 0.00002813 dollars. So when Bitcoin is doing well, the entire altcoin market does well (and vice versa). The algorithm that I am using to trade these coins is heavily influenced by this concept and trades more profitably when Bitcoin is doing well. The surge to twenty-thousand dollars in December was seen as an unhealthy growth for Bitcoin. The traction that it gained had carried over into its price per coin, and most traders knew it was only a matter of time before it bounced back down to the expected support level. But during the time that Bitcoin was experiencing record high prices, the altcoin market was flourishing. Many altcoins that were under a dollar jumped over ten dollars, proving that the altcoin market is just as profitable, if not more profitable, than Bitcoin itself.
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