Hello dear followers and fellow Steemians! In this post i'm going to cover Proof of Work mining because i barely talked about it on my previous article on The Blockchain Technology.
I hope you enjoy the read and hopefully you tag along for more in the future :-D
We all know that the price of cryptocurrencies started to go up wildly in the 2nd half of 2017, but did you know that most graphic card prices also went up insanely during this crypto market rally? Mining has become an incredibly profitable business in the last few months and many companies and start ups are rising to the task of creating insane mining farms out there, this spike in demand of graphic cards obliterated the supply all around the world and now you can only find them at insane prices (well that if they have any stock left) and the demand for more graphic cards keeps increasing and increasing, since these companies demand hundreds and hundreds of cards.
This has caused a lot of damage to the gaming community, especially in the low to mid end range. For example an RX 570 is supposed to have a retail price of 170$ but on most sites it goes for a whooping 500$+ and on Nvidia's side, the GTX 1060 6gb has a retail price of 250$ but its currently going for 550$+.
The demand has gotten so high for graphic cards, because the most popular method of mining cryptocurrencies through the many proof of work algorithms. There are other machines capable of mining like ASIC miners, but the high prices are a limit for some people and there are even some mining algorithms resistant to ASIC mining.
Here you can find an amazing Tom's Hardware article talking about the current situation of graphic card prices.
Proof of Work
Proof of Work is a consensus algorithm used in many of the most successful cryptocurrencies out there. This algorithm was not created by Satoshi Nakamoto nor was Bitcoin the first implementation of the algorithm. The proof of work concept is pretty simple, you can sum it up to require some work to do something, this makes even the simplest of task have a workload associated to them, usually in the form of mathematical operations for a processor to solve (can be done by a cpu or a gpu).
The main feature of PoW is : Asymmetry, Doing a proof of work is supposed to be hard but factible to do it and at the same time the cost of verification must be almost null. There are 2 variants or protocols to proof of work. One were the servers feed the challenging mathematical operation to the users and the user verifies it and summits it and one were the user creates the challenge and the server verifies the problem and the solution.
There's a precursor to the PoW algo called Hashcash, created in 1997 but we can talk about that in another article :-P.
Proof of Work in Cryptocurrencies
At the time of writing this article, some of the most successful cryptocurrencies are still using the PoW algorithm (but this might change in the future due to the criticism and the growing concern of energy "waste" when mining cryptos) some of the most famous cryptos using PoW are obviously Bitcoin, Monero, Litecoin.
All this processing power is used for the creation or distribution of a coin or token. This emission or inflation of tokens is invested in the network to incentivize the network to be as big as posible where bigger means safer. The newly created tokens get divided between all the users that maintain a copy of the blockchain and each block that is added to the blockchain generates a reward for said users (the miners).
Miners are rewarded based on the processing power they add to the network (hashrate) this means that the more power you have (represented in graphic cards, cpus and ASIC miners) the more rewards you will get from each block (this is the reason miners are hunting gpus all over the world, the more they invest, the more money they get from mining).
All this processing power is used to guarantee the integrity of the blockchain. This process of verification varies in its difficulty depending on the current hash power of the whole network, meaning that the more miners there are mining one crypto, the harder it becomes to get a block.
So to sum it up in a few points:
Advantages
It brings compromise, because a initial hardware investment is necessary, the success of the miner will be tied for a while to the success of the coin to make it profitable to his investment, so logically the miner will help progress, promote and improve his coins.
The economic incentive is a great motivation for miners to not break the rules and try to hack the network.
Using hardware to try and cheat the network will likely not work, wasting hashrate and not getting a reward for it.
Disadvantages
Its not that good for the environment, huge amounts of kw/h.
Centralization is always a fear, when big miners get bigger.
High Risk, High Reward, when mining a crypto currency you can make a lot of money but you can also lose everything if the project fails.
Thanks for reading this far down! Hopefully you enjoyed the content, please help me improve by leaving a comment!
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