After the release of his whitepaper which described the technical design of Ethereum and the protocol, Buterin immediately started garnering the support of other developers. Before long, Co-founders Dr. Gavin Wood and Joseph Lubin came on board. Together, they launched a crowdfunding campaign which saw participants buying Ether or Ethereum tokens in the form of shares in the project.
With their combined efforts and massive support from numerous participants, Buterin and his team were able to raise more than $18 million from the crowdfunding campaign. Their success didn’t go unnoticed; within a short while, several other developers joined in to grab a piece of the action.
Today, the smart contract platform which Ethereum provides has grown into an ecosystem of hundreds of developers. Tech giants including the likes of Microsoft and IBM, who have pitched their tents with Ethereum and are working closely with developers to ensure that the system remains sustainable.
This process of ensuring the sustainability of the network thus requires the continued mining of Ethereum. Mining is the major factor responsible for making decentralized record-keeping a possibility.
The mining process of Ethereum is almost exactly the same as Bitcoin’s – it is an open-source public software platform that focuses on Blockchain technology and they both use Proof of Work (PoW). For every block of transactions, miners repeatedly and rapidly solve a cryptographic puzzle with the use of a computer until one of them wins Ether.
It is hard for miners to cheat at this game. This is because the system is based on an elaborate puzzle-solving method known as ‘proof-of-work.’ Hence, it is practically impossible for any miner to fake this work and generate an accurate puzzle answer out of thin air.
Normally, a block is found every 12-15 seconds. If the miner begins to solve the block, either more slowly or faster than the allotted time, the algorithm will automatically modify the difficulty of the puzzle to maintain the standard 12-second solution time.
Ethereum uses a proof-of-work algorithm specifically known as ’ethash.’ In a nutshell, miners run the block’s unique header metadata through a hash function. After receiving feedback in the form of a fixed-length of random numbers and letters in a scrambled string, the ‘nonce value’ changes, impacting on the resulting hash value.
Ethereum tokens are thus created by generating Ethers at a rate of 5 ethers per mined block. Ether is simply a unique piece of code that can be used to make payments for the computational resources that are usually required for operating an application or program.
Ether can be transferred from one account to another and can be used to compensate miners for computations performed. However, instead of simply running as a digital currency or payment, Ether seeks to take it a step further by providing “fuel” for the decentralized apps on the network.
Because of this, developers from all over the world are now able to build and run decentralized applications on the Ethereum platform. This same platform has also provided the main gateway for new tech-startups to launch successfully from it.
Why do people mine Ethereum?
As the trend of Ethereum mining gathers momentum, more and more people have decided to join the bandwagon of miners and claim their stake in the cryptocurrency boom for Ethereum. In 2017, the value of the Ethereum (ETH) currency increased over 13,000%, and it is still climbing.
Just as BTC can be easily sold for cash, mining Ethereum is a good way to earn some cash for yourself. You can sell your ETH directly on major exchanges like Bitfinex, Kraken, Coinbase, BTC-e, and Gemini. Asides from its potentially astronomical profit generating capabilities, there are several other reasons why people mine Ethereum.
Also, and as earlier pointed out, Ethereum was introduced to improve upon Bitcoin by offering smart contract features. That reason, however, is just a tip of the iceberg. There is a very high likelihood of Ethereum switching from its current Proof of Work mining phase to a Proof of Stake.
Therefore, mining ETH and building on your coins now can give you interest on your holdings in the event Ethereum switches to a Proof of Stake. Mining is like the glue that holds Ethereum’s decentralized app store together, making sure that it adapts to each change effected to any of the applications (dapps) running on the network. Mining works to verify and validate transactions with the Ethereum network.
One other major reason is that, while Bitcoin was introduced with the objective to disrupt PayPal and online banking, Ethereum was introduced with the goal of using blockchain to substitute for internet third parties. This includes those that store data, transfer mortgages, and monitors complex financial instruments.
Ethereum is currently being traded for Bitcoins (BTC), and it provides a cheap way to gradually build up a holding position in Bitcoin. If Ethereum is able to continue on this constant growth path, it is set to become the aspired ‘world computer.’ This means that it would decentralize and as some would assert, democratize the existing client-server model.
For example, it is obvious that the services provided by apps in your app store are currently being governed by third parties as to the specific apps that you’re able to download. However, if the concept for which Ethereum was created fully materializes, the control of the data in those apps and the creative rights would go back to the author, thus eliminating the need for third parties.
Another reason why people mine Ethereum is that while the Bitcoin blockchain is used to track the ownership of the cryptocurrency, Ethereum is more concerned about running the programming code of any decentralized application. The creator of the Apache Web Server, Brian Behlendorf, recently argued that the internet from the onset was always meant to be decentralized. There have been movements for this cause around using new tools, and that includes blockchain technology, to help achieve this goal. Ethereum is one of the latest tools that have subscribed to this vision and is actively pushing for the decentralization of the internet.
Some people also mine Ethereum to gain a cheap entry ticket into the Ethereum markets. Traders love the Ethereum markets for its high volatility. If you play your cards right or perhaps if you’re fortunate enough, you can maximize your profits. You can also leverage on mining to subsidize acquiring a new, high-end GPU (or more even).
Another noteworthy characteristic of the Ethereum platform and why people mine it is because of its guarantee of longevity. The majority of Bitcoins have already been mined as of today. However, it is estimated that by the year 2021, only half of Ethereum coins would have been mined. This singular factor ensures the longevity of the Ethereum platform and is enough reason why people choose to mine Ethereum over Bitcoin and other cryptocurrencies.
Also, even though mining Ethereum today may be unprofitable, people continue to mine it because they believe that Ethereum will be worth more in the future. Ethers are currently worth around $300-$350, but in 5 years’ time, there’s a belief in the possibility that they might be worth $3000-$3500.
Ethereum also has a reasonable block time and uses the Ghost protocol. This simply means that its transactions are faster and are completed much quicker than Bitcoin’s. Miners get to enjoy more flexibility with Ethereum, courtesy of the Turing complete internal code, with which you can calculate practically anything provided there’s sufficient time and power. Bitcoin, on the other hand, does not offer its miners this incredible functionality.
Finally, mining provides the appropriate avenue for you to lend your support and gain a voice in the Ethereum network. The failure of the Decentralized Autonomous Organization (DAO) and the skepticism surrounding the viability of Ethereum’s approach can be further dismissed if you believe in the Ethereum concept and this can be easily achieved through mining.