The concept of mining algorithms
Cryptocurrencies are open, most transactions on the network can be tracked and tracked. Each user, making a transaction and transferring funds, makes changes to the network. In order for this complex mechanism to function like a clock, money reaches the addressee and does not get lost along the way, and miners who monitor the order in the network are needed.
All transactions on the network are encrypted. Miners are involved in decrypting transactions, thus confirming payments over the network. For their work, for the maintenance and operation of the network, miners receive a reward in the form of mined blocks.
Different cryptocurrencies use different hashing algorithms that require different equipment and capacities. Nevertheless, despite the differences, the general principles for decrypting cryptocurrencies remain unchanged.
One of the common and unchanging principles of almost all cryptocurrencies is the complication of the hashing algorithm, depending on the total number of miners and the capacities they use when mining.
Almost every cryptocurrency has a hashing complication mechanism, thanks to which, the more miners mine cryptocurrency and the more power they use, the more difficult it is to mine a block. Due to this complication, with each mined block, the cost of mining increases and more resources are required to mine the block. This in turn leads to an increase in cryptocurrency rates. Therefore, investing in cryptocurrencies remains a profitable occupation, even despite the temporary drop in rates.
Miners, in turn, also want to increase their income and try to use the most adapted equipment for mining with the lowest cost and best results. All this led to the development of the ASIC era – special devices designed exclusively for decrypting cryptographic algorithms.
ASIC’s sole purpose is to decrypt hash algorithms. And not just decryption, but decryption with maximum performance and minimum cost. Therefore, almost all ASIC equipment is narrowly specialized, designed for the extraction of certain cryptocurrencies, but with the greatest efficiency. Video cards and processors that are used for wide needs and a wide range of users are not able to compete in efficiency with specialized ASIC equipment. Therefore, almost the entire mining of the main cryptocurrencies, where a large number of capacities and equipment are involved, has turned into industrial ASIC mining, the capacities of which are only increasing. Mining is becoming less accessible for simple private miners.
It turns out a vicious circle. The more popular the cryptocurrency and the higher its rate, the more people want to mine it. The number of capacities used for mining is increasing, and with it the hashing algorithm is becoming more complicated. Simple computers are no longer able to mine cryptocurrency and cannot compete with expensive and highly specialized ASICs. ASIC farms can only afford specialized cryptocurrency mining companies. Thus, mining from decentralized to centralized, that is, concentrated in the hands of several large mining corporations.
New cryptocurrencies are emerging that use new hashing algorithms that allow you to mine cryptocurrency using ordinary processors and video cards. These algorithms work while the cryptocurrency is not very popular and a small number of miners are involved in its mining. As soon as the rate of the new cryptocurrency begins to grow, new miners from around the world join it, with their own capacities. The increase in mining capacity leads to the fact that hashing algorithms are complicated. Simple computers can no longer cope with the increasing load. And then new specialized ASICs appear that are designed to mine a new cryptocurrency. As soon as industrial ASIC farms appear, the mining market becomes usurped by industrial corporations. Simple miners can only look for new cryptocurrencies, which are not yet mined by many miners. But the problem of the new cryptocurrencies is that many of them remain unclaimed and their production does not bring the desired results, since they are difficult to implement and nobody needs them.
If the cryptocurrency makes practical sense and quickly rises in price, then it will soon begin to interest industrial giants who are trying to either reconfigure their capacities for the production of new cryptocurrencies or create special equipment for the production of new cryptocurrencies if the hashing algorithm does not allow reconfiguring existing ASIC farms .
Basic hashing algorithms
Consider the basic hashing algorithms and analyze how they differ from each other and what capacities and equipment they require.
This is the oldest hashing algorithm that appeared long before the advent of cryptocurrencies. In 2002, SHA 256 was developed by the US National Security Agency and was used for national security purposes and more. In ordinary life, SHA 256 was used to encrypt data transmitted over closed ssl connections. Initially, these compounds were used by government agencies to transfer important information, then banks and financial institutions began to use them to secure money transfers, then the whole world began to use them.
The creators of Bitcoin did not invent anything to encrypt data, but took an existing product, which by time had proved its worth and by that time was widely used not only by closed government agencies, but also by the financial sector.
To protect the currency in Bitcoin, the mechanism of complicating the hash algorithm for the first time every 2016 blocks was applied. Its essence is the more miners are involved in the mining of the block and the more sophisticated equipment they use, the more difficult the decryption of the block becomes and the more expensive the extraction of the cryptocurrency becomes.
The constant complication of Bitcoin hashing algorithms led to the fact that neither the processors nor the video cards began to cope with the decryption of the hashes, and then specialized ASIC equipment was created, which made it possible to mine Bitcoin on an industrial scale, and the owners of ASIC farms became monopolists in Bitcoin mining.
Already in 2012, a situation where all production became concentrated in the hands of monopolists did not suit the crypto community. And enthusiasts have proposed a new hashing algorithm that ASIC could not handle.
A new Bitcoin fork, LiteCoin, was created, which allowed everyone to get coins, and not the chosen ones with special equipment.
Scrypt appeared as an alternative to SHA 256, when it became clear that thanks to ASIC, all Bitcoin mining was monopolized by large corporations, and there was no place for simple miners. The Scrypt algorithm requires a large computer memory, so the highly specialized Bitcoin ASIC mining equipment was not suitable for mining LiteCoin and other coins that also began to use Scrypt. For a long time, Script was available to simple miners and anyone could mine LiteCoin. But when LiteCoin began to grow in price, large corporations took care of creating special ASICs for the Scrypt algorithm. When such equipment was created, private mining practically ceased to be meaningful, since all capacities were usurped by large corporations, and due to the complexity of hashing, individual mining using the Scrypt algorithm became meaningless.
This hashing algorithm is used in the anonymous cryptocurrency Monero. The meaning of CryptoNight is to make mining accessible to ordinary users, and not just to selected owners of special ASIC equipment. As the popularity and price of cryptocurrency grows, corporations immediately begin to create specialized ASICs, making simple mining pointless. The owners of Monero decided to go their own way. Every six months, they manually change the hash algorithm settings. Thus, specialized ASIC equipment must also be changed every six months, which is very expensive.
Thus, the owners of Monero want to make mining truly popular, in order to prevent large corporations from reaching it, who will immediately take the mining into their own hands. Of the features, Monero can be mined not only on the video card, but also on the processor. Mining requires a large amount of memory for devices.
Hash Algorithm for Ethereum. Like other algorithms designed to withstand ASIC pressure, the DaggerHashimoto hash algorithm, or as it was later called Ethash, requires a lot of memory. However, this did not save cryptocurrency from the invasion of specialized ASICs, which monopolized the entire cryptocurrency market.
Despite this, and thanks to the great popularity of Ethereum and its high exchange rate, ordinary miners also have, although a small, but still a chance to mine Ethereum. For this, it is better to use AMD video cards with at least 4 GB of RAM, and Pascal Nvidia cards are also suitable. It should be remembered that the Ethereum hashing algorithm is constantly becoming more complicated. These changes lead to the fact that the amount of memory devices must constantly increase. Therefore, the equipment that you use for mining should have large reserves for storing information. This feature of the algorithm makes it possible for at least some simple miners to wedge themselves into Ethereum mining and compete with specialized ASIC equipment, which is even more difficult to tune to hashing complexity.
Popular cryptocurrencies by algorithms
Bitcoin, Steemit, DigiByte, Peercoin, Namecoin – SHA-256
Litecoin, Dogecoin, Syscoin, BelaCoin, Einsteinium, Potcoin, ViaCoin, DNotes – Scrypt
Monero, ByteCoin, Dashcoin – CryptoNight
Ethereum, EthereumClassic, Expanse – Dagger-Hashimoto
Mining is becoming the destiny of the elite. Thanks to special ASIC – equipment that can be configured or modified to mine almost all hashing algorithms, as well as due to the ever-increasing complexity of mining with the advent of new capacities, private miners are practically expelled from the mining market and mining from decentralized has turned into a monopolized large corporation, where an ordinary person No place. However, some cryptocurrencies are struggling with this injustice by offering protection from ASICs.
New cryptocurrencies are constantly appearing that offer their hashing algorithms. But as soon as the cryptocurrency becomes popular, a large number of miners begin to mine it, the complexity of hashing increases. And if at the same time the cryptocurrency rate also increases, then large corporations take up the business and develop their specialized ASIC equipment, driving small miners out of the market.