If you’re like a lot of people who are part of the recent cryptocurrency mining craze, you think you’re ready to take the leap and get going on mining. The only thing that is stopping you is that you have no clue what you should be mining. There’s over 100 different cryptocurrencies (and growing every day), each with their own technology, coin value, algorithm, proof type, and much much more! So, how the heck do we narrow it down to what we want to mine? Well, there are a few things we can and should be doing before even coming close to the decision to start mining a specific coin.

If you want to go for straight profit, then you’re in the wrong article. You’re looking for our Guide to Mining Profitability.

Proof of Work vs. Proof of Stake

The first thing we need to do is figure out if the coin we have in mind is even able to be mined. To do this, we look at the coin’s Proof Type which comes in two main ways: Proof of Work (mine able) and Proof of Stake (not mine able).

Proof of Work is an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. The concept may have been first presented by Cynthia Dwork and Moni Naor in a 1993 journal article.[1] The term “Proof of Work” or POW was first coined and formalized in a 1999 paper by Markus Jakobsson and Ari Juels.[2]An early example of the proof-of-work system used to give value to a currency is the Shell Money of the Solomon Islands. A key feature of these schemes is their asymmetry: the work must be moderately hard (but feasible) on the requester side but easy to check for the service provider. This idea is also known as a CPU cost function, client puzzle, computational puzzle or CPU pricing function. It is distinct from a CAPTCHA, which is intended for a human to solve quickly, rather than a computer. Proof of space (PoS) proposals apply the same principle by proving a dedicated amount of memory or disk space instead of CPU time. Proof of bandwidthapproaches have been discussed in the context of cryptocurrencyProof of ownership aims at proving that specific data are held by the prover.

Proof of Stake is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. Unlike proof-of-work (PoW) based cryptocurrencies (such as bitcoin), where the algorithm rewards participants who solve complicated cryptographical puzzles in order to validate transactions and create new blocks (i.e. mining), in PoS-based cryptocurrencies the creator of the next block is chosen in a deterministic (pseudo-random) way, and the chance that an account is chosen depends on its wealth (i.e. the stake). In PoS cryptocurrencies the blocks are usually said to be forged (in the blacksmith sense of this word), or minted, rather than mined. Also, usually all the coins are created in the beginning and the total number of coins never changes afterwards (although there are some other versions of PoS where new coins can be created). Therefore, in the basic version of PoS there are no block rewards (e.g. as in bitcoin); so, the forgers take only the transaction fees.[1]

So, if it is Proof of Stake, we can’t mine it with our rigs. It’s going to have to be Proof Of Work.

Doing Your Due Diligence

Just like how you would evaluate a stock before investing, we need to do the same thing with these cryptocurrencies. The only difference between evaluating a stock and evaluating a cryptocurrency is that you’ll be evaluating the viability of a technology instead of the stability and growth of a company. We’re in the extremely beginning stages of cryptocurrencies, so there’s not a whole lot of information to go off of. We have to dig a little bit deeper than if we were evaluating a company because not all of the information is readily available and reported on a quarterly basis. There is barely any history to reflect on for cryptocurrencies, but we have to work with what is available.

So, let’s get started. We are going to use Sia (or Siacoin) for this example, which we know is Proof Of Work.

Market Capitalization

Market Capitalization (or Market Cap) is the total value of the outstanding coin. To find this, we multiply the number of outstanding coin with the price per coin:

Outstanding Coin = 28,829,386,797
Price Per Coin: Ƀ 0.00000169
(28,829,386,797)(0.00000169) = 48,721.66 Ƀ ($201,369,072 USD)

So, Sia has a market cap of 48.72K Bitcoin or 201.3 million United States Dollars as of 9:20pm Pacific Time on 8/23/17. That is currently the 9th highest coin in terms of market cap. For comparison, Ethereum has the largest market cap out of all altcoins at Ƀ7.24 million ($29,922,920,000 USD). If we’re using the same standards as we would for a normal business, Ethereum would be considered a Large Cap Company (a company with a Market Cap greater than $10 Billion like Ford or Apple). Sia would be considered “Micro Cap”, falling into the range of $50 million to $300 million.

If you’re not familiar with the ranges:

  1. Nano Cap = <$50 million
  2. Micro Cap = $50 million to $300 million
  3. Small Cap = $300 million to $2 billion
  4. Mid Cap = $2 billion to $10 billion
  5. Large Cap = $10 billion+

The bigger you get, the less volatile it becomes, but you sacrifice room for growth. Micro caps are known to be risky with their high volatility compared to larger cap companies. So, we already know right away that Sia is most likely going to require a high risk tolerance, however it has a lot of room for growth. In the last 12 months, Siacoin is up 120%. Now, we can attribute this to the cryptocurrency boom back in March/April 2017, which initially had Siacoin up over 800% before setting back down at it’s current value.

What Does It Do?

Every cryptocurrency has a bigger technology behind it. For Siacoin, it is block-chain storage. Here’s a quick summary:

The foundation of Sia is a proof of work blockchain. Storage contracts are a new type of transaction that get enforced by the blockchain. Sia’s hashing algorithm is blake2b. p2pool and multisig wallets are both supported on Sia. When a file is uploaded to Sia, a storage contract is created containing the Merkle root of the file, a reward for the host, and a penalty for the host (both in siacoins). After an agreed-upon duration, the host is required to prove that the file is still available by providing a random Merkle proof. If the proof is valid, the host is rewarded; otherwise, the host is penalized.  Random numbers are generated deterministically using the most recent block as a seed.

Sia has support for two way payment channels, and two way contract diffs.  Among other things, this provides massive scalability, and eliminates the need for untrustworthy 0-confirmation transactions. Once you join a payment channel network, all transactions within that network will be instant and final, with no risk of a double spend.

Reliability is achieved by using erasure coding in a massively distributed environment. Erasure coding allows a file to be split into many pieces, such that the original file can be recovered using only a few of them. For example, you can take a 50 MB file, break it into 200 pieces that are 1 MB each, and then you can recover the original file from *any* 50 of the pieces. This method has the same overhead as creating 4 complete copies of the file, yet is much more reliable because it’s much less likely that 151 out of 200 hosts will go offline than it is that 4 out of 4 hosts will go offline.

As the network grows, we will apply statistical analysis to determine the redundancy required to provide 99.9999% reliability on files. It is likely that 3x overhead is absurd overkill, and statistical analysis will give an accurate picture of how much overhead is required.

Using 200 hosts to store a file means that downloads can be massively parallel. Even if the average Sia host does not have quick upload speeds, the massive parallelism enabled by Sia means that downloads will be blazing fast anyway.  In addition, you can choose to connect only to the datacenters that are the closest and the fastest. This optimization (known as a CDN) is a hugely expensive project for a traditional cloud storage service, but for Sia it is a natural consequence of the decentralized network.

As security is a top priority of Sia, all encryption is performed locally; the people storing your files will have no ability to see what you have uploaded.  Not only is every file encrypted separately, every *piece* of every file is encrypted separately, and hosts are not told which pieces are part of the same file.

Or you can read the full whitepaper.

Where Is It Going? What Is The End Goal?

The Sia developers have published a pulic roadmap on Trello. You can see where everything is headed, their progress, what needs to be done, and the timeframe for everything. It is all viewable here: Sia Public Roadmap

The Sia “Long Term Goal” is “to become the storage layer of the decentralized internet, ensuring privacy and redundancy through decentralization, and entirely replacing existing cloud storage providers”.

Any Competitors?

It is very important to evaluate potential competitors too. They can give you great insight to how big this technology can grow, how widely used it will be, the barrier to entry, and much more about the general industry. They will also give us a base to compare to.

Since Sia is in the online storage industry, we will consider other companies in the same industry to be competitors. Two companies immediately come to mind as front runners in the industry: Dropbox and Google Drive. It is good to compare at least 2 or 3 companies when doing your research. So, everything you learn about Sia, you should be comparing to Dropbox and Google Drive.

 

 

Last Updated 9/6/2017 – This guide is being continually updated and expanded on. Keep checking back for more updates on how to better vet cryptocurrencies and the developers behind them.

Related posts