What Is Ether Mining?

Last updated on 11/29/2018

Ether mining is the process by which new ether is created, and one that helps to verify transaction data recorded on the Ethereum blockchain.

How Does Ether Mining Work?

Currently, the Ethereum blockchain uses a proof-of-work mechanism to achieve consensus. This is the same type of consensus mechanism used by Bitcoin and many other blockchains. “Ethash” is the name of the specific proof-of-work implementation that Ethereum uses today.

How to Mine Ether

From an end-user perspective, mining ether is simple. You can mine ether by running an ether mining app, such as Ethminer, on your computer, although this is fairly inefficient. Nonetheless, the app will connect your computer to the blockchain and perform the computational operations required to mine ether.

To mine ether profitably, you will likely want to connect to a mining pool because your computer alone would probably not compete with large institutional-grade miners to win any ether rewards. In order to earn ether from mining, your miner must be the first on the network to produce a hash that results in the next accepted block on the Ethereum blockchain. Finding the right hash is essentially a matter of luck, as well as how much hash power a given miner has. Given that there are many other computers mining ether at the same time, the likelihood that you will find the right hash before anyone else is low. Without joining a mining pool, you could mine for a long time without ever finding the right hash to receive any ether.

An ether mining pool solves this problem by allowing you to mine ether as part of a pool of other miners. When one miner in the pool finds an acceptable hash, the entire group shares the block reward. As long as the ether mining pool that you join is sufficiently large, each miner in the pool has a reasonable chance of mining ether at a profit.

Ether Mining vs. Bitcoin Mining

Proof-of-work consensus generally works in the same way on Ethereum as it does on Bitcoin. However, there are some important differences between ether mining and bitcoin mining.

Although the number of ether that can be created in a single year is limited to 18 million, there is no cap on the number of ether that can exist in total. In contrast, the total number of bitcoin that can be created is capped at 21 million; once that number is reached, no more bitcoin can be mined.

Ether Mining and Proof of Stake

Ethereum developers have indicated that they plan in the future to abandon proof of work in favor of a different type of consensus mechanism called proof of stake.

Under the proof-of-stake strategy, nodes on the Ethereum blockchain would earn new ether by “staking” existing ether, which means essentially holding their ether in a reserve. This approach would drastically lower the amount of computing power required to create new ether, while still providing an opportunity for investors to earn new ether in return for staking.