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How mining works in Ethereum

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Recap

In our previous article (How address and wallet work in Ethereum), we discussed how Ethereum address and wallet work.

In this article, we learn about mining in Ethereum.

Understanding mining in Ethereum

In this article, we will explain how mining works in Ethereum, and briefly discuss Ethereum’s plan for the PoS consensus mechanism.

The mining process in Ethereum is largely the same as the one we discussed in Bitcoin. For each block of transactions to be added to the Ethereum blockchain and the world state to be updated, consensus must be reached among all network nodes that the new blocks proposed by the miners, including the nonce found with the PoW, must be verified by all nodes.
However, there are quite a few notable differences between Ethereum mining and Bitcoin mining. Most of them are driven by the protocol and architecture difference in the blockchain. As we discussed earlier, Ethereum maintains both the transaction list and the world state on the blockchain. We will discuss those differences in detail here.

 

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Mining and consensus protocol

Bitcoin uses a general-purpose cryptographic hash function SHA-256 as the PoW algorithm. With advances in specialized mining equipment such as ASIC, miners have been building large mining pools to compete with each other for the rewards of the bitcoin. It puts small miners at a disadvantage and leads to more mining centralization.
To avoid such concerns, Ethereum uses a memory-hard hash function called Ethash, a modified version of the Dagger-Hashimoto algorithm, as the PoW algorithm and targets GPUs as the primary mining equipment.
As with other PoW algorithms, Ethash involves finding a nonce that makes the resulting hash value fall under a protocol defined target. The design idea for a new hash algorithm is twofold. First, it is that it is hard enough for miners to mine but it is trivial for the validators to verify. Also, the hash results are uniformly distributed for easy control at the time of finding a new block. In Ethereum, new blocks are created every 12 seconds, instead of the 10 minutes of the Bitcoin network. The difficulty is dynamically adjusted to ensure the much fast block creation speed.
Overall, the Ethash algorithm in Ethereum involves two stages. The first stage is to generate a dataset of a Directed Acyclic Graph, referenced as DAG. This is usually calculated for each epoch—or every 30,000 blocks. The second stage is to repeatedly hash the dataset, the proposed header, and a random nonce using Keccak-256, until the resulting hash value meets the difficulty target. DAG generation is composed of the following three steps:

  • A seed is created from the blockchain by hashing the headers of each block together with the current epoch using Keccak-256.
  • Once the seed is found, a 16 MB pseudorandom cache is generated from the seed using Keccak-256.
  • A DAG is generated using the Fowler–Noll–Vo (FNV) hash function. It consists of many chunks of 64-byte elements; each of them depends on a part of the cache.

 

Each Ethereum client may implement DAG differently. It is typically generated in advance and cached for performance improvement. Geth implements automatic DAG generation and maintains two DAGS at a time for smooth epoch transitions.

Ethereum transaction and block structure

Due to blockchain architecture and mining difference in Ethereum implementations, Ethereum defines quite different transaction and block structures in the Ethereum protocol. Ethereum DApps need to follow Ethereum protocol rules to format and submit transactions to the network. Invalid transactions will be rejected by the network.
The following are the essential data structures in Ethereum, taken from Ethereum’s GitHub code:

Ethereum block structure:

Ethereum blockchain

An Ethereum block structure looks similar to the screenshot:

 

Block header structure:

The following screenshot shows the Ethereum block header structure:
Ethereum blockchain

Instead of a Merkle hash root in Bitcoin, Ethereum uses a modified Merkle Patricia Trie notation for the root hash in the block header. More specifically, stateRoot in the preceding structure is the Merkle Patricia Trie of account state, transactionRoot is the Merkle Patricia Trie of all transactions in the block, and receiptsRoot is the Merkle Patricia Trie of all transaction receipts.

Another difference in Ethereum is, when creating new blocks, Ethereum adds the new block to the heaviest branch of the block tree, instead of to the longest chain as we saw in Bitcoin. The header attribute, difficulty, is used by the miner to determine which branch is heavier.

Transaction structure in Ethereum:

Ethereum blockchain

Let’s have a look at the following table:

The preceding table shows the general data structure of Ethereum transactions. The following table shows the data structure of transaction receipts:

Ethereum blockchain

 

A transaction receipt is generated once the blockchain accepts the submitted transaction. The preceding shows the data structure of transaction receipts.

Transaction validation and block verification

Ethereum maintains all accounts in the underlying world state, which makes the state transition much easier. When the transaction is submitted to the Ethereum blockchain, miners will perform an intrinsic validity check on the transaction. It will be validated according to the consensus rules and heuristic limits of the local node, such as price and size. If the transaction size is over 32KB, it will be rejected for preventing DoS attacks. The transaction needs to be well-formed with Recursive Length Prefix (RLP) encoding. They will be checked to ensure that the transaction is properly signed by the sender and has the proper nonce ordering and to make sure the sender should have enough funds to cover the total transition costs; in other words, the amounts being transferred plus the gas cost for the smart contract execution.
Miners add transactions to the transaction pool once they pass the intrinsic validity check. Every 12 seconds, miners take transactions out of the transaction pool and start to propose the new block. They determine ommer or uncle blocks, and the total gas used in the block. They will create the block structure as defined earlier and start mining. Once the nonce is found to meet the ethash target, the new block with newfound nonce is broadcasted to the network for all network nodes to verify and add to their local copy of blockchain.

Next Article

In our next article (List of Tools and Technologies in Ethereum Ecosystem), we review tools and technologies that are used in the Ethereum ecosystem.

This article is written in collaboration with Brian Wu who is a leading author of “Learn Ethereum: Build your own decentralized applications with Ethereum and smart contracts” book. He has written 7 books on blockchain development.

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