In both Bitcoin and Ethereum, new currency (Bitcoin or Ether) is created by a process called ‘mining’. Nodes on a blockchain must verify transactions; the nodes are rewarded with a new currency. For example, an Ethereum node (known as a miner) is rewarded with a new Ether.
This is called mining because it is similar to gold or diamond mining. Instead of digging in the ground, though, the miners are verifying transactions.
Mining Ether in this way is called ‘Proof-of-Work’ mining. It is called PoW (Proof-of-Work) because the node has to show that it has done the ‘work’ (verified the transactions) to receive its Ether reward. The bad thing about PoW mining is that it uses a lot of computing power and therefore a lot of electricity, making it expensive and bad for the planet. So, now you have a pretty clear idea about what is Ethereum mining.
Soon, Ethereum developers hope to start using a different method, called PoS (Proof-of-Stake). This method uses much less electricity, so it’s a lot better for energy costs and the planet!
In PoS, users with a lot of Ether are selected at random to verify transactions. This form of mining will be rewarded with fees rather than a new currency and will use a lot less power and electricity.