Ethereum is an open-source, decentralized blockchain platform with smart contract functionality. It was founded in 2013 by Vitalik Buterin, Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin and launched on the 30th of July, 2015. Its native currency is Ether (ETH). ETH is the second most-valued cryptocurrency after Blockchain, according to the rankings of market capitalization.

Ethereum has a significant place in the cryptocurrency ecosystem as it serves a variety of purposes. It has been instrumental in the growth and promotion of decentralized finance (DeFi), the creation and verification of digital assets, the tokenization of real-world assets, gaming, the creation of health applications, and so many others.

What is the Role of Mining in the Ethereum Network?

According to Ethereum, mining is the process of creating a block of transactions to be added to the Ethereum blockchain in Ethereum’s now deprecated proof-of-work architecture. Mining exists to strengthen the network, as digital tokens are the key to increasing the total volume in a proof-of-work system. Mining is also the mode of issuance of tokens.

In previous times, mining was an easy procedure, as interested individuals could do it on personal computers. However, not everyone could mine Ether profitably without adequate energy resources and computer hardware/software.

Miners are given incentives in the form of block awards. At the time of writing, block awards are set at 2 ETH per block. This is predicted to reduce and become obsolete with time due to the recent network transitions. Ethereum transitioned consensus mechanisms in 2022. They moved from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism.

How Does PoS differ from PoW?

A consensus mechanism is an entire stack of protocols that allow a network of nodes to agree on the state of a blockchain. There are several consensus mechanisms, but Ethereum uses one. Previously, Ethereum used Proof of Work (PoW) mining but switched over to Proof of Stake (PoS) mining.

These differ in relation to their computer hardware/software requirements, energy consumption, block creation, security, and transaction validation.

Proof-of-work (PoW) Consensus Mechanism

Proof-of-work consensus mechanism is the algorithm used for transaction validation and block creation. It was formerly used by Ethereum and is still in use by Bitcoin. On Ethereum, PoW sets the rules for mining. Miners have to add valid blocks to the existing chain to strengthen the network. This includes a series of trial-and-error sequences to find the right nonce for a block. Only valid nonces can be added to the chain.

PoW has very tight security. During the process of hashing, any foreign behavior during block creation can easily be detected. Longer-existing blocks are trusted over new ones due to the validity of their computational power.

PoW is responsible for introducing new currencies into the system. This is done by rewarding it to successful miners.

Keeping the network safe requires a lot of electricity input. High energy usage is one the most criticized features of the Proof-of-work consensus mechanism.

Proof-of-stake (PoS) Consensus Mechanism

Proof-of-stake consensus mechanism is a form of mechanism where validators stake capital (in ETH) on Ethereum. Validators are responsible for making sure only valid blocks exist on the chain. In some cases, they create and add these blocks themselves, looking out for any foreign bodies. If these validators try to carry out fraudulent activities their staking can be destroyed.

Validators are required to be committed, own the required hardware, and remain committed during block proposal and validation. When staking is finalized, their ETH holdings increase. Validators who miss out on participation calls do not earn ETH rewards. This is because their absence opens up opportunities for attackers to access the block. Proposing multiple blocks and submitting contrary attestations are considered dishonest behavior. Validators who display this sort of behavior may lose their staking.

This document explains how transactions are carried out in Ethereum’s PoS consensus mechanism.

Proof-of-work (PoW) vs. Proof-of-stake (PoS)

The table below compares the features of PoW mechanism and PoS mechanism.

Consensus Mechanism

The table of images below compares the features of the PoW mechanism and the PoS mechanism.

Conclusion

Proof-of-work and proof-of-stake have the same goal: helping Ethereum as a decentralized network to achieve consensus in an efficient manner. PoS is a more secure, efficient alternative, with options like staking pools, for crypto enthusiasts to stake and earn on a secure platform.