Overview of mining algorithms

Overview of mining algorithms
In the blockchain, transactions are verified and records are confirmed by a special mechanism that has been defined - the consensus algorithm. The algorithm itself is a method by which the nodes reach a consensus about the state of the data in each of the blocks. The algorithm provides guarantees that the protocol rules will be followed and all transactions are valid. In fact, the algorithm ensures the integrity and security of the network.

It should be pointed out that there are differences between the algorithm and the protocol, as they are often confused. The protocol is the rules of blockchain activity, according to which the nodes interact with each other, information about transactions is transmitted, the mining of blocks is confirmed.

In turn, the algorithm is a mechanism for checking the execution of the rules, whether the signatures are correct, whether each transaction was carried out correctly. For example, BTC and ETH are protocols, while Proof-of-Work (PoW) is a consensus algorithm. Now there are different variants of algorithms. Let us indicate the most famous of them.
Proof-of-Work (PoW) algorithm

Proof-of-Work (PoW) is a consensus algorithm. It was implemented on the Bitcoin network. The very concept of the algorithm was presented in 1993. In 1997, the Hashcash algorithm was created on its basis. In 2008 S. Nakamoto used Proof-of-Work (PoW) for Bitcoin. Later, it was used for other crypto assets, from ETH to Dogecoin and Monero.

What is the basis of the algorithm? Nodes must solve mathematical equations to confirm transactions. The one that was the first to find a solution to the equation has the right to receive a reward - a new coin.

The algorithm made it possible to launch the first cryptocurrencies. Due to him, the network has become more protected from hacking by hackers, and decentralized. At the same time, as cryptocurrencies began to develop, certain disadvantages of PoW came to light. They have become so significant that they do not allow the development of many crypto projects.

In particular, mining requires an enormous amount of energy. Despite the fact that there are a huge number of nodes on the network, almost all of them are idle, since only one node receives the reward. Mining has become extremely costly.

Users must also pay commissions to miners for verifying transactions. The more congested the network is, the more you have to pay a commission. It so happens that the commissions completely exceed the income from mining.
PoW blockchains have very slow speeds. Scalability is insufficient. For example, on the Bitcoin network, no more than 10 transactions are carried out in 1 second. This is not enough for the development of the network.

Another disadvantage is that miners are centralized, forming pools. This leads to the fact that the commission fees become higher, the complexity of mining increases, and the security of the networks decreases. In contrast, another algorithm, namely PoS, does not have any drawbacks.
Overview of mining algorithms

Overview of mining algorithms

Proof-of-Stake (PoS) algorithm

PoS (Proof of Stake) was introduced in 2011 as an alternative to PoW. Its main goal of creation is to fix the shortcomings of PoW, especially low speed, lack of scalability.

In 2012, it was integrated into the PeerCoin blockchain. Now, a variety of blockchains operate on the basis of PoS, from TRON to IOTA. It should be noted that Ethereum 2.0 is also being transferred to it.

Proof-of-Stake (PoS) does not involve mining. Mathematical problems are not solved. New coins are mined by staking. It is a mechanism that allows new blocks to be added using proof of ownership of the crypt. The more coins a node has, the higher the opportunity to confirm a new block and get a reward in return.

To some extent, staking is somewhat similar to a deposit in a bank. Validators can make a profit passively by holding an asset on the balance sheet. At the same time, staking is also impossible without energy consumption. In addition, you need to have a certain number of coins on your wallet.
What are the main advantages of Proof-of-Stake (PoS)?

Compared to PoW, the energy consumption is much lower. There is no need to purchase mining equipment. The speed and scalability are much faster. For example, on the TRON network, more than 2000 transactions are carried out in 1 second. Commission fees are also lower.

The main disadvantage of Proof-of-Stake (PoS) is that it creates the possibility of forming network centralization. Validators with a significant number of coins have a chance to then take control of almost the entire network. Based on this, new algorithms began to appear, including PoB.
Proof-of-Burn Algorithm

Proof-of-Burn (proof of burning). This algorithm is an alternative to the above. Its meaning is that miners send coins to a special address. You cannot pick up private keys to it. That is, the coins are not spent, but undergo a burning process. In response to such actions, miners create new blocks, receiving a reward for this. The larger the numberYour coins are burned, the more chances you have of winning block rewards.

What are its advantages? Energy consumption is insignificant, no need to buy expensive mining equipment. Due to this algorithm, the value of coins can also increase.

However, there is also a drawback to Proof-of-Burn (PoB). It can only be used for established projects that have completed the issue of assets, and it is already possible to burn coins. because of this, this algorithm is not as well known as the others.

In addition to these projects, there are others. As the blockchain develops, more and more other algorithms appear, and the existing ones will transform towards better architecture.

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