There are essential differences between Ethereum and Bitcoin mining. These differences stem from the fact that both cryptocurrencies were created with different purposes in mind. Although it might seem challenging to identify the differences between these cryptos at first glance, you will soon discover that there is a stark contrast between them. Let’s talk about the critical differences between these cryptos and how they impact the Ethereum vs. Bitcoin mining process.
Understanding Bitcoin Mining
Bitcoin is a peer-to-peer, decentralized electronic cash system. This was described by Satoshi Nagamoto, the anonymous creator of cryptocurrency. A mathematical equation adds blocks together to create a chain of transactions called a blockchain. This is how the protocol works. To timestamp a newly added block, each block uses a hashcode from the previous block.
Miners add blocks to the blockchain every ten minutes to solve a mathematical equation ( SHA-256), whose answer must start with four zeroes. This process is highly complex and requires a lot of computer processing power. It also involves a lot of electrical consumption. 12 BTC is awarded to the first miner who finds a solution
Each miner (node on the blockchain) works together to ensure that the longest chain of transactions remains valid. The blockchain will remain honest as long as the majority of nodes are honest. Consensus is the act of validating a chain. This proof-of-work system is the heart of Bitcoin’s protocol.
Bitcoin UTXO Blockchain
Bitcoin uses the unspent transaction output scheme (UTXO) to reduce double-spending and track the database. This protocol allows users to send Bitcoin but not bitcoin during transactions. Instead, they send the hash of previous blocks, digitally signed, as well as the public key of their new owner.
Bitcoin holders do not hold the Bitcoin they own. The Bitcoin UTXO blockchain protocol allows users to limit the output to a certain number of tokens. This can be signed over to new owners to transfer ownership over the Bitcoin. This may not sound very clear. Let’s take a look at the three main rules of this protocol.
- The sum of all inputs in a transaction must be greater than its outputs.
- All inputs referenced must be valid and not show up as expended.
- Each information must have a signature that matches its owner.
These rules require that each Bitcoin transaction has both inputs as well as outputs. This is only true when a new Bitcoin is created during the mining process. This transaction is only known as the Coinbase transaction.
Bitcoin Mining Difficulty
Due to increased hash power on Bitcoin’s network, Bitcoin mining difficulty has increased significantly in the past two years. Bitcoin network difficulty was adjusted to ensure that block times are consistent at around ten seconds to compensate for the increased hash power.
The introduction of Bitmain’s Antminer lines in 2015 saw a significant increase in Bitcoin miners’ network hash power. Antminer used specially-designed application-specific integrated chips ( ASIC) that were thousands of times more efficient at completing the SHA256 algorithm Bitcoin’s proof of work system uses.
These hardware advances have made it more difficult and less expensive to mine Bitcoin. To be competitive in today’s mining environment, you will need an ASIC miner. You will also need to join a pool. Mining pools combine the computing power of all the pool members to maximize your efforts. Their contribution determines the mining rewards a miner receives.
Understanding Ethereum vs. Mining
In many ways, Ethereum is different from Bitcoin. Ethereum is a central software platform. Ethereum, unlike Bitcoin, has a central office with a well-known founder, Vitalik Yeterin. Ethereum supports dual account structures where there are both contract-code and vital private accounts. The former is known as when crypto is received at the address of the smart contract, it executes predetermined actions. Ethereum uses the solidity programming language, which allows for more straightforward smart contract integration. Ethereum’s smart contract facilitates token creation with the ERC-20 or ERC-721 protocols.
ERC-20 is now the most popular token creation protocol in crypto. ERC-721 has continued to be adopted due to the increased tokenization of real-world and digital assets. ERC-20 tokens can be used in multiple ways.
Ethereum Account-Based Protocol
Ethereum uses a simpler and more familiar approach to double-spending. Transaction tracking works in the same way as traditional bank accounts. Ethereum users send their tokens, not just signature inputs, and this is unlike Bitcoin. This means that every transaction is accompanied by information and value transfers to each Ethereum account.
Ethereum chose the protocol over Bitcoin’s UTXO version. There are a few reasons. Centralization is required for account-based protocols to be possible. The Ethereum development team makes sure that anyone who sends Ethereum has the token in their wallet before sending transaction approval.
The developers can also cancel, refund, or reverse transactions when they feel it necessary. This ability was already demonstrated during the hack of June 17, 2016. Developers refunded fifty million in stolen Ethereum through a hard fork, thereby creating Ethereum Classic and Ethereum(ETH).
Mining difficulty
Although Ethereum miners saw an increase in hash rates since 2016, they are still not as fast as Bitcoin’s. Ethereum is still mined with graphics processing unit ( CPU ) miners. These devices may be more potent than central processing units (CPUs), but they are not as powerful as ASIC miners.
ASIC miners are limited in their ability to mine GPUs, so GPU miners offer some distinct advantages. GPU miners can mine multiple cryptocurrencies, regardless of what hash algorithm they use. This flexibility is crucial to many miners’ mining strategies. GPU mining rigs are cheaper than ASIC, but they lack performance. A GPU is not a standalone device, while ASIC mining rigs require a power supply.
Ethereum vs. Bitcoin Mining – Profitability Comparison
Because there are so many variables to consider, it is hard to make a valid comparison between Bitcoin and Ethereum mining profitability. To start a mining operation, both cryptocurrencies will require substantial capital.
It is important to remember that Bitcoin is more scarce than Ethereum. This could lead to significant gains in Bitcoin’s value in the future. Ethereum serves a singular purpose in the crypto space. Both their ERC-20 protocol and ERC-712 protocol are the backbone for most tokens on the market. This dependence could result in Ethereum surpassing Bitcoin in total market capitalization over the next few years.
