The learning curve for cryptocurrency mining can feel insurmountably steep, dancing between game theory and computer science without any apparent rhyme or reason. For a lot of newcomers, the taxonomy of the field itself is incredibly perplexing—terms like “nonces” and “nodes” can make you feel like you're Alice in Wonderland.We've put together this glossary of mining terms to help you orient yourself and get started. We'll keep it updated over time with the most important cryptocurrency mining terms you need to know.
51% Attack refers to an attack on a blockchain by parties that control 51% or more of the network's hashrate. With a majority of the hashrate, attackers have the ability to reverse their own transactions and double-spend coins. They can also block the confirmation of transactions.
To mine cryptocurrency, miners compete to solve a complex math problem with compute power. The miner that finds the solution first broadcasts it to other nodes on the network, which validate transactions in the new block and add it to the blockchain.With 51% of the network's hashpower, a malicious miner could stealthily create a new chain of transactions that aren't broadcast to the other nodes on the network. The miner might spend their coins on the original chain, meanwhile adding new blocks to the new chain without these transactions. On Bitcoin and other proof-of-work chains, the legitimate chain is determined by the longest chain or the one with the most compute power. Since the malicious miner has over 51% of the network's hashpower, he can add blocks faster than the original chain. When the new chain grows longer than the original chain, the miner can broadcast it to the rest of the nodes on the network, forcing the network to accept the corrupted version of the chain.
Application-Specific Integrated Chip (ASIC)
An application-specific integrated chip, or ASIC, is a chip designed to perform a very specific function, rather than a variety of general-purpose functions. With Bitcoin and many other proof-of-work currencies, specialized ASICs developed for mining are often the fastest and most efficient way to mine crypto.
A typical CPU has a lot of extra bells and whistles that allow it to perform a whole bunch of different functions. Because ASIC chips are specialized around a single task, they can strip out a lot of this extra fat, creating a leaner and more efficient chip specifically for mining.
ASICs lead to the centralization of mining, as small miners running consumer hardware are unable to compete with large companies able to invest in building out big mining farms with ASICs. That's led to the development of certain algorithms that are “ASIC-Resistant,” such as Equihash for Zcash or Cryptonight v8 for Monero. ASIC resistance is typically achieved by requiring a lot of memory to generate hashes, leveling the playing field and giving an advantage to consumer-grade CPU and GPU mining hardware.
ASIC Resistance, however, is not a permanent solution. ASICs are simply chips designed to excel at one specific function. Over time, ASICs designed for the purpose of mining specific algorithms will work more efficiently than general purpose hardware—as is already the case for Equihash and Cryptonight.
If you think of Bitcoin and other cryptocurrencies as a decentralized ledger where all transactions on the network are recorded, you can think of blocks as the pages that make up that ledger. A block contains a timestamp, a reference to the block that came before, and a batch of recent transactions that have been broadcast to the network.
To be added to the ledger, a proof-of-work must be found that's unique to each block—miners compete to solve this proof-of-work, which is essentially a really complex math problem. Once the proof-of-work is found, this answer can be confirmed by other nodes on the network, and the block is added to the chain of previously validated blocks.
A blockchain is, in essence, a kind of database for storing information and updating it with new transactions. Each block on the chain refers to a batch of transactions, which is cryptographically verified, sealed, and added to the chain. The blockchain refers to the entire chain of blocks. Bitcoin and other cryptocurrency use blockchain technology, but blockchain itself has wider applications beyond digital currency.
Block reward refers to the reward given to miners for successfully mining a block on the chain. Each block creates new bitcoin that are distributed to the miner as a block reward, adding to the total supply of coins. On Bitcoin, the original block reward was 50 bitcoin. Every 210,000 blocks, or roughly four years, the block reward is cut in half.
Cloud mining is a way for people to mine cryptocurrency without having to run their own hardware. Instead, miners lease hashpower over the cloud, which is sourced from mining farms, remote data centers, or peer-to-peer marketplaces. Miners pay a fixed sum to a cloud mining service for a guaranteed hashrate over a predetermined period of time, which can be anywhere from a day to two years.
When you send Bitcoin, that transaction is broadcast to a node on the network. If the transaction is valid, it's placed in a block with other transactions. Once a miner solves the proof-of-work for that block and adds it to the chain, your transaction has been confirmed. Each subsequent block that's added to the chain is another confirmation for your transaction. If your transaction was included on the chain six blocks ago, it has six confirmations. The more confirmations a transaction has, the more difficult it is to reverse, because a competing chain would have to mine enough blocks to overtake the number of confirmations to invalidate the block with your transaction.
Difficulty is a measure of how hard it is to find a new block. To mine a new block, miners need to find a hash below a given difficulty target. If the difficulty target never changed, new blocks would be added to the chain faster and faster as more miners joined the network. That's why the Bitcoin protocol automatically adjusts difficulty to meet miner supply and demand. Every 2016 blocks, the network adjusts difficulty based on the average time it took to add each block. If it took over ten minutes, the difficulty decreases. If it's under ten minutes, the difficulty increases.
A hard fork is a software upgrade of the protocol of a decentralized network like Bitcoin or Ethereum. Hard forks introduce changes to the protocol that aren't backwards compatible. That means that nodes running the new version of the software aren't accepted by nodes running an older version of the software. Hard forks can be introduced to do everything from patch security issues to reversing previous transactions on the chain. Due to the decentralized nature of the network, it's impossible to run a system-wide upgrade from the top—each node actually has to update their client software.
If nodes on the network continue running the old version of the software, a hard fork will split the chain into two, which is what happened with the Ethereum DAO fork and the Bitcoin Cash hard fork.
A hash algorithm maps an arbitrary amount of data onto a fixed length hash. Inputting the same data into a hash algorithm will always lead to the same hash, which makes it especially useful in cryptography. For example, most web services will use hash algorithms to store your passwords. When you create a password for your account, it's input into a hash function and the hash is stored in a database. Each time you log in, the service will hash the password you type in and check it against the hash in its records.
In Bitcoin and other proof-of-work cryptocurrencies, when a new block is added to the chain, the data in that block is first hashed. Miners then add a random string, called a nonce in front of the hash, and hash it a second time. If this second hash is smaller than the difficulty target, then the block is added to the chain. If it's not, then the miner increments the nonce by one and tries again.Different currencies may use different hashing algorithms. Bitcoin, for example, uses SHA-256, while Ethereum uses Ethash and Monero uses Cryptonight.
Hash rate provides a useful way of measuring a miner's compute power. To mine a block, miners need to solve a really difficult math problem. The only way to solve this problem is to guess a whole bunch of different combinations and see if they work. Each of those guesses is called a hash, and it can take millions of hashes to win a block reward. Hashrate measures the number of hashes a miner can compute per second. It's denominated according to the metric system. A kilohash measures 1,000 hashes per second, a megahash is 1,000 kilohashes, a terahash is 1,000 megahashes, and a petahash is 1,000 terahashes. That means that a petahash refers to a quadrillion hashes per second.
A mining pool refers to a group of miners who have pooled their resources together to share processing power. Miners in a pool split block rewards equally, based on the amount of hashpower that individual miners have contributed. As cryptocurrency mining has grown increasingly competitive, it's become harder than ever for solo miners to eke out profits. It might take an individual miner several years to mine a single block of Bitcoin. Mining pools give miners a way to consistently share in profits by sharing resources.
Bitcoin, Ethereum, and other cryptocurrencies are peer-to-peer networks consisting of nodes. Nodes are computers that run the client software of the network. A node typically maintains a copy of the entire blockchain, and helps relay transactions and blocks on the network. Nodes can also be used for mining.
Orphan blocks are blocks that are valid but separate from the main chain. This can happen naturally when two miners produce new blocks nearly simultaneously. The network temporarily splits into two different chains, one with each of the newly minted blocks. Eventually, one of the chains grows longer than the other, meaning that it accumulates the most proof-of-work by adding more blocks. The nodes on the network then only accept transactions as valid from the longer chain, “orphaning” blocks on the alternate chain.
A proof-of-work is a piece of data which is costly or time-consuming to produce, but can be easily verified by others. The original academic paper for proof-of-work was in creating a system to deter email spam. The paper proposed that an email could only be sent with a proof-of-work that would take a couple of seconds for the sender's computer to solve. While this wouldn't impact normal email use, it would take a ton of compute resources for a spammer to send millions of emails at once.
Proof-of-work plays a big role in how Bitcoin creates new blocks. To add a new block to the network, miners compete to solve a really difficult math problem by hashing all the data in the block with a nonce. The resulting hash has to be lower than the predetermined difficulty target. Finding the correct proof-of-work for a block takes many different guesses, which in turn requires significant processing power. The difficulty of solving the proof-of-work is adjusted so that it takes roughly ten minutes to produce each new Bitcoin block.
A soft fork is an upgrade to the protocol of a decentralized network like Bitcoin or Ethereum. Unlike a hard fork, soft forks are backwards compatible, which means that old nodes will accept new blocks added by new nodes as valid. New transaction types, for example, are often added as soft forks because they only require the sender and receiver of the new transaction type to be running an upgraded version of the software.
Spec mining refers to speculative mining, or the practice of mining a specific cryptocurrency with the expectation that the currency will increase significantly in value in the future. Upon the launch of Grin, for example, venture capital firms invested $100 million to speculatively mine Grin in expectation of future returns.