Ethereum mining algorithm

The working principle of Ethash

The Ethereum development team introduced their algorithm based on previous developments. The work of Ethash is completely different from the original mechanism, but the basic principles remain the same. The algorithm uses a data structure that has been calculated according to some specific arithmetic rule and is related to the current length of the blockchain (the more transactions occur in the network, the faster it becomes). This array of information is called the DAG. It is updated after 30 thousand blocks (once every 5-6 days). The principle of Ethash can be described in a few steps:

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1. A mechanism similar to SHA-3 combines a pre-processed header, which is taken from the last block (Preprocessed Header), and the current one-time random number (Current Nonce). This produces an initial mix of 128 bytes (Mix 0).
2. Mix 0 is needed to compute a page with 128 bytes of data from the DAG. All this is formed into a block called Get DAG Page.
3. Using a special mixing function, Mix 0 is combined with the page obtained from the DAG. This is how Mix 1 is formed.
4. Stages #2 and #3 are repeated 64 times, resulting in Mix 64.
5. After all these steps Mix 64 is processed. The result is a shorter mix (Mix Digest) weighing 32 bytes.
6. Then Mix Digest is compared with Target Threshold (32 bytes threshold). If the final mix is less than or equal to 32 bytes, the Current Nonce will be validated and transmitted to the Etherium network. If the mix is larger, the Current Nonce will be invalidated and the algorithm will restart with different numbers.

This operation is performed in the current version of the Etherium blockchain and uses the functions of the Keccak-256 and Keccak-512 hashing algorithms. The SHA-3 standard was developed based on these algorithms.

Mining equipment

Ethereum mining has been designed in such a way that it is profitable only when it is performed using graphics cards and GPUs. Therefore, until 2018, ETH cannot be mined using ASICs.

In 2023, you can mine etherium using GPUs and a special purpose integrated circuit. ASICs are more efficient than GPUs, but if the user is going to mine koins in a pool, video cards are also fine.

For GPU mining in a pool, the following will be required:

• A computer or koin mining rig with multiple GPUs.
• OS for etherium mining.
• GPU drivers to enable communication between the GPU and the OS.
• A cryptocurrency wallet to store the rewards.

Mining with ASICs is more efficient, but the integrated circuits cost more. This hardware is created to produce a specific coin. It is important to understand what algorithm etherium is mined on and take this into account when choosing mining equipment. Ethereum is in the process of transitioning to the PoS consensus mechanism. Therefore, investing in ASICs for ETH mining can be inefficient. Also, special integrated circuits consume a lot of power, and you need to take into account the electricity bills.

A miner will have less costs if he considers other types of Ethereum mining equipment – CPU and GPU.

The first type of hardware uses a central processing unit (CPU) to mine blocks. CPU is a central processing unit. It is designed to execute a chain of instructions in the shortest possible time. This type of mining was very popular among the best Ethereum miners, but recently it is used less and less often.

CPU-based koin minting equipment is very popular among beginners. CPUs cost less and they are easier to use. Among the disadvantages is that the mining process is very slow – it can take months (and even years) before the return on investment is noticeable.

The second method of minting Ethereum uses a graphics processing unit (GPU). A Graphics processing unit is a graphics card that performs the rendering (the imaging process) of 3D graphics and visual effects. GPU-based hardware is superior to CPU-based hardware in almost every aspect. The disadvantage of this method is that GPU devices are very expensive. GPU mining equipment can cost anywhere from $3000 to $5000.

Regardless of the type, all digital koin minting rigs consist of a power supply, motherboard, graphics cards, a cooling device, and a framework that ties it all together.

Cryptocurrencies based on the Ethereum algorithm

The most famous block chain that works on the Ethash mining mechanism is Ethereum. The algorithm was developed for this project and here it has always evolved. The Ethereum Classic project, which is a hardfork of the Ethereum network, has also kept its work on the Ethash mechanism.

In addition, a lot of crypto market participants use Ethereum tokens (e.g. Maker, DAI or Theter stablecoins ). Thus, all these digital units use the ETH algorithm. Other altcoins that use Ethash are MusiCoin or Callisto, to name a few projects.

Changing the ETH mining algorithm from PoW to PoS

There are 2 most common consensus and mining mechanisms for cryptocurrencies:

• Proof-of-Work (PoW). Here, nodes must utilize the full power of their computing hardware. If they don’t, there is little chance of getting rewarded for a completed block.
• Proof-of-Stake (PoS). This is the name of the mechanism where transactions are checked by validators (authorized participants who have a certain amount of coins in their account. For Ethereum – at least 32 ETH).

PoW is characteristic of mining equipment, such as graphics processing units (GPUs), central processing units (CPUs), and specialized integrated circuits (ASICs). The devices are connected to the blockchain so that they can track, verify, and validate transactions. It is important to remember that the network is a decentralized system, so there is no single control center. Copies of the blockchain are hosted on multiple devices owned by blockchain participants. This allows for secure transactions that are verified and approved by the users themselves. A transaction on the network cannot be altered or terminated. Traces of tampering and changes will be displayed in the blocks of the chain. The work of the largest cryptocurrencies (Bitcoin, Ethereum) is based on the Proof-of-Work consensus mechanism.

All actions in PoS networks are checked by validators. These are users who own large stocks of coins of a particular network. Other participants (stakers) receive commissions from transactions in proportion to their contribution. PoS does not require large power consumption. The developers of the Efirium network plan to implement this consensus mechanism as the basis for the operation of the blockchain.

In 2016, Vitalik Buterin, the creator of Efirium, said that the transition to PoS could be delayed until 2020. As a result, the change of the consensus mechanism was postponed several times, and then it was proposed to use a hybrid algorithm of Proof-of-Work and Proof-of-Stake. Ethereum was surrounded by test networks, various sidechains and other mechanisms to switch to a different way of confirming transactions.

The developers promise that the hybrid network will start functioning in the 2nd half of 2022 at the earliest. Moreover, the creators expected to switch to PoS within 1 year, but in fact they have been working on it for more than 6 years.

Despite the fact that the date of Ethereum’s final transition to the Proof-of-Stake consensus mechanism is not known, users can already think about the possible consequences:

• Users won’t be able to mine on GPUs, as the new blocks will be mined and verified by validators who hold 32 ETH or more in their accounts.
• There will be weaknesses in the network and opportunities to hack the chain.
• Many users will stop working with coin. Due to the fact that participation in the blockchain involves a significant investment, the number of customers on the network will also decrease.
• There will be a risk of a hardfork, as some nodes will not agree with the new rules. There was a similar situation in 2016 when Ethereum Classic came into existence.
• Turnover and opportunities for additional income will decrease. This is due to the deflationary nature of Etherium, which is already actively burning coins.

Of course, the transition can also bring positive results:

• Electricity consumption will decrease, environmental impact will be reduced.
• The blockchain will be divided into autonomous areas that interact with each other while handling each its own transaction – shards. Decentralization will increase.
• To mine coins, investments will have to be made in the cryptocurrency network, not in hardware.
• The problems of scalability and speed of transaction execution willdisappear (the network will be able to confirm up to 100 thousand transactions per second).
• Commissions will decrease.

Summary

In March 2022, Ethereum is still running on a proof-of-work algorithm, and miners get paid for confirming all actions on the network. The advantage of ETH mining is ASIC resilience. This means that when the network changes, video cards tuned to the mining algorithm (Ethereum’s Ethash) can be used for similar decentralized platforms like Ubiq or Expanse. This way, miners will not incur losses as they would if they invested in asics.

There are no restrictions for graphics cards. They can run on any available cryptocurrency algorithm. The advantage of ethereum mining is that graphics processing unit (GPU) owners don’t even need to use hash rate from ASICs, because video cards are already programmed with the right algorithms (SHA-256 and Scrypt).

It is not yet known when the Ethereum network will finally switch to the Proof-of-Stake consensus mechanism, and miners can capitalize on the systems in place. There is a possibility that the developers will make a final decision to use a hybrid algorithm. In this case, the profit from mining will decrease, but will not disappear completely. Diversification will help network participants to maintain the usual level of income from Ethereum mining.

Frequently Asked Questions