However, ethereum mining is still quite different from gold digging. Instead of strong arms, ethereum mining demands strong computers.

Ethereum mining is the way that new ethereum coins are brought into circulation. On top of that, mining is also an important part of a blockchain’s technological infrastructure. Because mining is also the way in which new blocks are being created, validated, and added to the blockchain. 

Ethereum mining = the generation of new coins + securing the blockchain network .

If you’re confused about the expressions “blocks”, “validation”, and “securing the network”, you can learn more about blockchains here.

Since the beginning, ethereum has used the mining method “proof-of-work”. It’s the same method that bitcoin mining uses. Ethereum’s creator, Vitalik Buterin has stated that ethereum will shift to the mining method “proof-of-stake ” in August 2022.

Proof of work

Proof of work is the method ethereum uses to validate new additions of data to the blockchain - such as a transaction.

When you buy something using ethereum, the transaction will consist of certain information. For instance, this could be your name, the seller’s name, price of the item, and so forth. 

All that information is data, which can be encrypted with hashing. Ethereum uses the hashing method Keccak-256, while bitcoin uses SHA-256. More on hashing a bit later.

The information from the transaction is also anonymised. So you can’t actually see what data is included in the transaction.

To keep the blockchain alive, a large collection of ethereum transactions needs to be gathered in a block, which in itself has its own hash.

The block’s hash is very important here. Without a hash for the block, the block won’t be able to be added to the blockchain, and with that, the blockchain will get stuck. If so, there won’t be any more ethereum put into circulation, and new ethereum transactions won’t be able to get validated.

Hashing

But how does an ethereum miner find a hash, that’s an exact 1:1 match to the new block?

They do so by “guessing” their way to the hash. And this is where computer power enters the picture.

An ethereum hash consists of 64 characters, where numbers range from 0-9, and letters range from A-F.

An example of a hash could be:

F83AD003C461DE2B86A9F2F489F740B43883B96F4C454AF69FC98D6B003F1016

You won’t get any leads to help you find the code. It’s completely arbitrary. So to find the exact match, the ethereum miner has to make a lot of guesses. A very strong computer

– such as “The Titan supercomputer” – would be able to write 140 million hashes per second.

Which is why it’s only a matter of time before the computer will find the exact string of code (hash) that matches the new block of the blockchain.

For ethereum’s blockchain, it’s about every 10th - 20th second that the hash on a new block is being found. For bitcoin, that time is every 10 minutes. 

Example of a transaction and hash

Let’s say that Peter buys 500 ethereum from Niels on July 1st, 2022. The transaction can be registered like so:

Transaction:

Buyer: Peter

Seller: Niels

Price: 500 ethereum

Date: 01/07/2022

The transaction consists of a number of information, which we can encrypt using Keccak-256. 

It could look like this:

ea8cdb7c0b91204d484173b0136b4aac90f3e44b0cf75d1a2d41c032a1d5884b

If you copy-paste the information from the transaction into a Keccak-256 generator, you’d get the exact same hash. Try for yourself .

Make sure that the information you type is 100% identical to the example. Even the slightest difference would give you a completely different result. For example, if you were to type in a space after “2022”, the code would look like this:

e0c04bb45093548eca7452363a746f12ea1d51988d090816079557d2a8be02e1

A completely different code, even though the only difference in the content was a single space. 

In reality, the content behind the code isn’t known. It’s encrypted. That’s why an ethereum miner won’t have anything concrete to go off of, when they need to guess the next hash. 

On the other hand, it’s pretty easy to validate whether or not a hash corresponds to the encrypted information in a block. So when an ethereum miner finally finds the correct hash, it’d be easy for the rest of the network to validate the hash. When that happens, a new block is added to the blockchain, and the ethereum miner is rewarded with a certain amount of ethereum for their hard work.

In summation:

Transactions: Every ethereum transaction results in a specific hash.

A hash: Ethereum uses the hashing-method Keccak-256.

Blocks: A block on the blockchain consists of a large collection of the hashes stemming from ethereum transactions.

The block’s hash: A collection of  transactions, here called a block, is a long string of information. The block can thus be encrypted in the same way that single transactions can.

New ethereum coins: When a person/computer guesses the hash of a block, they’re rewarded with a certain amount of ethereum as compensation for their hard work.

Alternatives to proof of work: Proof of stake

Searching for the correct hashes demands large amounts of computer power. The more computer power you have, the more hashes per second you can guess – making your chances of getting rewarded with ethereum better.

However, this means that people with a lot of money can invest in strong computers and then heighten their chances of finding the next hash. That creates an imbalance where the wealthiest people in a community are mining the most ethereum – making them even wealthier.

Besides that, mining with a supercomputer demands a lot of energy, which isn’t exactly good for the environment. 

To meet the issues – the rich getting richer, while the climate pays the price – other cryptocurrencies began developing other types of validation methods. Here, proof of stake is one which cardano and solana for instance uses. 

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