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Mining More Detailed. 4. Proof Of Work Algorithm And Its Alternatives

08:00 29/11/2018

Introduction

 

In the previous article, we have determnined what mining is. After the block is closed, a reward goes to only one of all participating miners. The increase of the reward probability depends exclusively on hardware performance that compels users to buy more powerful microschemes to proceed with mining. Naturally, other users do not want to lag behind and also raise working frequencies, change the type of microschemes and create their own mining farms that consist of multiple microscheme stations.

 

Disadvantages of Mining

 

Mining is often criticized as an energy-intensive process. In terms of power supply, modern farms are already compared to small countries and big cities. Investors are trying to build their mining facilities in regions with low electricity costs and even manage to get approval from governments to restore abandoned power stations.

 

This is the ordinary technology race that happens all the time. But instead of becoming higher, the reward for mining keeps decreasing. Bitcoin protocol settings do not allow to mine blocks more often than once in ten minutes. Besides, a reward size gets halved every four years on average.

 

Sooner or later, the generation of new blocks will stop bringing any significant revenue while blockchain support through the block closing will still be in demand. Nobody knows when it is going to happen. Different predictions are based on the current state of this industry, power change calculations, popularity changes, and other formalizing parameters. Experts are sure of one thing: this is inevitable. Naturally, in order to maintain the health of the blockchain network, alternative approaches to estimate the work of miners and other concepts of reward distribution are created.

 

Ethereum peculiarities

 

For example, Ethereum mining nodes, which have managed to receive a correct hash but failed to close a block in time, get rewarded. This is possible due to a special system. It allows placing a reference to a certain number of aside blocks, called “uncles” (or “ommers”), in the next block, hence bringing a profit to authors. Of course, such a partial reward is lower than the regular one and is distributed among several potential earners. There is also a chance that some changes regarding reward distribution are already used or planned in less popular protocols.

Uncles for a new block

Unfortunately, these actions do not change anything. The race for performance is in high gear. Even the inevitable decrease of a reward does not keep people from mining but spurs them. This begs the questions: Is it possible to change the reward concept itself? Can we shift a reward away from performance and tie it to something else?

 

Alternatives

 

There are several alternative approaches. The first proposed and successful solution was the Proof of Stake algorithm. Its key idea is that a new block can be produced and closed by a full node with a certain probability. The probability depends on the amount of cryptocurrency placed in the system by a node. While PoW’s key factor is performance, the most important thing in PoS is how much funds a node is ready to put.

PoW and PoS are considered the most popular solutions. There are also their hybrids. In addition, alternative proposals are known, such as:

 

  • Proof of Burn
  • Proof of Activity
  • Proof of Capacity
  • Proof of Elapsed Time
  • Proof of Authority
  • Proof of Individuality
  • Proof of Storage
  • Proof of Retrievability
  • BFT family
  • DAG family
  • Voting systems.

 

Afterword

 

The BFT approach is as popular as PoW and PoS. There are several complex and interesting platforms based on it. Various voting systems often get implemented in crypto projects as well. It is known that Ethereum authors are planning to switch to the PoS concept in 2018. Only time will show where these changes get us.
 

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