Many people treat Ethereum and Ether in the same unit, but there is a slight difference between the two. According to ethereum.org, Ethereum is a decentralized platform that runs smart contracts: applications that run precisely as programmed without any possibility of downtime, censorship, fraud or third-party interference. Ether is a cryptocurrency whose blockchain is created by Ethereum. In simpler terms, Ethereum is a platform and Ether is the digital cash controlled by Ethereum.
Vitalik Buterin founded Ethereum and released in July 2015. Ethereum was separated into two blockchains after the collapse of the DAO Project in 2016. The new blockchain became Ethereum (ETH) while the original blockchain continued as Ethereum Classic (ETC).
Much like bitcoins and other cryptocurrencies, Ether is generated by mining Ethereum. Ethereum’s tokens are created through the process of mining at a rate of 5 Ether per mined block. The only reason that miners mine Ethereum is to generate Ether. Nowadays, the process of mining Ethereum is slightly similar to that of Bitcoin mining. The miners use different specialized, powerful computers to solve cryptographic puzzles and they are rewarded with Ether.
The miners run the block’s unique header to a hash function which returns a fixed-length, random and jumbled strings of numbers and characters and only changing the nonce which impacts the resulting hash value.
If the miner finds a hash that is identical to the current target, then the miner is rewarded with Ether. The miner then circulates the block across the network so that each node can validate it and add it to their copy of the ledger. The nodes are capable of verifying the hash value almost instantaneously.
Ethereum also supports the proof-of-work, and because of it, it’s very much difficult for miners to cheat the system by faking their work to come up with the right solution. This may not last as the developers are planning on transitioning from their proof-of-work system to proof-of-stake system where the owners of tokens secure network. If the proof-of-stake system is implemented, then this could achieve a more distributed consensus by utilizing fewer resources and might even negate the need for miners.
It does take a miner 12 to 15 seconds to find a block compared to 10 minutes for bitcoins. Depending on how fast a miner can solve the puzzle, the algorithm tends to readjust the difficulty of the problem accordingly so that the miners are routed back to the roughly 12-second solve-time. The profitability of Ether depends on the computing power given to mine the ether and essentially luck. Ethereum also doesn’t have a limit like bitcoin’s 21 million limits.
Ethereum uses a particular proof-of-work algorithm called ethash. Such an algorithm requires more memory which would make it difficult to mine on ASICs which are currently the only way of profitability in bitcoin. Since ASICs can’t be used to mine Ethereum (as of August 30, 2018), ethash has fulfilled its purpose, technically. On top of that, if they do make the transition to the proof-of-stake system then buying ASICs may not be a good idea as it wouldn’t be useful to you in the long term.