What is a mining algorithm and why is it important?

To make mining really profitable and choose the right hardware, you need to understand the processes underlying cryptocurrency mining and, in particular, the data cryptocurrency algorithms. What is a Cryptocurrency algorithm, what is it for and what type of currency is best to mine?

Consensus principle in blockchain networks

Before moving on to an overview of the algorithms, it is worth considering their role in confirming network transactions. The main problem of electronic settlement systems is double spend, in centralized networks, the double spend is eliminated by the administrator checking the user's previous transaction data, but what if there is no administrator?

Since each member of the network can add a record to the blockchain in order to avoid settlement by the same means, the principle is used over and over again. blow.

What is PoW? Literally, this is proof of the work done. That is, when a record enters a new block, it is encrypted according to a certain algorithm, and miners must decrypt it, i.e. solve a math problem. After completing this work, the network receives a command that the record is genuine and can be entered into the blockchain.

Thus, the theoretical possibility for the user to send several transactions, paying with the same currency, was leveled, since after processing the first record, the second is automatically invalidated by the network.

The principle is considered more recent PoS – proof of ownership, in which transactions are confirmed by nodes who have coins in their account and the more coins, the greater the likelihood of confirmation.

That is, there is no need to solve problems and spend energy and time on it. The main problem with PoS is that market participants constantly strive to hold coins in order to increase the probability of collecting blocks rather than using them, which is contrary to the essence of payment systems.

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Algorithm concept

What is the algorithm for, we found, but what is it for? Actually, an algorithm is a set of rules by which a transaction is encrypted (information about the owners and the amount transferred), miners must decrypt this record and translate it into a string of a certain length. The whole process runs automatically, but it requires relatively high computing power to solve the problem. Ultimately, based on all the lines in the block, only one is formed – your digital signature.

Since the advent of the first cryptocurrency, mining algorithms have evolved significantly, improving technically. Actually, ASIC miners became the main reason for algorithm development.

These devices violate the principle of network decentralization and provide mining monopoly only to very influential data centers. Due to the increasing capabilities of the network, the Cryptocurrency algorithm is also becoming more complicated (the system itself selects its complexity to guarantee a certain block formation rate), so it is not profitable to mine popular cryptocurrencies over time on a PC domestic.

5 most common mining algorithms

SHA256 – Bitcoin Algorithm. It was developed in the early 90's to protect websites from D-dos attacks and spam. Basically, it assumes that in order to access the site or send spam, the customer must solve a certain problem and spend resources. It was believed that mass mailings of letters or constant surveys would become prohibitively expensive.

In 2009, the algorithm was implemented on the Bitcoin network and ensured the stable functioning of the network until the advent of ASICs, which significantly raised the “entry threshold” for miners, increased transaction confirmation fees and times.

scrypt – close to the Bitcoin algorithm. The main feature was the attraction of large amounts of memory to work, which was not in SHA256. When the algorithm is started, pseudo-random sequences are written to memory, without which the mining process becomes much more complicated. Litecoin network worked successfully on Scrypt for a long time, but then ASICs succeeded.

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Ethash – in action principle, was originally similar to Scrypt, but has improved over time. The distinguishing features are the high RAM requirements and protection against the possibility of random selection of the correct cipher – to assemble a block, you need to sort through all possible options.

Ethash is powered by the Ethereum network, which, despite its popularity, is still protected against ASICs, which speak of Ethash's effectiveness.

Equihash – the algorithm is very similar to the previous one and, like Ethash, requires large amounts of RAM. It was originally developed for PC mining, so it still remains invulnerable to Asics. Miners who don't have enough capacity to work with Ethereum are switching to Equihash. Used by BitcoinGold, Z-cash and Komodo.

X series – the most famous X 11 algorithm, used in the Dash cryptocurrency. At the same time, X denotes the number of functions in the hash, that is, if you need to find a vulnerability in a function to break SHA256, then 11 functions will need to be hacked to gain access to the Dash. Initially, the X 11 was developed as an algorithm for one processor, but as the complexity grew, miners switched to graphics cards, and then the first ASICs for the Dash appeared.

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conclusions

At the moment, there are several main algorithms for mining cryptocurrencies. To ensure profitable mining, you need to choose an algorithm whose complexity matches your computing power: it is not profitable for ASIC owners to exchange for z-cash and you cannot mine Bitcoins on a PC.

In general, the algorithm is necessary for the stable functioning of the blockchain and allows solving the problem of double spending inherent in electronic payment networks.

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