“The ASICs are coming, the ASICs are coming!” is the cry heard in most alternative-cyptocurrency forums lately. Everyone has an opinion — merged mining is the way forward, Scrypt-N is the answer; Myriad makes far more sense.
It’s easy to get lost in the lingo though. Don’t get left out with this handy reference guide. Here are seven terminologies which should help broaden your understanding.
One of the most common misconceptions about Bitcoin and other cryptocurrencies is that they are a piece of code that gets passed around — if you own some, then these coins are “stored” on your hard drive. However, this is completely false, a result of applying concepts of a physical coin to a crypto equivalent.
All cryptocurrencies are in fact just a public ledger of transactions: who sent coins, and who received them. The wallet is a piece of software which contains both a public address, and a secret key. It scans the public ledger for transactions relating to itself, and builds up a picture of how many coins that address has received. Only the person with the secret key has the authority to send coins from that address — but you can actually peer into any address to see how much they have, since all the information is public.
This public ledger of transactions is called the “block chain”, and over time it grows in size since it necessarily contains the details of every transaction ever done on the network. At blockchain.info, you can watch in real time as Bitcoin transactions occur, or type in an address to see the current value held in that address.
Mining a coin is the process of securing the block chain by finding a solution to a mathematical equation (a hashing function) performed on the previous block: like looking at a page of data and signing it to say, “this is correct”. Since each block adds to a chain and depends upon the last, a chain is created in such a way that any manipulation of the transaction history would be immediately detectable: you can’t change the block chain history, and that’s what makes a crypto-currency work.
At any point in time, a cryptocurrency network has a given hash rate — that is, the total computational power of all the devices currently mining that particular coin. The biggest slice of this hash rate pie is owned by mining pools: a collective of users who have pooled together their hashing power in order to increase their chances of finding the next segment of the block chain. Here’s an example for Litecoin (from litecoinpool.org):
The 51% Attack is so-called because anyone who takes 51% or more of the total network hashing power can start lying about transactions that occur on the network: they can “double spend” the coins they own while in control. Note however that they can’t create coins out of thin air — just mess around with their own transactions and slow down others. Either way, it’s a mess.
That’s not to say anyone who takes 51% of the hashing power will necessarily attack a network by spreading false information: chances are they hold a vast amount of that currency anyway, so causing the currency to collapse and destroy the value is quite detrimental for them too. It is simply that they could.
Many will claim the 51% attack is actually a very low risk; yet many smaller coins have already been killed countless times before. It is a very real risk — particularly for a currency like Dogecoin which has in equal parts those who love it and those who thoroughly despise the cute meme doggy.
ASIC – Application Specific Integrated Circuits – are machines made to do one thing and do it really well. Bitcoin ASICs come in many forms now, but all of them are better than a regular computer at mining Bitcoins by a factor of thousands. This means that mining using a regular computer is loss making. You can still try mining for Bitcoins today with your everyday computer, but you’ll be paying more in electricity costs than you would be receiving in Bitcoins.
Litecoin (How to get started mining Litecoin) came along to solve this: it changed the core hashing algorithm used to secure the block chain, so those same machines that had been purposefully built to mine Bitcoins just wouldn’t work on the Litecoin network. It was said to be “ASIC-proof”, particular due to the high memory requirements of the new Scrypt algorithm. This was only going to work for so long though: anywhere there’s money to be made, people will find exploits.
Scrypt ASICs do exist, but the current generation aren’t that much better at mining than high end graphics card, and still use a fair bit of energy. Added to low availability, they’re not a serious problem yet. But bigger and better ASICs most certainly are coming, likely by the end of this year.
The threat of these ASICs is highly debated, and I won’t pretend to know the answers. The general consensus is that bringing ASICs into a network is good, but only after a certain point. Before that point in time, the goal is to bring as many people into the currency as possible, and making mining a realistic possibility for anyone with just a regular PC. Once the currency usage is established, ASICs can help to take the load off and secure the network. Just not in the early stages, when it kills off the community.
Some are just outright against the idea of ASICs at all, and will stop at nothing to prevent them from becoming a reality. Bringing the discussion around to the early lifecycle of currencies like Dogecoin, ASICs present a very real possibility of someone performing a 51% Attack — suddenly, a huge amount of hashing power is available, which can be targeted at a small coin, and destroying it. The discussions therefore turn to ways of combating or preventing ASICs from working with an alt-coin entirely.
The creator of Litecoin recently met with the creator of Dogecoin (a Litecoin derivative). He suggested a “merged mining” approach. The mining output would be checked against both block chains, like buying one lottery ticket that’s valid in two countries. Miners could receive both Litecoins, and Dogecoins. In terms of hash power, it means you combine the power of the Litecoin network with that of the Dogecoin network — the two biggest Scrypt currencies today. In theory, this would provide a first line of defence against 51% Attacks for either coin, since it would now be more difficult than ever to control that much power on the network.
There are various arguments for and against this move, so I’ll leave you to read up on those yourself. The move isn’t unprecedented though: Bitcoin can now be merge-mined with Namecoin (NMC), though the latter is a P2P-based DNS system rather than a strict crypto currency. In fact, if you register at ManicMiner, you can already do some merged mining simultaneously with 5 different Scrypt coins — though the additional coins are basically worthless in terms of dollar trading value.
Also known as “Adaptive N-factor”, Scrypt-N is a modification of the original Scrypt algorithm that makes it use incrementally more memory, since ASICs are designed with a specific implementation of Scrypt in mind, and with a fixed amount of memory. The next increase in N-factor stops existing ASICs from working. Vertcoin was built around this, but there’s nothing to stop other currently Scrypt based coins from adopting the algorithm.
Myriad coin came up with a unique answer to the problem: use all the algorithms. Work is split evenly between no less than 5 different hashing algorithms, each with it’s own difficulty: you can mine it with an ASIC, graphics card, or CPU.
A hard fork is what happens when a coin decides to update or change the core algorithm used to mine, or change the wallet software in which balances are kept. The updated software will work as expected, and continue down the correct block chain, while the outdated software (including end user wallets) will continue to work with the old fork. However, the two aren’t compatible: if two users remain on the old fork, they can perform transactions, but those transactions wont carry into the updated block chain.
Eventually, everyone will have switched over, which means transactions on the wrong fork will be erased. Clearly, this is a confusing and messy state of affairs, which is why hard forks are to be avoided unless absolutely necessary, and every effort needs to be taken to get word out of an update.
I hope you feel more confident now to engage in and understand discussions about the future of cryptocurrencies. Alternatively, you could just rant in the comments about how Bitcoin is just a big pyramid scheme or about as useful as Monopoly money.