One of the central pillars of any cryptocurrency is the hashing algorithm it is based upon, but what makes these algorithms important, and what are the differences between each algorithm? If you are looking to start mining a cryptocurrency, these are important questions to consider. You may be asking yourself, who chooses the algorithm for a cryptocurrency? The chosen algorithm is up to the coins development team, not the miner; there are many reasons why the chosen algorithm was implemented, ranging from long-term goals to network security, and even protection from ASIC mining hardware. It is important for miners to consider the algorithm of a coin they are willing to mine for several reasons, including the electricity required to mine, the effectiveness of their existing hardware on the network, and whether or not they wish to mine with GPU, CPU or ASIC based mining equipment.
SHA-256, Scrypt, or X11: Which Mining Algorithm is the Best?
What is so important about the hashing algorithm you may ask, and why is it necessary to have choices? The most popular algorithm was the one which started it all, SHA-256, which originally debuted as Bitcoin’s hashing algorithm. With the introduction of Litecoin, Scrypt entered the scene and came with its own set of pro’s and con’s, but is by far one of the most popular algorithms in existence. Since then, many other algorithms have taken the stage on the cryptocurrency scene, including the likes of X11, X12, X13, Scrypt-N, Scrypt-ChaCha, Groestl, Keccak, NIST5 and many others. What makes each hashing algorithm unique is often most important to the coin developer, for instance, SHA-256 based coins have a block time of around 8-10 minutes, whereas Scrypt coins can have block times as low as 30 seconds! Security also comes to mind when choosing an algorithm for a new coin; longer block times can make the network more secure especially with low network hash. Introducing a new coin to an algorithm which has ASIC’s available on the market can wreak havoc if they can’t protect themselves against the dreaded 51% attack. Even strategically choosing an algorithm to attract disenfranchised GPU miners from an ASIC ridden market or integrating developments from other coins with the same algorithm can also influence decision making. A cryptocurrency may even be based on the fact that it is ASIC resistant and may need to change algorithms in order to keep that promise. All in large, choices are important when developing a coin and can mean a lot for the purpose and specific mission of that coin.
You may be thinking to yourself, well, developers having choices in which algorithm they choose to implement in a coin is great and all, but how does that affect ME, the miner? That is a valid question, and a very important one to consider as well. Mining a cryptocurrency with a specific algorithm can influence the hardware you use, to your electricity cost, the process it takes to setup your mining equipment and the philosophy you prefer as a part of the mining process. We will be covering the most popular and up and coming algorithms to date, what makes each one unique and what the pro’s and cons are of mining each algorithm, thus you, the miner can make an informed decision on the algorithm which suits you.
The dawn of cryptocurrency began with Bitcoin, and in its wake came SHA-256 integrated for Bitcoin mining. SHA stands for Secure Hashing Algorithm and is a part of the SHA-2 family of hashing algorithms. SHA-2 is the predecessor of SHA-1 which is now considered insecure and obsolete. SHA-256 is considered to be one of the most secure cryptographic algorithms in existence and is the security standard in many intelligence agencies around the world. The algorithm family itself was created by the United States National Security Agency (NSA), and is released royalty free under U.S. patent 6829355, it features several different variations including SHA-256, SHA-384 and SHA-512. The white paper was officially released to the public by the National Institute of Standards and Technology (NIST) and was intended to be used as a Federal Information Processing Standard (FIPS), which means it was released as standard for all non-military government agencies as well government contractors. It is no wonder why Satoshi Nakamoto chose SHA-256 as the algorithm he would implement into Bitcoin.
When Bitcoin was first released, it was possible for Satoshi Nakamoto to mine over 2,000 BTC on his CPU alone, what has changed since then? At one point it was possible to mine Bitcoin on a simple set of hardware, a laptop CPU would be all you needed to mine, and miners were at a logical standstill. Do they continue mining Bitcoin at a loss due to electricity cost with the hopes of Bitcoin’s price increasing in the future, or do they buy off of the open market for roughly the same cost to mine? Looking back you may think your investment would be better off spent on a time machine to convince your past self that your computers spare processing power would be better off spent mining Bitcoin’s than playing solitaire, however, this is a perfect example of the economics and decisions that miner’s make while deciding to mine a coin and a segway into the SHA-256 arm’s race.
At the time, miners were becoming less and less likely to sell their coins at a loss, as demand increased along with the difficulty level of mining, the market took an upwards trend in direction. As more and more miner’s entered the network, Bitcoin’s difficulty automatically increased to keep the block time consistent, this made mining harder. What happened next would change the SHA-256 algorithm forever – ASIC miners were developed. ASIC’s could mine Bitcoin hundreds of times faster than GPU’s and CPU’s, using only a fraction of the electricity at much less of the cost than a competing GPU or CPU rig, with the added benefit of less heat and noise output within a smaller physical footprint, ASIC’s completely took over the market.
As ASIC’s began to flood the market, hobbyists and tinkerers that reaped the benefit of being early adopters were completely pushed out of the market. As ASIC companies competed for the best kilowatt to hash ratio, with smaller footprints, less noise, less heat, and the lowest price, investors poured money into this new, very lucrative industry, and thus the Bitcoin arms race began. To mine a SHA-256 coin, GPU and CPU mining is not advised, the hash power of GPU and CPU rigs is too insignificant to make a profitable impact. SHA-256 is also very power hungry, thus any returns would most likely be close to nothing or even in the red with no foreseeable return on investment. The most profitable, cost-efficient way to mine SHA-256 coins is with ASIC computers, bar none.
Although ASIC’s succeeded in pushing smaller miner’s out of the SHA-256 algorithm, these miner’s do provide a number of advantages to the network of each SHA-256 coin. In one example, ASIC miners do protect the network from attackers by providing sufficient hash rates as to protect coins from GPU and CPU attackers, bot-nets, and even super computers and governments. The sheer amount of decentralized hash power can immensely help a coin grow quickly, securely, and provides what is known as the “network effect”, which entrenches a coins position as an accepted currency even though it may come under competition by other more superior coins. The large amount of hash on the network even protects a coin from governments and institutions or even attackers that wished to take over the network in a 51% attack, this is thanks to the immense amount of hash power being put on the network.
How Serious are you, about Crypto mining?
Mining SHA-256 coins is a great option only if you are interested in investing in ASIC’s, which can range from tens of dollars, to several hundred, to several thousand depending on the profitability desired. SHA-256 ASIC miners come from a large and developed industry, thus finding a reputable manufacturer is very easy to do. With ASIC mining comes the added bonus of manufacturer support, which is not offered to GPU or CPU miners if they need help. Depending on the specific ASIC miner, hardware is constantly becoming more energy efficient with less noise and less heat output than GPU mining SHA-256, however don’t consider putting these miners in your bedroom just yet if you want your significant other to sleep in the same room with you, they are still loud and hot. ASIC’s are also notoriously easy to setup, with minimal technical knowledge required as less configuration and almost no system building is needed. Just remember, if you are in the GPU or CPU game, use your miners elsewhere, SHA-256 is not the algorithm for you!
Scrypt was first introduced in cryptocurrency mining with the introduction of Litecoin. Benefits of the Scrypt algorithm included lower block times than Bitcoin, and ASIC resistance. Ironically, Scrypt was implemented as a solution to Bitcoins GPU mining, which was seen as too centralized for Litecoins developers, thus Scrypt was implemented to prevent Litecoin from being mined using GPU’s. For whatever reason, Scrypt never achieved that goal and GPU miners flooded the network in any case. Scrypt was originally invented by Colin Percival for the Tarsnap online backup service, the service touts that Scrypt makes it tremendously expensive for custom hardware attacks to be conducted and is thousands of times more secure than many popular cryptographic algorithms in use today. Scrypt requires attackers to either use more memory to conduct a brute force attack, or use less memory and conduct a slower attack, this trade off is intentional and makes Scrypt very secure. It is no wonder it was first implemented by Litecoin creator Charlie Lee as the coins algorithm.
For miners, Scrypt is GPU friendly and the vast majority of Scrypt miners are GPU miners. Scrypt takes up more memory than SHA-256, however this is offset by the fact that Scrypt mining uses up less electricity than SHA-256 mining. With less electricity comes lower heat output and less noise coming from your miners, however mining Scrypt can still increase your AC bills during the Summer, and lower your gas bills in the Winter. It needs to be noted that ASIC’s for Scrypt mining are on the market, thus if you are a GPU miner mining Scrypt, you may be in for some competition. As more and more Scrypt ASIC’s are expected to hit the market, expect the difficulty to rise on Scrypt coins and your market shares to decrease, along with your profits. Scrypt coins are currently still profitable and can be an excellent investment if you have the equipment, however if you are interested in mining Scrypt you may want to consider investing in an ASIC miner instead. Some ASIC’s can even mine SHA-256 and Scrypt simultaneously, so consider ASIC’s as an option if you are considering mining a Scrypt coin.
For many miners, you may feel disenfranchised by the inevitable onslaught of ASIC’s, perhaps you have already invested a substantial amount in GPU’s and want to put them to use, perhaps you have ASIC’s but you have a few spare GPU rigs sitting around, or perhaps you don’t want to be involved in the ASIC arms race and would rather not have to upgrade your ASIC’s every few months in order to stay profitable. For whatever the reason you have decided to stay away from ASIC’s, there are developers who have created algorithms which are ASIC resistant. These ASIC resistant algorithms ensure decentralization from ASIC computers, and many philosophize that ASIC resistant algorithms return mining to the “average Joe” that doesn’t have the money to mine using expensive specialized computers. ASIC resistant coins are typically a safe haven from ASIC’s and allow GPU and CPU miners a place to use their hash power. One infamous example of an ASIC resistant coin is Vertcoin, which was built on the philosophy of decentralization and ASIC resistance, this coin was based on the Scrypt-N algorithm, a modification of Scrypt that made it difficult to program ASIC’s for. However, it was only a matter of time before ASIC’s caught up as Scrypt-N ASIC’s are already on their way to the market. However there are a few algorithms that have so far stood the test of time and have yet to be successfully touched by ASIC developers.
The “X” series of algorithms first debuted with Darkcoin and was invented by Darkcoins creator, Evan Duffield. X11 is a hashing algorithm that includes eleven different hashing algorithms bundled up in one package. The original intent of X11 was to protect the network from what its creators called, Single Point Failures, which is a scenario where a hacker could theoretically crack an algorithm, making it vulnerable to attacks. Unlike SHA-256 and Scrypt, which are based on a single hashing algorithm, X11 features eleven different algorithms, all of which would all have to be compromised for an attack to be successful. Critics claim that SHA-256 and Scrypt are still extremely secure algorithms, as no one has been able to crack them, especially with the money behind these algorithms; even with all of the added attention no obvious flaws have been found. The “X” series of algorithms extends beyond X11, and includes X12, X13, X14 all the way up to X17. The simple difference between these algorithms is the amount of hashing algorithms intertwined in the package.
X11 is by far the most popular of the “X” series of hashing algorithms and has a number of attractive features to boot. X11 is best mined using GPU’s, and has a 1:6 efficiency ratio between CPU and GPU’s, thanks to better mining software, the GPU/CPU gap has been widening since the introduction of the algorithm. At this time X11 remains ASIC resistant and there are no publicly announced ASIC’s in development for the algorithm, however its widespread popularity and profitability may make it a target for ASIC developers in the future. X11 is also less power hungry then both SHA-256 and Scrypt, keeping your house cooler and quieter especially in the summertime, and keeping your significant other slightly happier about your mining operation. X11 happens to be the most dependent on the mining software you use compared to any other algorithm; specific mining software can give you huge advantages over others, potentially increasing hash power up to 40% with just the right software and settings. X11 is a great choice if you are a GPU miner who has some time to tinker with your software with the added bonus of saving money on electricity cost. X11 is also a great option if you have multiple GPU rigs and don’t want to overload your outlets, and can keep GPU farms cooler and quieter than SHA-256 and Scrypt.