Do you know what a cryptocurrency algorithm is? Cryptocurrency algorithms are what dictate the mining procedure. Different cryptocurrencies use various algorithms, but the most popular is SHA-256 used by Bitcoin. Other popular cryptocurrencies, like Litecoin and Ethereum, are based on different algorithms. This article will discuss cryptocurrency algorithms, how they work, and why they are essential. Let’s get started!

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What is a Cryptocurrency Algorithm?

A cryptocurrency algorithm is a set of mathematical rules that dictate how a cryptocurrency is mined. Cryptocurrency mining is the process by which new coins are created. Miners use special software to solve complex problems and are rewarded with coins. The mining process gives cryptocurrencies their value and helps keep the network secure. The cryptocurrency algorithm is what makes this possible. 

Cryptocurrency algorithms are designed to be difficult to mine to ensure that new coins are released at a steady pace. If mining were always too easy, inflation would occur, and the value of the coins would never increase. The most popular cryptocurrency algorithm is SHA-256, which Bitcoin uses. Ethash is another popular algorithm used by Ethereum.

Why are Cryptocurrency Algorithms Important?

Cryptocurrency algorithms are essential because they help keep the network secure and ensure that new coins are released steadily. Without algorithms, cryptocurrencies would be worthless, and there would be no way to ensure network security.

Cryptocurrency algorithms are also responsible for ensuring that all transactions are recorded and that no coins are double-spent thus, maintaining the network’s trustworthiness and ensuring all users have confidence in the system is essential.

What is Blockchain Consensus Algorithm?

A consensus algorithm is a protocol that allows a network of computers to agree on a shared piece of data. This shared data can be anything from a transaction to a block in a blockchain.

It is a way for all nodes in a blockchain network to agree on what is happening. Everything happens in real-time, so they are all always up to date. That also means the transactions are authorized and safe. Without consensus algorithms, blockchains would not be possible.

There are a variety of different consensus algorithms that are used by various cryptocurrencies. Some of the most popular include Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS). We will talk about them next in this blog.

cryptocurrency algorithm
cryptocurrency algorithm

Types of Cryptocurrency Algorithm

Different algorithms are used in various cryptocurrencies, and some of them are:

Proof of Work (PoW)

The most common algorithm is Proof of Work (PoW), as Bitcoin and many other cryptocurrencies use this algorithm. Under this system, miners compete to solve complex mathematical problems to add new blocks of transactions to the blockchain.

Proof of Stake (PoS)

Proof of Stake (PoS) is another popular algorithm that is used by many different cryptocurrencies like Egld. Under this system, users can earn rewards for holding coins in their wallets and staking them on the network.

Delegated Proof of Stake (DPoS)

Delegated Proof of Stake (DPoS) is a variation of PoS that is used by some newer cryptocurrencies. Under this system, users can vote for witnesses who will verify transactions and add new blocks to the blockchain.

What is a Cryptocurrency Hashing Algorithm?

A hashing algorithm is a mathematical function that takes an input of any size and maps it to an output of a fixed size. A cryptocurrency hashing algorithm takes a transaction as an input and outputs a fixed-size hash. This hash is then used to create a new block in the blockchain. In simple terms, the hashing algorithm is a mechanism to encrypt digital currencies.

How Does Hashing Work?

A cryptocurrency hashing algorithm takes a transaction as an input and outputs a fixed-size hash. This hash is then used to create a new block in the blockchain. For example, in Bitcoin, the hashing algorithm is SHA-256. It means that when a transaction is hashed, it produces a 256-bit output that becomes the transaction’s ID. This ID is then used to create the new block in the blockchain.

Let me provide you with a more simple example. Let’s use the sentence “Vitalik is a happy man who loves eating pizza and chill in Ethereum wonderland.” Now let’s apply the CRC32 hash algorithm to it; you will get 0c11ac44. That is what we call hash. Hashes help recognize and compare files or databases. Computers find it easier to compare the hash values than the original data.

Most Popular Crypto Hashing Algorithm

There are a variety of different hashing algorithms that are used in cryptocurrencies. The most common hashing algorithms are:

Secure Hashing Algorithm (SHA-256)

SHA-256 is a hashing algorithm that Bitcoin and many other cryptocurrencies use. It produces a 256-bit hash and is a crucial component of the Bitcoin protocol that manages addresses and transaction verification. Bitcoin uses the hash functions (SHA-256)twice. The reason behind using it twice might be to avoid  Length-extension attacks. 

As Coinmarketcap Explains, “The SHA-256 algorithm is so secure that no one outside of the company(National Security Agency) knows how it works. The United States government uses it to safeguard sensitive information because of its capacity to verify data without revealing it using digital signatures.”

Ethash Algorithm

Ethash is a hashing algorithm that Ethereum and a few other cryptocurrencies use. It produces a 256-bit hash and uses the Keccak-256 hashing algorithm. Ethash is designed to be ASIC resistant, which makes it difficult to mine using specialized mining equipment.

Scrypt Algorithm

Scrypt is a hashing algorithm that Litecoin and a few other cryptocurrencies use. It is not too complicated, has less energy consumption, and is faster than different mining algorithms like SHA-256.


Cryptocurrency algorithms are essential for the functioning of blockchain technology. They provide a way to verify transactions and add new blocks to the blockchain. Without these algorithms, cryptocurrency existence would not be possible.

I hope you found this article helpful in understanding cryptocurrency algorithms. If you have any queries regarding the article, feel free to message me on Twitter.

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Award-winning SEO content marketer with a passion for cryptocurrency, the Elrond blockchain, and providing information and knowledge through the power of written words.