Ethereum is an open software “ecosystem” that is based on a decentralized technology that allows developers to create and execute decentralized applications (dApps). Ethereum Is the 2nd largest cryptocurrency after Bitcoin, based on market capitalization.
Ethereum has sustained steady growth in price over the years and has achieved a whopping 7,759% increase in ROI since its inception in 2015.
This steady growth has given Ethereum a significant increase in demand and has caused Ethereum mining to be more ‘difficult’ as well. So what exactly is Ethereum mining?
This article breaks down what Ethereum mining is, how to get involved with it, and how it can be beneficial for you and Ethereum’s ecosystem at large.
A Brief Introduction to Mining Ethereum
Fundamentally, Ethereum operates much like Bitcoin. It is a decentralized ledger that is authenticated and updated by players of the Ethereum network.
Like Bitcoin, Ethereum also requires mining. The primary method to update a new block of Ethereum transactions is by mining that block.
However, while they both share many similarities, they both have their distinctive attributes. One such difference is that new Ethereum blocks are mined every 15 seconds while new Bitcoin blocks are mined every 10 minutes.
As a reward, Ethereum miners get 2 ETH and all transaction fees (popularly known as ‘gas’) embedded in the block. They also get bonuses for any “uncles” found on the block.
Another difference between Ethereum and Bitcoin is seen in their mining algorithms. Ethereum utilizes a hashing algo known as Ethash while Bitcoin utilizes the hashcash. Ethash is unsuitable for use with the special hashing hardware (ASICs) created for Bitcoin mining. Also, it is a memory-hard algo meaning that it was built to prevent the development of Ethereum-mining ASICs.
Ethash, however, was intentionally created to be compatible with GPU-mining only.
Hashrate, Difficulty, and Price
It has been observed that the amount of hardware devoted to mining Ethereum is on the rise, why then are blocks not being mined at an even faster rate? Why is it that the average 15 seconds block time is unchanging? The answer is Difficulty.
In mining, the difficulty is automatically adjusted to stay in tandem with hash rates. This is how Ethereum manages to maintain the 15 seconds hash rate interval.
You might be wondering what then drives the change noticed in hash rate and difficulty? The simple answer is Price.
Historical ETH charts clearly show how the hash rate has been consistent with price movement over time.
However, it has been announced in the past that Ethereum is planning to switch between the Proof of Work system, which requires mining, to a Proof of Stake system which does not need mining thereby rendering mining useless. It is still unknown when this move is set to happen.
Why Should I Mine Ethereum?
You may be wondering if mining Ethereum is profitable, here are some reasons to consider:
1- Mining can serve as a good way to finance the purchase of a new or more sophisticated GPU(s).
2- Ethereum is considered to be easily tradable for BTC, this makes mining a less expensive way to gradually grow a holding in Bitcoin.
3- ETH also has widespread acceptance and can easily be traded across several exchanges.
4- Mining is a good way to break into the Ethereum markets which are highly sought after by crypto traders because of its volatility and liquidity. If you have decent trading abilities, you could use your acquired ETH to make substantial profits.
5- Gathering a substantial holding in ETH now, which is still in the Proof of Work phase, could guarantee substantial interests on your funds when Ethereum moves over to Proof of Stake.
6- If you're a strong believer of Ethereum, you can support your beliefs and gain a voice through mining.
3 General Ethereum Mining Methods
Now that we’ve gotten a fair idea of mining and what’s in it for us, let's dive straight into how we can start mining Ethereum.
There are 3 basic ways to mine Ethereum. They include:
- Pool Mining
- Solo Mining
- Cloud Mining
Pool Mining
Joining a mining pool is the quickest and simplest way to begin mining Ethereum. It involves working with other miners in a network to collectively mine cryptos and share whatever rewards are achieved. The size of the pool is a strong determinant of how much rewards the pool can achieve. However, not all pools have the same approach.
That said, here are some factors to look out for before joining a pool:
1- Pool size
This factor is important as it increases the chances of receiving rewards. The more miners there are in a pool, the better the chances.
However, as more people join a pool, the wider achieved rewards have to be spread.
It is advisable to try out several pools so you can find the one that works best for you, however, joining a large pool is always a safer bet. You might be getting little rewards per block, but you will always be sure to make something every day.
2- Minimum payout
When choosing a mining pool, another thing to consider is the minimum payout. A minimum payout is the least amount of ETH you have to mine before the reward gets sent to your wallet. The higher the minimum payout, the longer you have to wait or stay in a pool to get your crypto reward.
Pools with huge minimum payouts are not advisable options. You need a pool with a low minimum payout so you don't have to stay committed to exchange longer than you’d want to. Flexibility between mining pools is quite important and you wouldn’t want to stifle your flexibility.
3- Pool fees
The next factor to look out for is the pool’s fee. Every pool has its associated charges. This charge is to allow you to secure your position and pay for services you’re being rendered in the pool. The charge is usually percentage based and is deducted from your reward automatically. Mining charges usually cost anything from 1-3%. That said, the lesser the mining fee, the better for you.
Solo Mining
Solo mining might seem like a wonderful idea at first. You do not share the proceeds of your rewards. You could just stay wherever you want with your computer and begin making money, right? Wrong.
When you mine alone, you’re competing against tons of other miners and mining pools. Mining rewards are only awarded to miners who solve the block first. Competing with individuals or companies that might be using more sophisticated mining equipment than you leave you to the mercy of “luck.”
Solo mining can only be profitable when you have hundreds of graphics cards. However, having this amount of equipment has its disadvantages. Some issues you have to worry about include:
1- Overheating issues.
2- Ventilation.
3- Excessive noise.
4- Electricity requirements and costs.
5- Space.
Cloud Mining
Cloud mining involves paying somebody else to mine for you. How this works is, you rent mining time from someone and in return, they deliver all the rewards to you.
Cloud mining at first glance seems counterintuitive. Why would someone mine for you when they could just mine for themselves? Why pay someone when you could invest that money into setting up your mining rig? Or better yet, why don’t you just buy the cryptocurrency directly instead of paying to have it mined?
All these are valid questions in cloud mining and to answer them, we need to look at some advantages as well as downsides of cloud mining.
Advantages
- You are not accountable for any equipment should anyone get damaged. In cloud mining, all you're doing is buying the miners time and as such, you’re not responsible for whatever befalls the equipment. However, make sure to read and understand the terms being presented by the cloud
mining company as some of them make it mandatory for you to handle electricity
and repair expenses. - You don’t get to be burdened with the excessive noise, heat, and overall hassle of running a mining rig in your home or assigned space.
Downsides
- Payment is done upfront. This means that your funds are irretrievable should the price of Ethereum begin to drop.
- You are stuck with whatever hardware or software the cloud mining provider uses.
Now that we’ve understood the different mining methods, let’s look at the necessities involved in mining Ethereum.
Setting Up Your Mining Hardware
The fundamental requirement for mining Ethereum is an everyday computer with a CPU, RAM, huge storage, Power Supply Unit (PSU), and cooling fan. However, to operate efficiently and profitably, you will need an auxiliary processing site (a GPU or ASIC circuit). Most times, beginners start with a gaming graphics card like NVIDIA GeForce GTX 1080, however, more recent versions keep dropping frequently.
To maximize profit, make sure you get the up-to-date software drivers for your hardware and acquire a productive PSU to power it. A productive PSU not only reduces the cost of mining but allows you “overclock” your graphics card which means you get better performance from it.
The goal here is to extract the best performance possible for the lowest power requirement. This, in turn, will help maximize your profit.
Setting Up Your Ethereum Wallet
Before mining begins, you should have created a crypto wallet. Although some Ethereum mining software will come with wallet features, you still need to get
your wallet as it is the most secure method of storing or holding your crypto funds. One highly recommended Ethereum wallet is the MyEtherWallet (MEW). This wallet is free to use, very convenient to use, and delivers top-notch security features. MEW can either be downloaded as software into your system or can be accessed via a browser. Not just any browser, but the wallet provider’s Metamask- powered browser extension for added security.
Setting Up Your Mining Software
In selecting mining software, there are two 2 core software types to choose from which includes the “command-line” miner which is quite complex but is very customizable and the “GUIMiner” which is easier to set up but not as flexible as the former.
The Command-Line
This option involves a manual approach. There are 3 main selections for manual mining, and they include:
1- Claymore’s Dual Ethereum Miner
Claymore is the most preferred mining software by Ethereum miners. It is known for its proficiency, stability, simple configuration nature, and its ability to support and mine more than one coin.
2- Phoenix Miner
Phoenix Miner is a close rival to Claymore. Many feel that this mining software offers more stability compared to Claymore.
3- EthMiner
EthMiner is also an easy-to-configure miner and can mine other Ethereum derivatives like Ethereum Classic. However, it demands more work and thorough knowledge to operate.
Note: All 3 require that the user set up and edit configuration files, meaning that the user must have some knowledge on the command-line interface.
They all have their different community of users and have several descriptive guides to install which can be easily found. Make sure you carry out proper research on these miners to find out which suits your preferences best.
Going for the GUIMiner Option
Also known as the Cudo Miner, this mining option is recommended for those looking for an easy mining experience. The GUIMiner offers a user-friendly interface for people looking to dedicate their GPU, and CPU resources to mining.
GUI miner is available for installation in simple packages for Windows, Mac OS, and Linux. This mining option doesn’t require any expertise or knowledge in the command-line to operate. You don’t even need to have a wallet at this point. It’s probably the best place to learn and hone your mining skills.
GUIMining is a wonderful way to try out your mining prowess while making a few bucks out of it.
Is Ethereum Mining Still a Valid Venture?
In mining most cryptos, mining difficulty and expenses are on a steady rise. It appears to be that the more miners join the network, the more difficult and expensive it is to mine a block. However, as Ethereum continues to grow in value by the day, it makes mining worthwhile in the long run. Regardless, Ethereum’s network is set to experience drastic changes. As mentioned previously, the network intends on switching from its Proof of Work algorithm to a Proof of Stake system. Once this switch is actualized, miners will have no place in the network as their duties will now be fulfilled by token holders. New tokens will be created by the holders randomly. Miners will only be left with transaction fees as a reward.
The switch will happen after a hard fork which will yet again split the network into two. Those who would still be interested in mining Ethereum will only be able to do so on the old version.
The date or period when this switch is set to occur is still unknown making it impossible to say for sure that mining Ethereum is worth it as the hard fork could occur anytime.
Frequently Asked Questions (FAQs)
Which mining pool is the best?
In truth, there is no “best” mining pool as different pools have different fundamental attributes. However, Dwarfpool and Nanopool offer great services for small miners thanks to their minimum payout while Ethpool and Ethermine are more adequate for large-scale miners.
Can the pool fee be avoided?
No. This is only possible if you start your pool. However, you could look for smaller pools that demand lower fees, but higher-ranked pools give you a higher payout frequency.
What is the hash rate?
Simply put, the hash rate is the speed at which your mining rig can mine. Here’s how the units work for better understanding.
1 kH/s equals one thousand hashes per second
1 MH/s equals one million hashes per second.
1 GH/s equals one billion hashes per second.
1 TH/s equals one trillion hashes per second.
1 PH/s equals one quadrillion hashes per second.
1 EH/s equals one quintillion hashes per second.
1 ZH/s equals one sextillion hashes per second.
Should I go for a mining pool with a higher hashing rate?
Yes and no. Mining pools give rewards according to the amount of work you accomplish in comparison to every other miner in the pool. If the pool you work with has a high hash rate, you’re likely to find more unsolved blocks and rewarded more frequently. However, the higher the hash rate, the higher the number of miners to share a reward with meaning your rewards may be small.
A medium hash rate pool, however, realizes a fair amount of rewards, with higher payouts.
What makes Ethereum mining different from Bitcoin mining?
While both of them share many similarities, there are some fundamental distinctions. Firstly, Bitcoin makes use of the SHA256 algorithm to secure its network, meanwhile, Ethereum uses Ethash.
Final Note
At this point, after getting detailed information on Ethereum mining and what it entails, I believe you've gotten enough insight to go into the mining world and test your new-found knowledge.
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