Mining 101: types of blockchain

Alex Stargame
3 min readMay 10, 2018

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Mining lies at the heart of the blockchain technology. Even investing in ICOs requires some understanding of the main principles of this technology.

Proof-of-Work (PoW)

It is a classical variant of mining, realized in the Bitcoin system. It is rigidly tied to the computing power of computers. The higher it is, the faster the miner can create a new block and receive his commission or coins. The more powerful the computer, the less time it takes to compute a chain.

Three kinds of PoW are distinguished, depending on the equipment which is used for mining: CPU (processor), GPU (video card) and ASIC (special microsystems for mining).

PoW has its positive and negative sides:

  • The distribution of computing capacities of the network worldwide makes it practically impossible to affect the system. Very big resources are required for this purpose. So this variant can be considered quite reliable.
  • Large capital investments are necessary to start mining.
  • Miners, competing with each other, spend too much electricity (more than is required for system maintenance) to make the computing capacities work. On the other hand, if we take, for example, China, it allows to load the excessive capacities of power stations.

IMHO, a doubtful economic solution.

  • As more and more computing power is required for mining, large computer centres, or cryptofarms, start to be engaged in this. Small players gradually withdraw from the competition.

Proof-of-Stake (PoS)

In this case, miners do not create blockchain blocks but perform the amount of work which is necessary for system functioning. Every action in the network has a price, called a “stake”.

This type of mining does not depend on the hardware computing power. However, accounts with higher current balances have more possibilities to mine blocks. That is, a participant possessing 1% of the entire amount generates, as a rule, 1% of new blocks. This system was first applied in 2012 for the PeerCoin cryptocurrency. More examples — Dash, NEO, Lisk.

Delegated Proof-of-Stake (DPoS).

A typical example of such systems — the tokens of blogging platforms like Golos, Steem and BitShare. The system sets certain requirements to those who wish to make new transactions. If a candidate meets them, he can become a delegate of the network, but for this purpose he needs to get support of other token holders and receive their votes. The number of delegates, naturally, is limited and between network participants there is a constant competition.

Among the advantages of this type we can mention the high speed of transactions, the democratic character (all users can be involved in the network irrespective of their ranks) and reliability of the system. High centralisation is one defect.

Proof-of-Identity or Proof-of-Authority (PoA)

This variant of mining ties the account identification to the stake received by the user. In simple words, 1 account = 1 voice. The transactions and blocks on the basis of PoA are checked by the confirmed accounts — validators.

It is an absolutely democratic system that creates equal conditions for all participants. However, there are very few working systems of this type. This way is considered to be not so reliable and demands high power at that.

Hybrid mining

Now hybrid variants of mining are becoming more and more popular. For example, Ethereum has recently passed to hybrid mining PoW/PoS. Due to the introduction of this new system — the developers promise — that the cost for every block found will be lowered by 80 % — from 3 ETH to 0,6 ETH.

Unconventional variants

There are unusual ways of extracting cryptocurrencies, for example, at the expense of free hard drive space — PoC (proof-of-Capacity). Enthusiasts of mining BURST set up whole cryptofarms of many hard disks.

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