Today we will tell you a little about mining and its types. This will be useful for beginners. Also, the experienced crypto investors will be able to refresh the basic knowledge in memory.
In order to talk about the types of mining you need to know about the definition of mining. So, "mining" is the process of mining the cryptocurrency. This is a natural way of obtaining a cryptocurrency using the power of a video card or processor. They perform certain calculations releasing new data blocks. For doing this, the owners of the facilities receive a reward.
The classic and the very first type of mining is the one which was used for the obtaining the cryptocurrency is the PoW algorithm. It is still used for obtaining the tokens in Bitcoin and other cryptocurrencies. The core of this mining is to process as much information as possible. So it is required a huge power for this processing. The miners are purchasing more equipment and organise the mining farms.
This process is dynamic, it requires constant upgrade and modernisation of the mining farm. However, the lager is the power of such farm the greater is the chance to process a new block and get the reward.
It all works at the lottery principle. The more tickets you have got (the mining power in such case) the greater is the chance to win.
The main principle of PoW comparing the other types of mining is the stability. The minus is the constant need for upgrading the computing power and the monopoly of the large market players.
The second type of mining which becomes more popular lately is called Proof of Stake. In PoS, the creator of the next block is determined randomly. The probability that it will be chosen by the creator of the block depends on the size of the investment, aging, share and many other indicators that are laid by the creators of the cryptocurrency. The advantages of this method is that it is less expensive for equipment and also because of the complex algorithms of random participation in mining, this mining type is less monopolized. Disadvantages can be called the need for large investments, as well as the cost of electricity. PoS is used for the mining of such cryptocurrencies as OctoinCoin, Redcoin, Novacoin, Clubcoin and so on.
Also, there are hybrid systems that combine in one or another way both types which we considered earlier. For example, Proof of Activity is PoA. PoW units are searched together with PoS units, since the blockchain consists of blocks of both types. What are the advantages of this? First, "to rewrite the history" is not so simple at all, since PoW-blocks can serve as a kind of checkpoints. If we take into account the overall complexity of the work in the entire chain. Transactions that are included in blocks with "real" work inspire more confidence to sellers. Secondly, through PoW blocks, "honest" emission of new money can be made while and PoS can be considered as "annual income from a deposit".
But just like many other hybrids, PoA is still only a theoretical project and the overwhelming number of cryptocurrencies are mined by the first two ways. If a new reliable method appears then we will definitely write about it.