Ether mining is the accruement of ETH via the validation of network transactions. More specifically, mining is the participation in the validation of transactions that take place in order to confirm all activity in the Ethereum Blockchain. This can be done on every platform meaning that it is available to home computers as well as tailored rigs. Note that it’s usually easier to get started with Unix machines than with Windows, especially when it comes to Ethereum.

The challenge in mining is to generate more money by the collection of ETH than is spent on the electricity consumed to do so. As a beginner, the best chance of generating any money by mining is by participating in a mining pool. Otherwise, even the most expensive gaming card will readily be edged out by professionals. There are multiple mining clients that can ease your way into Ether mining. Ranging from the miner provided by the core software and other CLI tools to fully fledged GUI apps that allow fine-tuning and a clear view of all mining activity.

How ETH Mining Works?

The process of mining for ethereum is very similar to that of bitcoin mining. Miners utilize powerful computers to make educated guesses about complex mathematical problems. This system is known as “proof of work,” because it requires that miners go through the puzzle-solving process in order to receive their ETH reward.

Mining is accomplished by running unique metadata like timestamp and software versions for a block of transactions through a hash function repeatedly. Each repetition alters the “nonce value,” which has an impact on the resulting hash value (a scrambled string of letters and numbers with a fixed length and a random appearance).

If the hash value matches up with the current target for the block, the miner is rewarded with ETH, and the block is transmitted across the network so that each node in the network can validate the process and update the blockchain ledger. Other miners who had previously worked on solving the puzzle will move on to the next block, repeating the process.

Ethereum Blockchain

The process of mining is slower than the process of verification, which is nearly instantaneous. As a result, miners “find” a block roughly every 15 seconds. Ethereum adds some further stipulations and incentives: if miners develop new tools to find blocks more quickly, the algorithm automatically adjusts to ensure that the mining rate for a single block remains in the 12 to 15 second range.

Further, the “ethash” proof-of-work system requires additional computer memory, meaning it’s more difficult for miners to operate with particularly powerful chips called ASICs, and they are incentivized to use other types of computing systems. Ethereum mining is likely to shift in the future, however, as the network aims to transition to a “proof of stake” system which would upend the mining process as it currently exists.

Proof-of-Work vs Proof-of-Stake

Ethereum Mining Algorithm

ETH Mining AlgorithmEthereum uses the Casper Proof of Stake algorithm instead of traditional Proof of Work used in Bitcoin. Proof of Stake wastes far less computational power to achieve the same end as PoW (Proof of Work), implying that it is meant to act as a better alternative to the PoW algorithm used for Bitcoin. Casper is part of the cutting edge of PoS and prioritizes availability, or speed, over consistency, meaning reliability, resulting in faster validations with similar properties as that of a Proof of Work Blockchain.

Where Proof of Work makes use of hardware to give computation value, Proof of Stake takes a miner-less approach that rids the network of vast energy requirements. Instead of receiving rewards for mining, Ethereum ‘miners’ acquire rewards that are proportional to the transaction they are validating. Note that this has only been the case since 2016, before which Ethereum also ran off of a Proof of Work system.

Shift to Proof of Stake

Ethereum might not need miners forever, though.

Developers plan to ditch proof-of-work, the algorithm that the network currently uses to determine which transactions are valid and protect it from tampering, in favor of proof of stake, where the network is secured by the owners of tokens.

If and when that algorithm is rolled out, proof-of-stake could be a means for achieving distributed consensus that uses fewer resources.

What is Proof of Stake?

So speaking of Proof of Stake (POS), what exactly does it mean and why is Ethereum going to move on to it? Let’s focus on the first part of the question for now.

Proof of stake will make the entire mining process virtual and replace miners with validators.

This is how the process will work:

  • The validators will have to lock up some of their coins as stake.
  • After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.
  • If the block gets appended, then the validators will get a reward proportionate to their bets.

Proof of Work vs Proof of Stake

POS will make mining completely virtual and greatly reduce the wastage that will come about through POW.

Ethereum’s POS implementation is called the Casper protocol.

Three Ways to Mine Ethereum

Ok, now that we have that out of the way how do you start mining Ethereum? There are three ways you can mine.

  • Pool mining (Recommended)
  • Mining alone (Not recommended)
  • Using Cloud mining services (Recommended)

Pool Mining

Ethereum mining in a pool is the easiest and fastest way to get started. You work together with other people. All of the people that are mining within a single pool agree that if one of them find the secret number, they’ll share rewards with everyone. How often you find blocks and share rewards depends on the pool size. However, not all pools are the same. These are the things that you should consider before joining a pool.

  • Pool size
  • Minimum Payout
  • Pool fee

The hashrate distribution of the mining pools in Ethereum

Why is cryptocurrency mining pool size important? Well, the short answer is that as the number of people that mine increase, the chances of getting rewards also increase. However, as more people join the pool, the rewards are getting shared between more people. You should try out different pools before you find the one that best works for your computer. Joining big cryptocurrency mining pools is usually a safer choice. You might be getting fewer rewards per 1 block, but at least you won’t go a day or a week without getting a reward at all.You should look at the minimum payout as well. A minimum payout is the smallest amount of Ether you will need to mine before it gets sent to your wallet. If the minimum payout is 1 ETH, you will need to stay in the same pool for a long time before getting your cryptocurrency. Pools with large minimum payouts are not beneficial to you. You should try to find pools with a small minimum payout. You want to be getting paid as frequently as possible, without having to commit your time to a single mining pool for too long. Having the flexibility to switch between different cryptocurrency mining pool is essential! Every pool has a fee associated with it. You have to pay a small amount so that you could continue using the pool. This amount gets paid automatically, so you don’t need to worry about it. The payments are % based and are calculated in the cryptocurrency you’re mining. The amount you have to pay usually differs from 1% to 3%. You should look for a pool with around 1% fee as these are far more reliable than 0% fee pools. Running a mining pool is a full-time job and computing and data center space isn’t cheap. 0% fee pools are usually supported by donations, they might be less stable than pools with a fee to cover the costs. If the pool fee is higher than 3%, you should consider looking for another pool.

Mining Alone

Mining alone might seem like a great idea. You don’t have to share any rewards. You just turn your computer on and let the money roll in, right? Wrong. When you’re doing Ethereum mining alone, you are competing with other people and will only get rewards if you solve the math puzzle first. Since you’re competing with a very large network of people and companies that have a lot of resources, you would need to get very lucky very often. Mining alone is only profitable if you have a lot of resources at your disposal, we’re talking 100+ graphics cards. Having this much computing power has its disadvantages. You would need to worry about:

  • Heating problems. If your equipment gets too hot, it could break. Once your equipment breaks, it’s usually not worth it to repair it. You would need to spend more money to replace your mining rig and fix the heating issues.
  • Ventilation. To keep everything working correctly, you would need to have a lot of fans moving air very quickly. As I’ve mentioned above, heating is a real problem.
  • Noise. All the fans that are spinning and cooling down your equipment would make a lot of noise. It would get very loud, very fast. Usually, you need something like a garage/warehouse or a remote location to keep everything.
  • Electricity costs. Having so much equipment use power at the same time would use up a lot of electricity. For example, with only ten graphics cards you would spend around 3-4 dollars on electricity per day. Imagine ramping up to 100 cards to stay competitive. The cost to power them all would add up to 30-40 dollars per day in electricity costs alone.
  • Space. Having a place to store 100+ ethereum mining rigs isn’t something that’s available to most people.

Cloud Mining

When you are using cloud mining, you are paying someone else to mine for you. The way this works is that you’re renting mining time from other people and in return, they give you all the rewards they can mine. Cryptocurrency cloud mining might seem a bit dumb.

  • Why would someone use their equipment to mine for you when they can mine for themselves?
  • Why would you pay someone else to mine for you when you can invest the money in equipment and mine yourself
  • Why don’t you spend the money on buying the cryptocurrency you want instead of paying someone to mine it?

And all these are valid questions. It’s not better or worse than doing all the work yourself. Let’s analyze the benefits and hazards of Ethereum cloud mining.

Pros:

  • You are not responsible for any equipment that breaks. Once you pay someone to mine for you, you’re buying a certain amount of work that has to be done. And all of the repair costs are not your responsibility. However, be careful, some companies will make you pay for electricity and repair costs. Read the contracts carefully and avoid this!
  • You don’t have to keep a significant amount of noisy equipment in your home or warehouse.

Cons:

  • You pay the money up-front if Ethereum price drops, you won’t have a chance to get your money back. And you’re stuck with the mining work you bought.
  • You can’t change the mining software and hardware that the cloud mining provider uses.

Cloud mining is a safe way for mining providers to guarantee themselves profit for the equipment they’ve purchased. Cryptocurrency price doesn’t affect them because you pay them in advance. So, when you buy cloud mining services, you don’t have to deal with any troubles that come with making your ethereum mining rig. In an ideal situation, cloud mining is less profitable than mining yourself. Instead of using cloud mining services you can also just buy ethereum.

Ethereum Mining Hardware

Ethereum Mining Rig

Since Ethereum’s implementation of the Casper Proof of Stake algorithm, ASIC hardware that is known to be particularly effective for mining BTC and other Proof of Work based cryptocurrencies can no longer be used for Ethereum. As a result, Ether mining is limited primarily to Graphics Processing Units (GPU). This excludes the use of Bitcoin ASICs that have significantly limited the pay-off to entry-level mining hobbyists. It also makes Ethereum interestingly favor the home consumer over big-time investors. Either way, a similar playing field has arisen where capitalism still manifests itself in the form of high-stake miners simply buying far more of the same equipment that the hobbyist would also have.

Just like a normal Computer, you will need the following for your Ethereum mining rig :

  • MotherBoard. To allow parts to communicate.
  • Graphics Card (GPU). To process the proof-of-stake algorithm.
  • Storage (HDD/SSD). To store the Blockchain and newly verified transactions.
  • Memory (RAM). To give the mining program working memory. Be generous with your investment in RAM as the DAG file is only growing in size.
  • Power Supply (PSU). To provide power for the parts.
  • Ethernet. To receive newly validated transactions to be stored in the Blockchain, plus the new validations completed while ‘mining’.

Note that the graphics card plays the most important role in determining how lucrative your rig will be.

Different GPUs in Ethereum mining

What about Mining Pools?

The pool is a community of miners, created to reduce the random factor during mining. Typically, the pools are designed for the extraction of a particular cryptocurrency.

Ethereum is young. However, there are lots of pools for mining. It is possible that soon ETH will be more popular than BTK, especially because mining bitcoins becomes almost impossible.

When you choose a community, look at the following indicators:

  • the total power (capacity) of the pool;
  • popularity among miners;
  • the reviews on the forums;
  • the accrual of profits to the miners;
  • the convenience of withdrawal for your country;
  • the size of the commission.

TOP 3 Mining Pools

The choice of pool depends on the profitability of the entire enterprise. Pools with a capacity shortage, for example, which began work last Tuesday, will bring nothing but disappointment. Choose verified one.

  • 1. Ethpool/Ethermine (24.7%) Ethpool and Ethermine are two different sites although they appear to be a kind of the same pool. They are currently the largest Ether mining pool with about 25% of the network’s hash rate. Also, good pools for single miners to reduce their risks and increase profits. The principle of work is standard – you register, download the mining program and start to mine cryptocurrency.
  • 2. DwarfPool (13.3%) Multi-currency service that allows beginners and professionals of mining to produce not only ETH but also many other cryptocurrencies like Dash and Monero. The pool provides anonymity (no registration required) and regular payments after finding a block. The remuneration distributed according to the hash rate of each participant.
  • 3. Ethfans (8.6%) Chinese pool with about 8.6% of the network hash rate.

Ethereum presents a universal application of blockchain technology. The currency is the icing on the cake. Miners and investors have made large sums of money on Ethereum’s sudden uprise. You have already known lots of the Ethereum core aspects. Now only you can decide whether to start mining or not.

Calculating Ethereum Mining Profitability

With a clearer understanding of the Ethereum blockchain and important concepts like Difficulty, it’s time to perform some economic calculations. This step is very important and you should not skip it. While mining earns money it also costs money and if you make the wrong decisions you may end up with negative ROI (i.e. paying more than you earned).

Luckily, we created an Ethereum mining profitability calculator so it is fairly easy. In the calculator below, fill in the data as follows:

  • Difficulty Factor, ETH/USD rate: These fields are updated automatically. You can enter you own values manually to simulate scenarios.
  • Hashrate, Power (Watts): Use this table to find the parameters per your GPU’s make and model. Make sure the hash rate measurement is identical between the table and the calculator i.e. MH/s, KH/s etc.
  • Pool Fees % (optional): Enter your mining fees if you’re mining via a mining pool (usually run around 1% plus a 1 ETH payout fee). Leave this blank if you’re mining on your own (not recommended)
  • Hardware cost (USD): Put here (in USD) how much you paid (or about to pay) for your GPU and any other mining equipment.
  • Power Cost (USD/kWh): Enter your electricity price, as appears on your utility bill. Use  this list for the USA or this list for elsewhere in the world.

Ethereum mining calculator

The profitability output will appear below the calculator as you enter the values:

ETH mining calculator

*In this example I used a 1080Ti GPU with a residential power cost of 20 cents per kWh, with no mining pool. As can be seen in this example, this setup will make me lose money, even after a year of mining…

Remember that depending on your intended setup, it may be necessary to buy a new Power Supply Unit (PSU) to run your hardware. An electrically-efficient PSU costs more but saves on power costs over the long term.

Most importantly, it is crucial to understand that difficulty and price are variables i.e. they can and will probably change significantly over time. The profitability score you get is only true to the moment of calculation.

Ethereum Mining Difficulty

How Do I Start Mining Ethereum – 5 Steps

The Ethereum network has its own blockchain. All transactions that are made using Ethereum need to get approved by the miners. That’s why it takes a while before the Ether you send someone reaches them. The transaction has to be verified and put inside the Ethereum blockchain. This verification process is called proof of work.

It is your job as a miner to make sure no one cheats. To make sure that the transactions are valid miners are solving complex mathematical equations. When a miner solves this equation, he communicates this to all of the other miners “Hey, I’ve got it! I have found the number we’ve been looking for all this time” using fancy computer language. All of the other miners check if this number is correct and if 51% of them agree that it’s correct a new block gets added to the blockchain. This new block contains all of the transactions that are now verified and the miner who found the number is rewarded! The miners then start solving a new math problem to verify another block of transactions.

Choosing Mining Hardware

Before getting started, you will need special computer hardware to dedicate full-time to mining.

There are two types of mining hardware: CPUs and GPUs. GPUs boast a higher hash rate, meaning they can guess puzzle answers more quickly. At time of writing, GPUs are now the only option for ether miners.

Settling on a GPU is a complex task and you can browse plenty of advice about which ones are the most profitable based on hash rate performance, power consumption and the initial expense of the card. You probably want to set up a mining rig, a machine that might be composed of multiple GPUs and might take a week to build.

Mining profitability calculators show the likely amount of ether you’ll earn at a given hash rate, and whether that ether is enough, when set against setup and electricity costs, to make a profit.

Unlike bitcoin, powerful and fast ethereum ASICs aren’t available right now.

Installing the Software

After selecting some mining hardware, the next step is to install the mining software. First off, miners need to install a client to connect to the network.

Programmers familiar with the command line can install geth, which runs an ethereum node written in the scripting language ‘Go’, or any of a number of clients.

Download Geth here, using the directions for your appropriate operating system (Windows, Mac OS, or Linux), unzip it and run it.

Once installed, your node can ‘talk’ to other nodes, connecting it to the ethereum network. In addition to mining ether, it provides an interface for deploying your own smart contracts and sending transactions using the command line.

Testing

It’s also possible to mine ‘test’ ether on your own private network to experiment with smart contracts or decentralized applications (activities that require the use of tokens).

Mining on a test network doesn’t require any fancy hardware, just a home computer with geth or another client installed. But, minting fake ether obviously isn’t going to be very lucrative.

You can read more about how to set up a test network here, and how to start mining on it here.

Install Ethminer

If you’re interested in mining ‘real’ ether, you need to install mining software.

Now that you’ve downloaded a client and your node is a part of the network, you can download Ethminer. Find the download for your appropriate version of Windows here, or GPU mining instructions for other operation systems here.

Once installed, your node will officially play a part in securing the ethereum network. For more detailed instructions on any of the above, visit the official ethereum website.

Joining a Mining Pool

As a miner, you’re unlikely to be able to mine ether on your own.

That’s why miners ‘pool’ together their computational power into ‘mining pools’, to improve their chances of solving the cryptographic puzzles and earning ether. Then, they split the profits proportional to how much power each miner contributed.

There are many factors involved in joining a mining pool. Each pool might not be around forever, and the computational power of each pool is constantly changing, so there are a number of factors that go into deciding which to join.

One point to keep in mind is that mining pools have different payout structures.

Mining pools will have some sort of a signup process on the website so that miners can connect to the pool and begin mining.

Keep in mind, though, the mining world is a whirlwind of change. The tools that you pick up today might be obsolete next year, and some mining pools might fall away while others emerge, so it’s worth keeping aware of industry shifts.

Do let me know your thoughts in the comments below!

And if you find this post useful, do share it with your friends on Facebook & Twitter! 

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