Ethereum mining is fundamentally similar to bitcoin mining. Both use proof of work (PoW). PoW is a competitive activity that miners undertake to write transactions to a new block that will be added to the blockchain. A miner successfully mines a new block while competing with fellow miners by running a hashing script.
Karan Bharadwaj, CTO of XinFin said, “The specific scripts used in mining for bitcoin and ethereum are SHA-256(based script) and Ethash. Each block mined on ethereum also gives a payout of 5 ether to the miner. The bitcoin payout per block mined is 12.5 BTC that is set to halve to 6.25 in 2020. The maximum number of bitcoins are capped at 21 million while the total ether supply has no such cap.”
The developers behind the ethereum blockchain are working on shifting the mining algorithm from Proof of Work to Proof of Stake (PoS). PoS allows for the creation of new blocks with the expensive process of PoW mining.
“In PoS, each node participates in the consensus mechanism in a proportional manner to the stake (of the Ethereum blockchain) held by it,” said Bharadwaj.
With this shift to PoS, the block reward goes away and the miners are paid only in the form of transaction fees. This shift to PoS is going to remove the wasteful energy intensive process of mining while introducing additional security benefits to an already robust protocol. However, it is important to note that this is a very challenging implementation and not without complications.
Rachit Chawla, CEO, Finway Capital said, “Somewhat similar to bitcoin, Ethereum is also a popular cryptocurrency and ethereum mining is the process of mining ether; platform-specific cryptographic token, or simply, a unique piece of code against a blockchain transaction.”