What is Mining in Ethereum and How does Ethereum Mining Works [Complete tutorial]

In this Ethereum tutorial, we will understand the mining process in Ethereum and discuss how Ethereum mining works. Moreover, we will illustrate the following topics in this tutorial.

What is Mining
What is Ethereum Mining
Who can become Ethereum Miner
How does Ethereum Mining Works
Types Of Ethereum Mining
Ethereum Mining vs Bitcoin Mining
Effect of Proof-of-Stake on Ethereum Mining

Contents show

What is Mining

Before deep-diving into the process of Ethereum Mining, it will be better to understand mining in a nutshell.

In a decentralized system like Bitcoin and Ethereum, all the transactions are recorded in blocks. And multiple blocks are linked with one another, forming a chain. To facilitate smooth network transactions, these blocks must be inspected and validated.

However, the entities participating in the decentralized network are not necessarily equipped with the necessary processing power to enable smooth transactions. And now here comes the role of mining and miner.

So, mining is the process of solving a mathematically challenging problem. And the participants that take part in this mining process are known as miners.

The role of miners is to provide the solution for the mathematical puzzle, and the solution will be utilized in transaction verification.

Once a transaction has been successfully validated, the miner will be rewarded. And this reward mostly includes digital currency.

In general, the mining of gold is carried out to increase the circulation of gold in the market. Similarly, in Ethereum and Bitcoin, mining is carried out to increase the circulation to cryptocurrency.

Read Ethereum Nodes and Clients

What is Ethereum Mining

In a nutshell, Ethereum mining is a digital mining process that takes place on the Ethereum network for creating and adding new blocks of transactions.

As discussed in the previous section, on the Ethereum network, each executed transaction needs to be validated. And for this task, miner executes mining where they have to solve a computationally challenging puzzle.

To successfully mine the blocks of transactions in the Ethereum, miners employ Ethash hashing. However, once a transaction has been successfully validated, the miner will be rewarded with Ethereum’s native cryptocurrency, Ether (ETH).

Till now, Ethereum uses the Proof-of-Work consensus mechanism that includes very high energy consumption. But Ethereum is planning to shift from Proof-of-Work to Proof-of-Stake mechanism soon.

Read Enterprise Ethereum Alliance

Bnefits of Ethereum Mining

Till now, we understood what is Ethereum Mining and what is the role of miners. But, why a participant in the network becomes a miner, and what are the key benefits of Ethereum mining.

So, in this section, we will try to cover some of the main benefits of Ethereum mining.

Improves network security:
- The mining in Ethereum helps to improve the overall security of the Ethereum network.
- Moreover, it transforms network security into a challenging but rewarding industry.
Earn Ethers:
- When we talk about Ethereum mining, the main benefit that a user can consider is earning.
- In Ethereum, the miners get rewarded with some amount of cryptocurrency.
- In the case of Ethereum, this cryptocurrency is Ether, Ethereum’s native cryptocurrency.
- Moreover, on a successful mining block, a miner is entitled to transaction fees for all transactions that occur within it.
Future Advantage:
- As discussed earlier, Ethereum is going to shift from Proof-of-Work to Proof-of-Stake.
- Now, in Proof-of-Stake, the validator will be decided based upon how much Ether a participant stakes.
- So, having a substantial Ethereum deposit today will be quite beneficial.

Read How to Setup Private Ethereum Blockchain on Windows

Who can become Ethereum Miner

Ideally, any user with a computer or laptop can become an Ethereum miner. And anyone can run the mining software on their computer. But, every user cannot become a profitable Ethereum miner.

To mine profitably, miners almost always need to invest in specialized computer gear. Because an ordinary system cannot process that efficiently for rewards to cover the mining expenditures.

How does Ethereum Mining Works

Now that we understood the key benefits of mining, it’s time to deep dive into the Ethereum mining process and learn how Ethereum mining works.

The whole process starts when a user initiates a transaction by using the private key of some Ethereum wallet.
Once the transaction is requested by a user, it is distributed globally in the Ethereum network.
When a node in the Ethereum network receives a new transaction request, it adds it to its local mempool. This local mempool is a list of all pending transactions in the Ethereum network.
Here comes the role of the miner, who then verifies a transaction and solves a complicated mathematical problem using the transaction data.
After the verification of a transaction is completed, the Proof-of-Work for the associated block starts, and a copy is stored in local EVM.
Once all transactions are completed in a block, each node on the Ethereum network verifies those transactions and cross-check the checksum of the miner’s block state with their updated EVM state. And only after this verification, the block is added.
When a miner successfully mine a block, they are rewarded with some Ether. And the transaction is confirmed and transferred to the appropriate wallet.

Read What is Ethereum Network

Types Of Ethereum Mining

From the previous section, we got a clear idea of how Ethereum mining works. Now, based upon various factors, there are multiple types of Ethereum Mining.

These factors include hardware utilization, mining pool, etc. And here in this section, we will illustrate the following types of Ethereum Mining.

1. CPU Mining

In this Ethereum mining, a miner utilizes the power of their central processing unit. And this method, a miner can similarly use either a compute desktop or even a laptop.

A few years back, CPU mining was a feasible choice. Unfortunately, due to declining profits, its popularity has faded.

2. GPU Mining

In this Ethereum mining, instead of using a central processing unit, miners employ one or more graphics processing units for mining. And this is perhaps the most widely used form of cryptocurrency mining.

GPUs enable quicker and parallelized calculations, which are often written in the OpenCL. Moreover, in comparison to CPUs, this proved to be a speedier solution.

Yet, GPU mining has several drawbacks, such as overheating and the need for specialized motherboards and additional hardware to accommodate numerous graphics cards.

3. ASIC Mining

This is one of the most powerful mining techniques. In this, miners employ ASIC that refers to Application-Specific Integrated Circuits. These are unique specialized chips that facilitate significantly high hashing rates.

Moreover, it will be difficult for GPU and CPU miners to compete with ASIC miners in terms of hash rates and revenue. In view of the fact that ASIC miners have more processing power than other miners, they would deprive other miners of equal possibilities.

However, a single ASIC unit is no longer useful because of the rapidly rising mining difficulty level. Still, there are professional mining centers that facilitate users to do mining using thousands of ASIC chips running in parallel.

4. Cloud Mining

In this type of mining, miners utilize cloud resources for mining Ethereum. So, in place of buying expensive computational hardware, miners rent out computation power from third parties.

It also includes an agreement where miners need to pay for the computational resources. And mining services will deliver the profit of mining to miners’ wallets.

A significant proportion of cloud mining providers has big mining facilities with several mining machines. They can provide highly efficient mining services on a big scale using this combined computing power.

5. Solo Mining

As the name signifies, solo mining is a mining technique where a single miner uses its computational resources for mining Ethereum. Moreover, this type of mining appears to be the most viable option.

However, due to a large number of players, solo mining is only useful if a miner has adequate resources to have a large network presence. For example, maintaining a mining farm with 5 to 10 GPUs.

Still, there are numerous drawbacks of solo mining. For example, buying expensive computational hardware, heating and ventilation issues of the hardware, maintenance of hardware resources, etc.

6. Pool Mining

Another technique for Ethereum mining is the utilization of mining pools. A mining pool includes multiple miners that collaborate for the mining of a block.

In the pool, there is a pool manager who will receive the reward for successful Ethereum mining. And pool manager is also in charge of distributing the prize to the miners that put in the effort for mining.

Moreover, pool mining increases the chances of discovering a block, resulting in higher revenues.

Read Ethereum Ecosystem

Ethereum Mining vs Bitcoin Mining

The technique of Ethereum mining is similar to Bitcoin mining. This technique includes a process of adding a new block of transactions to the main Ethereum blockchain.

And for this, all the participants in the Ethereum network must validate the new suggested block.

However, there are a few significant distinctions between Ethereum and Bitcoin mining. The majority of them are caused by protocol and design differences. And in this section, we will cover these differences.

Hashing

Both Ethereum and Bitcoin use the same Proof-of-Work algorithm. Still, one key difference between them is their hashing technique. Bitcoin utilizes the SHA-256 hashing function.

But, with the introduction of specialized mining equipment such as ASIC, this method affects small miners and promotes mining centralization.

To address these issues, Ethereum’s PoW method is based on a memory-hard hash function termed Ethash. Ethash is a variant of the Dagger-Hashimoto algorithm, and it focuses on using GPUs as the core mining device.

Time Consumption

Ethereum’s hashing algorithm features a two-fold design concept. First, it makes sure that mining is difficult enough for miners, but validating is relatively simple. Furthermore, the hash results are consistently shared for better control when a new block is discovered.

In Ethereum, the time taken to create a new block is merely 12 seconds. Whereas in Bitcoin, a new block is created in 10 minutes. Moreover, in Ethereum, the difficulty is dynamically changed to ensure that blocks are created at a considerably faster rate.

Transaction Fees

In the Bitcoin network, paying some transaction costs is completely optional. In Bitcoin, a user with wellness can pay the miner some additional money. However, if a user doesn’t pay any transaction cost, the transaction will still go through.

On the other hand, in order for a transaction to be successful on Ethereum, a user must provide some ether. The ether we provide will be transformed into a unit known as gas. This gas fuels the processing required to add a transaction.

Also, read, What is Ethereum Classic

Effect of Proof-of-Stake on Ethereum Mining

As we discussed earlier, the Ethereum network is planning to shift from Proof-of-Work to Proof-of-Stake. So, in this section, we will discuss the effect of shifting to the Proof-of-Stake mechanism on the Ethereum mining process.

In the existing system, Ethereum utilizes proof of work consensus. In PoW, miners need to solve a difficult computational problem.

And to solve this problem, miners use specialized hardware components. So, a miner with efficient resources can successfully mine a block and earn the reward.

However, when it comes to proof of stake, the winner is selected at random based on the amount a user will stake. So, with PoS, a user needs to have more stake in the network rather than have good hardware. As a result, Ethereum will appear to be less mineable.

So, whenever Ethereum shifts to PoW, miners will only have 2 options. First, they can sell their expensive gears and utilize them to acquire more ethers. Second, they can shift to some other Ethash network for mining.