The Ethereum platform was designed by Vitalik Buterin, a Canadian programmer of Russian origin. It is built on the basis of the blockchain, and the currency for making commercial transactions and the object of mining here is Ether (Eth).
How does Ethereum mining algorithm work?
Ether, like any other cryptocurrency, can be mined through mining.
Mining is the process of creating new blocks in the blockchain that ensure the operation of crypto platforms.
There is some confusion as to what algorithm Ethereum is being mined on. The fact is that the first version was called DaggerHashimoto. During the work, a full-fledged mathematical graph was built, which excluded any random selection of values, which was why power was wasted inefficiently.
Later, such a model underwent significant changes and extreme optimization, thanks to which it became possible to use a nonce code.
Nonce is a technology in cryptography that uses a random one-time code to securely transmit data.
The nonce value played a large role in the creation of a more modern algorithm – Ethash, the main algorithm used in order to mine Ethereum coins.
Ethereum hash function looks a little different compared to Bitcoin mining. It is characteristic that the Ethash algorithm imposes its own requirements on the equipment used during Ethereum mining. This means that some of the equipment that is used now and previously successfully used for bitcoin mining will be ineffective.
You can significantly increase the efficiency of the resources used for the extraction of Ethereum, following the instructions described below.
Ethash mining equipment
There is no consensus as to which specific hardware is best for Ethereum mining. It all depends on the specific tasks, as well as on the user’s preferences.
Recommended operating parameters of the video card:
- 4 gigabytes of RAM and above;
- frequency from 1200 Mhz;
- the number of hash operations performed per second – 22-26 million (Mh / s);
- availability of the most current versions of installed drivers.
The nonce value played a large role in the creation of a more modern algorithm – Ethash, the main algorithm used to mine Ether coins.
A video card with such indicators can be purchased for 15-20 thousand rubles, but recently there has been a tendency for a constant rise in prices on the market for these products. In the future, this trend will decline, as ordinary video cards are gradually being shifted by professional ASIC farms optimized for cryptocurrency mining, the integrated circuit of which is developed exclusively for the tasks of miners.
Despite this, ASIC farms still have difficulties with Ethash due to its objective complexity for them, so they are still not suitable for full-fledged Ether mining.
The opinion is becoming popular that in the future the mechanisms for allocating resources will undergo changes, and the mining process, as such, will change somewhat. According to Buterin’s assumption, put forward in his article published on his personal website, over time, the role of mining in the production of Ether will gradually decrease. Therefore, it is worth paying attention to alternative methods of obtaining Ether.
Alternative mining algorithms for Ethereum
One of the most likely ways to mine Ethereum in the future, which can later replace the classic mining process (POW), is the POS algorithm, as it has recently become popular.
Proof of Stake (proof of stake) – the principle on the basis of which the effectiveness in the formation of new blocks depends on the volume of the share of the cryptocurrency owned by the participant.
This algorithm is a direct alternative to POW (Proof of Work), which underlies most modern blockchain systems, where the emphasis is on the ultimate power of the equipment, and not on the number of units of currency in the hands of the participant. Both methods have both advantages and disadvantages. It is also possible for them to work in combination with each other.
A distinctive feature of POS is that it is autonomous and self-sufficient, does not require additional actions on the part of the user. The principle of its operation may somewhat resemble the accrual of interest for the presence of an open deposit in a bank.
The higher the amount available to the client of the platform, the higher the likelihood of the formation of a new block in the blockchain, which affects the final profit.
Of the advantages of POS, it is worth noting the following:
- Saving energy for the functioning and protection of the blockchain.
- The labor costs of the participants, as well as their material investments in currency, are minimized due to the optimization of the technology.
- There are a number of methods, including those from game theory, that effectively resist centralization.
Despite the clear advantages of POS over POW, there are still some nuances in the work that must ultimately be solved. The principle of “hoarding” leads to the fact that a significant share of resources can stagnate in the same hands, creating the preconditions for the centralization of the initially decentralized network, which threatens the safe functioning of the blockchain.
Elements of the POW algorithm can be found in almost any popular blockchain platform, including Ethereum and its forks such as Classic or Zero. In the case of POS, everything is somewhat different – the specific implementation is reflected in the form of the Casper protocol, which is currently only being put into operation, and not immediately, but rather slowly.
Initially, the share of POS to POW will be commensurate in the ratio of 1 to 100, but in the future this proportion will gradually change.
Applying Smart Contract to Ethereum
To create services and ensure commercial transactions in Ethereum, so-called smart contracts are used.
A smart contract or Smart Contract is an algorithm that ensures automatic compliance with the obligations of a previously drawn up contract.
The principle of operation of smart contracts is similar to conventional ones, but based on the help of cryptography. Here, as in ordinary life, there are parties to the contract (signers), the subject of the contract (an object within the system), relative to which the contract operates and mathematically formalized conditions describing its work.
Smart contracts make it possible to conclude blockchain-based transactions while remaining completely secure and anonymous.
The potential of smart contracts is enormous and is not limited to the use in servicing commercial transactions. Smart contract technology can be applied in all areas related to information processing in one way or another, in decentralized programs where user anonymity is important, as well as in many other areas. The development of the cryptocurrency and Ethereum market pushed people towards the discovery of very interesting technologies.