Know the currency you are mining: find useful info in the white paper

Some people used to contact us directly with some unknown cryptocurrencies and asked whether they were worth mining or whether it’s reliable with profits. Feeling doubted, we always asked them whether they had read the white paper. They should be clearer whether it’s profitable or not.

Then they felt very surprised that they needed to read the white paper before mining. Then, we were similarly astonished because it’s always a vital step to check relevant information before mining the unknown cryptocurrencies.

It’s true that nobody would like to read such a subtle and obscure white paper full of various special vocabularies without professional guidance. However, not only those who deal with private equity and cryptocurrency trading, but also mining workers need to read the white paper.

Although a white paper has a lot of content, the mining workers only need to grasp a few key points so that they can judge whether the project is reliable and this new cryptocurrency worth mining?

Algorithm

First of all, when a new cryptocurrency appears, you need to know what algorithm is adopted. This is very important, because the algorithms of cryptography are very complicated. For example, the SHA256 of BTC and BTH, the Ethsah of Ethereum, the CryptoNight of Monero.

Only when you know the algorithm can you understand whether there are corresponding Asic miners available in the market. We often talk about the bitcoin miner or the litecoin miner, they are in fact not accurate. The correct name is the miner with certain algorithm, because the Asic chip is only designed based on the algorithm.

The existence of ASIC miners directly decides your choice on CPU mining or GPU mining or ASIC mining. If there are ASIC miners, the GPU mining seems to be infeasible because the former has higher efficiency. Of course, there are also some exceptions, but we will not discuss them in details here. Specific algorithms have different analysis.

Consensus

Secondly, it should be noted whether this new cryptocurrency supports mining, which involves the consensus mechanism. Normally, only the POW supports mining, because the POW requires a huge amount of hashrate to maintain the network security, while rewarding mining workers with tokens is the way they encourage them to contribute hashrate.

However, some cryptocurrencies do not adopt the POW mechanism due to various reasons, such as waste of resources, environmental pollution, etc. With the Proof of Stake (POS) and Practical Byzantine Fault Tolerance (PBFT), these mechanisms do not require mining workers to provide proof of work and contribute hashrate, so they cannot be used for mining.

The Dpos mechanism such as EOS is another innovation. Recently, Ethereum is also busy shifting from the POW mechanism to the POS mechanism. Therefore, the mining workers need to know whether the mechanism can be used for mining before making a decision.

Other Details Related to Mining

Then you also need to know whether the total number of coins revealed in the white paper unchanged, how often the difficulty will be adjusted, whether it is further issued every year and how the income will be distributed?

All these are directly related to the incomes of mining workers, so they must be clearly understood in advance. For example, Satoshi Nakamoto clearly stated in the bitcoin white paper that there are only 21 million bitcoins and one block is generated every ten minutes. Such information helps the mining workers calculate the revenue and how much profits can be obtained at what hashrate, so that they can judge whether it’s worth mining or not.

Prospect

Finally, you must have an overall perspective since each cryptocurrency has its own development goals and applications. Whether all these applications have potentials will decide how far the cryptocurrency can develop.

For example, why the people are still optimistic about Ethereum despite of the poor market situation? Because it is defined as “the next generation of smart contract and decentralized application platform.” The DAPP open platform for future blockchains must be cool, isn’t it? That’s why the people feel fully confident.

Therefore, if you want bring prospect in the mining industry, it is the prerequisite to read the white paper. Remember, precise knowledge of self and the threat leads to victory!

Appendix

A series of articles on cryptocurrency mining for beginners on EastShore: