Bitcoin and Ethereum are both public blockchain technologies with BTC and Ether as the cryptocurrencies respectively. However, while Bitcoin has established itself as a digitalized payment system, Ethereum provides much more by being a platform on which other decentralized applications can be built.

While both blockchains use PoW consensus mechanism to verify transactions, Ethereum has implemented the Casper protocol testnet that is to be used to switch Ethereum mining from a Proof-of-Work-based consensus mechanism to the Proof-of-Stake-based consensus system.

So, how does Bitcoin mining and Ethereum mining compare when we consider PoW that both use? And what are the main differences between PoW and PoS?

Let us examine the two leading cryptocurrencies and explain how their algorithms for system consensus on the blockchain compare and differ.

Here is a summary of the differences

• Bitcoin uses the Proof-of-work consensus while Ethereum plans to shift to Proof-of-stake using the Casper protocol.
• Ethereum’s block time is set at 12 seconds while Bitcoin’s is 10 minutes.
• Their economic rewards models differ. Bitcoin’s blocks halve every 4years and it has a total coin cap of 21million bitcoins. Ethereum releases 5 Ether every 12 seconds and about 18 million Ether every year and will continue ad infinitum.
• Bitcoin transactions are limited by the block size and nodes compete equally to secure and verify blocks. Ethereum costs transactions based on the complexity of computation, bandwidth, and storage.
• Bitcoin mining is dominated by mega mining pools while Ethereum uses its Ghost protocol to discourage centralized pool mining.
• Ethereum utilizes its memory hard Ethash algorithm to mitigate against ASICS mining favored by Bitcoin miners and to encourage decentralized GPU mining for individuals.

How do they work?

Bitcoin uses SHA-256 proof-of-work scheme that is based on the Hascash system for generating blocks on the network. During mining, all miners compete to secure and verify transactions on the network. Bitcoin’s mining difficulty is adjusted to a higher complexity with every block to limit the generation of blocks to a rate of one block every 10 minutes. The Bitcoin block rewards halve every 4 years and stand at 12.5 BTC per block. Miners on the Bitcoin network pool their computational power and extensively go for ASICs to increase their chances of successfully mining a new block.

Ethereum on the other hand currently uses the proof-of-work algorithm run on its Ethash protocol. When a miner successfully generates a block, they get a reward of 5 Ether. Ethereum’s Ethash protocol is memory hard hashing, meaning Ethereum encourages GPU mining where miners work as individuals in a more decentralized manner, as opposed to Bitcoin’s seemingly more centralized use of ASIC mining tools. For ethereum, this helps to maintain a stronger network.

Transactions

Bitcoin and ethereum use different approaches when costing transactions on the network. For bitcoin miners, there is a limit on the transactions because of the block size. Bitcoin has hard-coded the block size into its mining protocol limiting it to 1MB per block. This then makes bitcoin slower.

In ethereum transactions depend on the complexity, specific storage needs and the bandwidth used. Ethereum uses something called “gas” to fuel the network and nodes require it to carry out verification processes. Ether is used as gas and gives it actual utility.

Proof-of-Work vs. Proof-of-Stake- the case against mining

Ethereum’s Casper protocol testnet has already been implemented and it’s now known that Ethereum will eventually move form Proof-of-work to proof-of-stake when Casper is fully implemented. Read more about it here: https://www.abitgreedy.com/casper.

So, what is PoW all about?

The proof-of-work consensus involves miners using powerful computers to secure the network by solving difficult mathematical problems. Miners engage in the process of identifying the block before it is broadcast on the network for verification that it is valid. In this algorithm, miners cannot cheat the system as everybody can have a look at the block and mining is carried out using a network of computers around the world.

Critics of the proof-of-work consensus mechanism point out the huge amounts of electricity needed to complete these transactions. Running the mining computers or pools of mining rigs consumes a lot of energy which isn’t ideal for current issues of climate change.

The problem with proof-of-work is basically due to the fact that you require a massive amount of computer power and huge electricity supplies to even contemplate mining. This has led to the emergence of super mining pools who dominate the mining process, something that contradicts the decentralized nature of cryptocurrency. This has the potential to expose the network to a 51% attack.

What about PoS?

Proof-of-stake involves a “miner” who in Ethereum’s case will be a bonded validator, vesting a certain amount of their Ether as a stake in order to participate in validating or verifying transactions on the network. Staking replaces mining and therefore there is no need for powerful computers and huge amounts of electricity.

The probability that a bonded validator secures a transaction and therefore gets a reward is proportional to the amount staked but does not exclude those with a lesser stake. The Casper protocol, for instance, will assign nodes the chance to validate transactions on a linear-like basis. A node, therefore, must always be available or risk losing their stake through “slashing”.

Proof-of-stake has the capacity to allow more nodes to participate as long as they have enough to place a stake. It takes mining pools out of the picture enabling the desired blockchain community that is decentralized and democratized.

Network Attack (51%): Bitcoin mining or Ethereum mining

As it stands, none of the two leading cryptocurrencies are at risk of a 51% attack. But can the mining algorithms used be manipulated to orchestrate an attack? Let’s find out.

The so-called 51% attack is a situation when a miner or powerful mining pool ends up controlling 51% of all the computational power of the network or in Ethereum’s case, 51% of all the ether staked. If that happens, the individual or group could then go on to invalidate otherwise valid transactions. They can also double spend funds on the network or validate fraudulent blocks. However, to mount such an attack on bitcoin would require massive amounts of money and power and therefore does not really seem desirable

In the PoS consensus protocol, attempting a 51% attack is unlikely because the attacker would be risking a majority of their stake in the network. The network could react to anyone hoping to get a 51% market share by making purchasing extremely expensive for them. And again, an attack will weaken and destabilize the currency, crashing its value.

It is therefore clear that both the bitcoin and ethereum networks are unlikely to suffer such attacks.  Staking or mining on the networks will not result in such attacks.

Conclusion

While many would happily try to compare the value of Bitcoin to Ethereum or vice versa, it is important to remember that these two cryptocurrencies are different in many ways. In terms of mining, Bitcoin will have its Proof-of-work algorithm while Ethereum uses Casper protocol to move to the Proof-of-Stake mechanism. If you are looking to invest in any of the two, consider the above information.