See More

What Are Mining Algorithms and What Purpose Do They Serve?

6 mins
Updated by Artyom G.
Join our Trading Community on Telegram

Understanding mining algorithms is an essential pursuit for anyone venturing into crypto, particularly in the context of proof-of-work cryptocurrencies. These algorithms serve as the foundational pillars of the mining process, allowing developers the flexibility to tailor their projects in accordance with specific requirements.

This guide explains the intricacies of mining algorithms. It explores what mining algorithms entail, the rationales behind the presence of diverse algorithms, and why comparing hashrates and mining settings across different algorithms can yield inaccurate results and conclusions.

Understanding mining algorithms

To successfully unlock a block on the blockchain, miners must unearth a mathematical solution (hash) that satisfies the hash function’s criteria with a difficulty level equal to or surpassing the network’s minimum difficulty. A mining algorithm encompasses a set of rules and mathematical operations miners deploy during the hashing process within proof-of-work cryptocurrencies.

In pursuit of this objective, miners perpetually experiment with random nonces (single-use numbers) within the hash function in anticipation of discovering a valid solution. Depending on the specific mining algorithm in operation, it may be conceivable to compute trillions of solutions (hashes) per second, typically denoted as TH/s.

The significance of diverse mining algorithms

For those who have engaged with mining software like NiceHash Miner, LolMiner, NanoMiner, or similar, the multitude of mining algorithms available is readily apparent. Indeed, a vast array of algorithms exists, each distinguished by its unique attributes.

The existence of this multitude of mining algorithms can be credited to several factors. These include considerations of hardware compatibility, project security, customization, and other pertinent factors.

Hardware compatibility

Certain mining algorithms are tailored for particular hardware types, such as CPUs, GPUs, or ASICs (Application-Specific Integrated Circuits). This design consideration is intentional and allows developers to exert influence over network decentralization and security. For instance, ASIC-resistant algorithms promote decentralization by thwarting the potential monopoly of specialized hardware in the mining process.

/Related

More Articles

Consider, say, the journey of the SHA-256 algorithm. Initially amenable to CPU mining, it subsequently saw miners transition to GPUs and, ultimately, to ASICs as more powerful devices became available.

Project security

Embracing a novel and unique algorithm can confer advantages upon projects, as it prevents any pre-existing competitive advantages held by others through using a different algorithm. Notably, Monero committed to forking and altering its algorithm in response to indications of ASICs on the network, a measure it has enacted on multiple occasions in the past.

Conversely, sharing an algorithm with another project can facilitate features like merged mining. This process allows miners on one blockchain to concurrently mine on both networks without suffering hashrate or efficiency penalties. An example of this practice can be seen in Litecoin and Dogecoin, which employ the Scrypt algorithm, enhancing the security of both networks, especially at times when mining rewards may not be as enticing.

Customization

In addition to selecting the hardware for coin mining, developers enjoy the liberty to customize the algorithm to achieve specific objectives. Variables such as memory usage and power consumption are often subject to customization. For instance, developers may aspire to create algorithms characterized by enhanced energy efficiency or those that gradually escalate their memory requirements over time.

Illustrating various mining algorithms

mining algorithm

To provide further clarity, here are some examples of popular mining algorithms and their distinctive attributes:

SHA-256: This algorithm, renowned for its role in bitcoin and several other cryptocurrencies, was initially compatible with CPU mining but subsequently witnessed a shift to GPUs and ASICs. Its widespread adoption and robust security render it a preferred choice for numerous blockchain projects.

Scrypt: Scrypt, designed to be memory-intensive, initially presented resistance to ASIC mining. It’s used for cryptocurrencies such as litecoin, dogecoin, and others. Adopting networks also enjoy relatively lower transaction fees than ledgers using other hashing functions like SHA-256, as well as being less energy intensive.

Ethash: Ethash served as the algorithm underpinning Ethereum but is now used for other projects. It resisted ASIC mining for a long time and relies instead on memory bandwidth, as opposed to CPU prowess. This made Ethash very popular with GPU mining, keeping the network decentralized.

Equihash: Zcash and several other cryptocurrencies employ Equihash, which concentrates on memory-intensive proof-of-work. It employs high penalization in low RAM memory environments such as ASICs, low consumption of computing power, and presentation of short cryptographic tests that avoid storage problems.

Comparing hashrates across algorithms is problematic

Comparing hashrates across different mining algorithms or applying uniform overclock settings presents inherent challenges. Each mining algorithm encompasses a unique set of mathematical operations that demand varying degrees of computational power and memory to resolve. As a result, hashrates — indicative of the speed at which miners solve problems — will fluctuate from one algorithm to another. For instance, while an NVIDIA RTX 3090 may achieve 52 MH/s when mining KawPoW, it will yield 1 GH/s when mining KHeavyHash.

The performance of mining hardware is contingent upon optimization for a specific algorithm. An ASIC miner, engineered for the SHA-256 algorithm, would prove ineffective when mining a Scrypt-based cryptocurrency. This optimization extends to overclock settings, as different algorithms impose distinct demands on hardware components.

Additionally, various algorithms consume varying amounts of power and generate differing heat levels during the mining process. Consequently, hardware overclock settings ideal for one algorithm may prove unsuitable for another, potentially leading to overheating or excessive power consumption.

Different projects will have different hashrates

The presence of many mining algorithms underscores the adaptability and innovation within the cryptocurrency space. Each algorithm boasts its unique advantages and constraints. A comprehensive grasp of these distinctions is paramount for individuals venturing into the realm of mining. Various projects select different algorithms for various reasons. Some aim to be more decentralized, others more scalable, and others more secure. This can be an interesting factor to consider and explore when investing or trading a certain coin type. A project’s future goals may determine the hashrate on its network, which in turn can have an impact on adoption and, therefore, price.

Solutions such as NiceHash exist for automating a large part of the mining process. This can be an interesting starting point for those wishing to get their feet wet in the mining realm. Due to the open nature of the hashrate marketplace, automated solutions can bring greater exposure to the wide variety of mineable algorithms.

Frequently asked questions

What is the primary purpose of mining algorithms in cryptocurrencies?

Why do different cryptocurrencies employ various mining algorithms?

How do mining algorithms impact hardware performance and settings?

Can a mining algorithm have an impact on the adoption and price of a coin?

About the author

Joe Downie is CMO at NiceHash, a global hashrate marketplace. He has extensive knowledge in the field of cryptocurrency mining and blockchain technology. He writes for many crypto and mainstream outlets, providing industry insight and thought leadership into the fascinating world of this emerging technology.

Top crypto projects in the US | April 2024
Coinbase Coinbase Explore →
AlgosOne AlgosOne Explore →
Harambe AI Harambe AI Explore →
Chain GPT Chain GPT Explore →
iTrustCapital iTrustCapital Explore →

Trusted

Disclaimer

In line with the Trust Project guidelines, the educational content on this website is offered in good faith and for general information purposes only. BeInCrypto prioritizes providing high-quality information, taking the time to research and create informative content for readers. While partners may reward the company with commissions for placements in articles, these commissions do not influence the unbiased, honest, and helpful content creation process. Any action taken by the reader based on this information is strictly at their own risk. Please note that our Terms and Conditions, Privacy Policy, and Disclaimers have been updated.

joe_downie-e1699364259565.jpg
Joe Downie , CMO at NiceHash
Joe Downie is CMO at NiceHash, a global hashrate marketplace. He has extensive knowledge in the field of cryptocurrency mining and blockchain technology. He writes for many crypto and mainstream outlets, providing industry insight and thought leadership into the fascinating world of this emerging technology.
READ FULL BIO
Sponsored
Sponsored