Type of Mining

In my previous article, I briefly mentioned that there were 2 types of mining, namely: Proof of Work (PoW) and Proof of Stake (PoS).

As the names imply, in Proof of Stake mining, all you need is to participate in the mining pool where the algorithm randomly chooses a “winner” and the “winner” gets paid. The objective given was that in the typical mining process, precious resources are wasted (typically electricity) and by products generated (heat). In order to reduce wastage and to make it more equitable, it was envisaged that only holders of that particular currency will be allowed to participate in “mining” using stakes. This method takes away the costly hardware so commonly associated with mining that we are used to.

However, you would have to already own the currency in order to stake it. While the intention may have been noble, this method typically favours the rich as you typically would have to hold lots of currency before it was viable to participate in a staking pool where you stand a chance of being selected as a “winner’

Examples of PoS mining: NEO, Decred (PoS/PoW) and eventually Ethereum.

Proof of Work mining involves hardware as it has to do work! Hence, the name. This involves using computational power to solve complex mathematical equations (known as a hash) using a certain formula (algorithm).

Broadly, there are different types of equipment that is designed to solve the mathematical equations, namely (1) CPU mining (2) GPU mining and (3) Application Specific Integrated Circuit (ASIC) mining. Let me elaborate.

In both CPU and GPU mining, the main workhorse is the CPU and GPU respectively. It is the most versatile type of miner because the way algorithm isn’t hardcoded. Instead it depends on a small programme called the miner software to tell it which algorithm to use and to solve it accordingly. Raw CPU power was originally used to approach these mathematical equations until they became too complex. It was then quickly discovered that GPUs were able to solve those equations better due to the speed at which solve the equations. They could perform floating point calculations used to render scenes in games and movies with much greater speed and could run in parallel! You could actually harness the power of multiple GPUs in 1 computer! Thus began the migration from CPU mining to GPU mining.

As the market began to evolve, there came more currencies and algorithms. The newly introduced algorithms added a variety to the different currencies available for mining. As usual, started off using GPU mining. Until it was then discovered that special circuits could be built around the algorithm and hash much quicker than bunch of GPU. ASIC mining was then born. For those currencies where ASIC mining is dominant, it was no longer profitable to mine with GPUs.

A good example would be Siacoin where a typical 6 GPU setup would hash 9,000MH/s as compared to the upcoming ASIC miner’s speed of 100GH/s. Yes, you read that right. 100,000MH/s.

To make matters worse, ASIC suppliers are in a constant race to improve their hashrate with every iteration of the miner. This occurs about every 9 months and is usually very detrimental to miners with existing hardware.

Some of the more popular currencies grouped by algorithm

  • Ethash (ASIC resistant) – Ethereum, Ethereum Classic
  • SHA256 – Bitcoin
  • Scrypt – Litecoin
  • X11 – DASH

Conclusion

The major limitation of ASIC miners is ASIC miners work only for a specific algorithm. Thus, it is not possible for a Bitcoin miner to switch to mine Litecoin as the algorithms are different and would never be able to return a correct solution to the algorithm. A lot of confidence has to be taken with respect to the viability of the currency being mined since you are pretty much locked into that ASIC’s algorithm and the lead time before an improved version of the miner is announced and shipped. Conversely, GPU mining tends to be more long term in nature and skewed towards ASIC resistant algorithm like Ethash.