If you are a regular reader of CryptoSwede then you are probably familiar with mining. It’s the process by which many cryptocurrencies are created, and it is also vital to the maintenance of a blockchain. Mining Ethereum is a little bit different than mining Bitcoin and other tokens. Here’s a quick look at how Ethereum mining works.
A Refresher on Cryptocurrency Mining
Before we specifically look at Ethereum mining, let’s present a brief refresher that will get you up to speed on the mining process. Mining is a computational process. It requires significant computer resources, and it can be expensive. Miners on a network work together to establish a consensus by solving complex mathematical problems. Those who mine have dedicated computer equipment that is connected to a network like Ethereum.
The information that is contained in cryptocurrency transactions is contained in blocks of data. Each of these blocks is linked to the one before and the one after. This makes it impossible to tamper with a block of data without impacting other blocks. This type of protocol is called a blockchain, and this is what is the foundation of cryptocurrencies.
Each block of data has to be verified and confirmed before it can be added to the blockchain. This work is too much for single group of developers to perform. Miners are enlisted to join the network and perform the functions required to verify transactions. For doing this important work they are provided with a reward in the form of digital tokens.
In a way you can think of miners as cryptocurrency investors. They put up money in the form of computer equipment and resources in order to try and obtain an award. We say try because there is no guarantee that an individual miner will solve a block before the others on the network. The truth is that cryptocurrency mining today can be a dicey proposition for the hobbyist or novice miner. It is very hard to reap the rewards that could once be gained.
Today it is far more common for individuals to join a mining collective like Genesis Mining. In this type of operation the individual purchases hash power in the form of a mining contract. They are then able to merge that hash power with other miners to have a better return. The miners in a pool all share the rewards that are earned.
About Ethereum Mining
Ethereum mining is the process of mining Ether, the “gas” that is used for transactions on the Ethereum Network. Mining Ether is a way of securing the network and verifying its transactions. Ether is an essential component of the Ethereum blockchain. It keeps the platform running in a smooth fashion, and it also gives an incentive to developers to create Dapps and applications on the Ethereum network.
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For example, a developer who wishes to create smart contracts on the Ethereum network requires Ether to proceed with development. It is also possible to sell Ether or trade it on a cryptocurrency exchange. No more than 18 million Ether can be created in a given year.
A block on the Ethereum network can be processed in an average of about 12 seconds. As we stated before, it is possible in principle to mine Ether in your own home with a basic computer setup. This would not be economically wise, however. It would just cost too much to run the equipment. This is especially true given the current state of the cryptocurrency market.
Proof of Work Vs. Proof of Stake Mining
Ethereum currently operates on a Proof of Work system which is common to many blockchains. This is the process that we described earlier of solving blocks to reach a consensus. While this has worked reasonably well for Ethereum, the future envisioned by the developers will probably involve a Proof of Stake system.
Proof of Stake is a different mining protocol that takes into consideration the amount of Ether one already possesses. Proof of Stake is a consensus algorithm that is expected to be a part of future Ethereum updates.
There are some, however, who have a concern that mining as it is known today will cease with the advent of consensus algorithms and Proof of Stake protocols. In truth, this is probably not a bad thing. As mining stands today it is generally collected in the hands of a comparatively few large mining operations. This leaves the solo miner little chance for profit.