How Ethereum Mining Works

Today, miners play an important role in making sure ethereum works.

This role isn't immediately obvious, though.

Many new users think that the sole purpose of mining is to generate ethers in a way that doesn't require a central issuer (see our guide "What is Ether?"). This is true. Ethereum's tokens are created through the process of mining at a rate of 5 ether per mined block. But mining also has another at least as important role.

Usually, banks are in charge of keeping accurate records of transactions. They ensure that money isn't created out of thin air, and that users don't cheat and spend their money more than once.

Blockchains, though, introduce an entirely new way of record-keeping, one where the entire network, rather than an intermediary, verifies transactions and adds them to the public ledger.

Although a 'trustless' or 'trust-minimizing' monetary system is the goal, someone still needs to secure the financial records, ensuring that no one cheats.

Mining is one innovation that makes decentralized record-keeping possible.

Miners come to consensus about the transaction history while preventing fraud (notably the double spending of ethers) – an interesting problem that hadn't been solved in decentralized currencies before proof-of-work blockchains.

Although ethereum is looking into other methods of coming to consensus about the validity of transactions, mining currently holds the platform together.
How mining works
Today, ethereum's mining process is almost the same as bitcoin's.

For each block of transactions, miners use computers to repeatedly and very quickly guess answers to a puzzle until one of them wins.

More specifically, the miners will run the block's unique header metadata (including timestamp and software version) through a hash function (which will return a fixed-length, scrambled string of numbers and letters that looks random), only changing the 'nonce value', which impacts the resulting hash value.

If the miner finds a hash that matches the current target, the miner will be awarded ether and broadcast the block across the network for each node to validate and add to their own copy of the ledger. If miner B finds the hash, miner A will stop work on the current block and repeat the process for the next block.

It's difficult for miners to cheat at this game. There's no way to fake this work and come away with the correct puzzle answer. That's why the puzzle-solving method is called 'proof-of-work'.

On the other hand, it takes almost no time for others to verify that the hash value is correct, which is exactly what each node does.

Approximately every 12–15 seconds, a miner finds a block. If miners start to solve the puzzles more quickly or slowly than this, the algorithm automatically readjusts the difficulty of the problem so that miners spring back to roughly the 12-second solution time.

The miners randomly earn these ether, and their profitability depends on luck and the amount of computing power they devote to it.

The specific proof-of-work algorithm that ethereum uses is called 'ethash', designed to require more memory to make it harder to mine using expensive ASICs – specialized mining chips that are now the only profitable way of mining bitcoin.

In a sense, ethash might have succeeded in that purpose, since dedicated ASICs aren't available to mine ethereum (at least not yet).

Furthermore, since ethereum aims to transition from proof-of-work mining to 'proof of stake' – which we discuss below – buying an ASIC might not be a smart option since it likely won't prove useful for long.
Shift to proof of stake
Ethereum might not need miners forever, though.

Developers plan to ditch proof-of-work, the algorithm that the network currently uses to determine which transactions are valid and protect it from tampering, in favor of proof of stake, where the network is secured by the owners of tokens.

If and when that algorithm is rolled out, proof-of-stake could be a means for achieving distributed consensus that uses fewer resources.

Authored by Alyssa Hertig; Coindesk

NEXT: HOW TO MINE ETHEREUM

INDEX: A BEGINNERS GUIDE TO BITCOIN AND BLOCKCHAIN TECHNOLOGY


What is Bitcoin?
It’s a decentralized digital currency 
Why Use Bitcoin?
It’s fast, cheap to use, and secure 
How Can I Buy Bitcoin?
From an exchange or an individual 
How to Buy Bitcoin in the UK
Buying bitcoin in the UK 
How to Store Your Bitcoin
Use a digital or paper wallet 
What Can You Buy with Bitcoin?
Spend your bitcoins 
How to Sell Bitcoin
A guide on how to sell your bitcoins 
How to Accept Bitcoin Payments for Your Store
Learn about bitcoin POS systems 
How do Bitcoin Transactions Work?
Bitcoin addresses and private keys 
Is Bitcoin Legal?
The current regulation around bitcoin 
Who is Satoshi Nakamoto?
The founder of bitcoin 
How Bitcoin Mining Works
By confirming transactions 
How to Set Up a Bitcoin Miner
Generate bitcoins yourself 
What are Bitcoin Mining Pools?
What are pools how and how to join them? 
How Does Cloud Mining Bitcoin Work?
Alternative bitcoin mining solutions 
How to Calculate Mining Profitability
Can you make a ROI? 
How to Make a Paper Bitcoin Wallet
Creating an unhackable bitcoin wallet 
Can Bitcoin Scale?
A look at the debate and the tech 
What is SegWit?
A new way of storing transaction data 
What is the Lightning Network?
Off-chain transaction channels 
What is Bitcoin Cash?
Same blockchain, different characteristics. 
Hard Fork vs Soft Fork
Why and how do blockchains split? 
What is the Difference Between Litecoin and Bitcoin?
It’s the silver to bitcoin’s gold 
How to Buy Litecoin
How to buy the bitcoin alternative litecoin 
How to Mine Litecoin and other Altcoins
How to generate your own altcoins 
Understanding Bitcoin Price Charts
A primer on bitcoin price charts 
Bitcoin E-Commerce Services for Merchants
How to accept bitcoin at your business 
What is Blockchain Technology?
A system of distributed data and logic 
How Does Blockchain Technology Work?
Cryptographic keys, distributed networks and network servicing protocols 
What Can a Blockchain Do?
Identity, recordkeeping, smart contracts and more 
What is a Distributed Ledger?
A dynamic, independently maintained database 
What is the Difference Between Public and Permissioned Blockchains?
Can anyone read or write to the ledger? 
What is the Difference Between a Blockchain and a Database?
It begins with architectural and administrative decisions 
What Are the Applications and Use Cases of Blockchains?
Tokenization, auditing, governance, settlement and more 
How Could Blockchain Technology Change Finance?
Cross-border payments, new asset classes, regulatory compliance and more 
What are Blockchain’s Issues and Limitations?
Complexity, size, costs, speed, security, politics and more 
Why Use a Blockchain?
To manage and secure digital relationships as part of a system of record 
What is Ethereum?
A blockchain application platform and ‘world computer’ 
What is Ether?
The ‘fuel’ of the ethereum network 
How to Use Ethereum
Wallets, trading and ‘dapps’ 
Who Created Ethereum?
Vitalik Buterin


How Ethereum Mining Works‘Proof of Work’ and ‘Proof of Stake’
How to Mine EthereumGPUs, mining software and pools
How Ethereum Works‘Turing-complete’ programming, ‘state’ and the ‘EVM’
What is a Decentralized Application?A distributed ‘smart contract’ system
What is a DAO?A ‘decentralized autonomous organization’
How Do Ethereum Smart Contracts Work?Code, transaction fees and ‘gas’
How Will Ethereum Scale?‘Sharding’ and ‘off-chain’ transactions
What is an ICO?Initial Coin Offerings refer to the distribution of digital tokens.

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