Ethereum and Bitcoin are both considered cryptocurrencies, but they quite different from one another, as they have been designed to serve different purposes. Of course, this also makes their mining processes differently. Our article for today shall explore the top two cryptos and the details of their mining operations.
Bitcoin Mining Explained
Bitcoin is a decentralized peer-to-peer electronic cash system created by an anonymous developer which goes under the pseudonym of Satoshi Nakamoto. The protocol employs a mathematical equation that links blocks of transactions to form a chain, hence the name blockchain.
Miners compete against each other to solve a mathematical equation (SHA-256) whose answer must begin with four zeroes. Solving the equations needs extensive computer processing power, as well as substantial amounts of electricity. The first miner to find a suitable solution to the equation is rewarded with 12 BTC.
Bitcoin UTXO Blockchain
Bitcoin uses the unspent transaction output (UTXO) scheme to prevent double spending on the network and track the database. This prevents users from sending Bitcoin during their transaction, instead of sending the hash of the previous block, digitally signed, and the public key of the new owner.
The protocol lets users keep the output to a specific number of tokens, which can be signed over to a new owner, thus transferring the ownership of the Bitcoin.
The basic rules of the protocol are:
- The sum of inputs of each transaction must be greater than the sum of its outputs.
- All referenced inputs must be valid and not appear as spent.
- Every input must have a signature that corresponds to the owner of the input.
These rules imply that each Bitcoin transaction must have both inputs and outputs completed. The only time this does not occur is when a new Bitcoin is created during the mining process. This transaction just has outputs and is called the Coinbase transaction.
Bitcoin Mining Difficulty
In the last two years, Bitcoin’s mining difficulty skyrocketed due to an increase in hash power on the network. Bitcoin network difficulty changes in order to compensate for increased hash power to keep block times consistent at around ten minutes.
In 2015, the network’s hash power spiked considerably, mainly because Bitmain introduced its Antminer line. Antminer uses specially designed application specific integrated chips (ASIC) which were more efficient in solving Bitcoin’s mathematical equations.
These hardware developments amplified the difficulty and investment costs required for Bitcoin mining. To be able to stand a chance in today’s mining world, you will have to own an ASIC miner. You would also have to join a mining pool, where the computing power of multiple users is pooled together to generate a block. A miner’s mining rewards are determined by how much he or she contributed.
Ethereum vs Bitcoin Mining
Ethereum and Bitcoin have many distinct features. Ethereum is a centralized software platform, having a central office and a public founder, Vitalik Buterin. Bitcoin’s creator is anonymous and is based on the philosophy of decentralization.
Ethereum supports a dual account structure where both private keys and smart contracts coexist.
A smart contract is a software that self-executes when the set conditions are met by both parties. Ethereum is based on the Solidity programming language, which facilitates the easy integration of smart contracts. Ethereum’s smart contracts also enable other projects to create their own tokens by using the ERC-20 and ERC-721 protocols.
ERC-20 is the main protocol used for token creation, while, ERC-721 continues to see adoption for tokenizing real-world assets and creating Non-Fungible tokens.
Ethereum Mining Explained
The main functions involved in Ethereum’s mining process are similar to Bitcoin. Nodes/miners compete to produce a solution for a mathematical equation. The node to add the next block to the blockchain is then rewarded with approximately 3.5 ETH. A block is generated every 14-16 seconds.
Instead of using the SHA-256 algorithm, Ethereum utilizes the ethash mining, which also uses a proof-of-work system. Therefore, both cryptos require large amounts of electricity when mined.
Ethereum Account Based Protocol
To prevent double spending, Ethereum tracks transactions in a similar manner to traditional bank accounts. Ethereum users actually own and are able to send their tokens, not like Bitcoin’s case where it’s just signature hash inputs.
Ethereum’s hash rate increased since 2016, but not like Bitcoin’s one. Ethereum can still be mined with graphics processing unit (GPU) miners. These devices are far less powerful when compared to ASIC miners.
Though, GPU miners have some distinct advantages, as they can mine multiple cryptocurrencies, regardless of their hash algorithm. They are also much more affordable than ASIC mining rigs, but they have lower performance capabilities. Also, GPUs are not standalone devices; whereas ASIC mining rigs are.
Ethereum developers have announced that they intend on switching from its current proof-of-work mining system to a proof-of-stake protocol. Unlike PoW, PoS is not as power-consuming and therefore doesn’t require expensive hardware. Users stake their coins in their wallets on the blockchain and they are rewarded according to the amount they hold.
The proof-of-stake protocol also minimizes centralization on the blockchain. Five mining pools dominate the Ethereum mining sectors currently. According to recent reports Ethermine, f2pool_2, and ethfans.org are responsible for 85 percent of the Ethereum network’s hash rate.
This development will change the way Ethereum miners receive their rewards. Developers intend on first implementing hybrid system between the two protocols, which is called Casper, before completely transitioning to proof-of-stake. This hybrid will allow the network to insert these changes slowly and miners to contribute to these changes.
Ethereum vs Bitcoin Mining: Which is more Profitable?
It’s hard to say with certainty if Ethereum or Bitcoin mining is more profitable because there are so many factors to take into consideration. Mining operations for both cryptocurrencies will require a substantial investment.
Also, Bitcoin has a more reduced supply compared to Ethereum. This scarcity could lead to substantial price increases in Bitcoin in the future. However, Ethereum has many functionalities, seeing as most industry tokens are based on its ERC-20 and ERC-712 protocols. This could generate in time a higher market capitalization which would surpass that of Bitcoin.
Ethereum vs Bitcoin Mining Conclusion
Ethereum and Bitcoin are two cryptocurrencies which are remarkable in their own way. We hope that our article has helped you in making an informed decision regarding which crypto you want to mine.