The Ethereum network is built on a coding language called Solidity that is like JavaScript, encouraging developers to use the network to build new and exciting dApps that run on ether – the ’gas’ that fuels the network. Ethereum was developed by Vitalik Buterin to make improvements to bitcoin. Where the bitcoin protocol was created to disrupt the financial institutions and day-to-day banking transactions that are based on fiat (traditional) currency, the Ethereum protocol was created using the same technology, but to replace third parties and intermediaries that store data and provide services – like email providers, social media apps and even online banking – to basically become the world computer. As a cryptocurrency, ethereum has the second highest market share in the digital currency market. You can buy, sell and trade ether, like every other cryptocurrency, through an exchange, withdraw it at a compatible ATM or use a peer-to-peer marketplace. For those who are seeking another way to get hold of ether, either to pay someone through a smart contract or make a dApp work, then mining could be the answer. The blockchain is a network of connected computers known as nodes, and to create new blocks, each node on the chain needs to confirm them. The first node to solve the complex mechanical calculation needed gets rewarded through cryptocurrency. The mechanics of mining need a computer, an internet connection and a digital currency wallet. To be profitable in any kind of cryptocurrency mining, you need a combination of both luck and computational power. Mining bitcoin and mining ether is almost the same. In ether mining, blocks are found every 12 to 15 seconds, making mining ether faster than mining bitcoin, where blocks are confirmed once every 10 minutes. The consensus mechanism of the mining process is effectively proof-of-work. The main difference between bitcoin and ether mining is the algorithm that is used for mining. For bitcoin, it is SHA-256, which requires a lot of computational power to solve the mathematical problem and be the node that adds the block. For ether, the algorithm is called Ethash, and it actually requires more memory than power to work effectively, which is one of the reasons ether mining is more popular for beginners – it can be done without spending thousands on an ASIC (Application-Specific Integration Circuit) rig that is specifically for mining. In fact, the nature of the ether mining protocols means that an ASIC is less useful than a rig made of graphics cards (GPUs). Ethereum 2.0 is on the horizon, however, and has begun to be implemented in some ways already. What this means for ether mining is that there is a chance that mining will become obsolete, as ether production shifts from proof-of-work (PoW) to proof-of-stake (PoS).
What Do You Need to Have to Mine Ethereum Alone?
Setting up to mine ether is mostly the same process that you might use for other cryptocurrencies, so if you already have experience of mining, you will likely have much of the equipment that you need. As you will be receiving an award of ether for your mining efforts, one of the first things that you need to arrange is an ether wallet. As with other digital currencies, an ether wallet is a digital app that holds altcoins ready to be spent or traded. Your ether wallet has a public address that can be used to send and receive ether, and a private key that gives you personal access. This private key is really important – if you lose it, you lose access to your ether forever. Setting up your ethereum wallet means deciding whether you want to hold it online, in a software application or in a piece of hardware. Online wallets tend to be the most convenient, but also the least secure. In theory, anyone can set up their computer to mine ether, although a miner using a regular computer is unlikely to be lucky enough to win – or have enough computing power. Where mining through a normal computer CPU used to be powerful enough back in the early days of cryptocurrency, the increasing difficulty of the puzzles needs more power and more memory. This means would-be miners are going to need to rely on more hardware – like GPUs and ASICs. Both of these have the ability to work through a higher hash rate, which means that they can make the computational steps to complete the puzzle faster. When you are considering which GPU setup would work best for you, it is important to consider:
How many hashes per second it can compute How much power it consumes How much it will cost initially
To be profitable, it might be necessary to set up a mining rig with multiple GPUs – if they have a high enough combined hash rate to offset the purchase price and the power consumption. Ethash, the algorithm that is used to mine ether, was created to be resistant to the use of ASIC hardware – the power of the computer being less important than the memory capacity – but it is possible to find an ASIC that works on ether. Alongside the hardware, you will need some specific software. An ethereum client will connect you with the network, and there are several to choose from. Geth and OpenEthereum are good choices. Alongside this, you will need some mining software. The official mining software is Ethminer. Once you have all this set up, you are ready to start mining ether.
Solo Mining
While the idea of mining alone, so you can take the whole reward for the block creation, seems preferable, it is a lot of work. You need to be incredibly lucky, and running lots of graphics cards, to stand a chance of solving the block. The dangers of running a big enough rig, including overheating and ventilation alongside the cost of setting it up, means that it is very unlikely that you will be able to hit any kind of profits by mining alone.
Cloud Mining
Cloud mining involves basically renting the computational power of a central unit – and getting cryptocurrency in exchange. Cloud mining involves a contracted payment to the cloud mining operation that covers them for the equipment and costs, taking that responsibility from you as a miner. Of course, the cryptocurrency received depends on the amount of mining power you have purchased, and cloud mining is not known for being particularly open about its operations. If the price of ether collapses, or it stops being mined completely, you are still liable for paying for the contract.
Pool Mining
The majority of ether mining is controlled by just a few mining pools. Some of the biggest, like Ethermine and Nanopool, are usually a safer bet with more regular rewards. When deciding on a mining pool to join, there are a few considerations to make:
Pool Size:
The bigger the pool, the higher the hash rate – and that means more blocks confirmed. While there will be more regular rewards, they will be shared between more people, so you need to find the right balance between a large enough pool, with regular rewards, that delivers a good shared payout.
Minimum Payout:
Every pool will have a minimum payout amount – the smallest amount that needs to be mined before it is sent to your wallet. If the minimum payment amount is high, you are more likely to have to stay in the pool for longer, so a higher minimum payment is not beneficial, especially if you want to get paid as frequently as possible.
Pool Fee:
Every mining pool has a fee to join, and this is usually on a subscription basis. The fee is percentage-based and is paid automatically from your payout. Although there are some pools that have a 0% fee, these are usually funded through donations and might not be as stable. Mining pool fees tend to sit at about 1% to 3%. The way you want to mine will inform the initial setup costs that you need to consider. GPUs can range in price from a few hundred to a few thousand dollars, and the electricity costs are the biggest ongoing expense of mining. Big rigs, suitable for solo mining, will also need special ventilation through fans to prevent overheating.
Which Mining Technique Is Best?
For most people, the best mining technique is pool mining. While it might be cheaper to take part in cloud mining – just one monthly fee to receive a regular amount of ether – it is not necessarily going to prove the most profitable. Solo mining might seem to be the best way to keep all the rewards. However, the combination of required luck and computing power, alongside ongoing electrical costs, makes it highly unlikely that you will receive rewards often enough to be profitable. Pool mining, therefore, is likely to be the most profitable way to get involved with ether creation. The rewards you receive will be shared based on the percentage of work your rig did on the block. While this might be less than if you had completed the block as a solo miner, it is more likely that you will receive weekly or even daily payouts with a pool.
Tips for Ethereum Mining
Wallet
Get your wallet up and running before you start mining. Whether you choose to mine solo or through a pool, you need to connect the wallet to the mining software to receive your rewards and it is important that this is completed straight away.
Calculate Power Costs
Unless you are mining for fun, you want to be sure that your mining setup is going to be profitable. This means you need to calculate the costs of the operation versus the potential rewards – and this has many variables:
Initial outlay – Buying efficient GPUs that have enough RAM to mine ether is one of the first expenses. A good GPU will cost more than $500, and if you create a rig, this might mean potentially thousands of dollars in initial expenses. Electricity costs – The largest ongoing cost is electricity. Miners tend to look for cheaper electricity deals, perhaps living in areas where the electricity costs are less, or where they can tap into renewable energy sources. Other costs – Aside from the biggest cost – electricity – your mining rig is likely to be noisy and hot. It is essential to have good ventilation for the rig so you need to make sure that you have sturdy and reliable fans, at the very least. It is important to consider what it will cost to complete the setup safely. Pool fee costs/cloud mining subscription – Subscription costs to a cloud mining service might mitigate the costs of the initial outlay and running costs, but they will tie you into a contract that could prove a worthless expense if the price of ether reduces.
Safety in Mining
It is important to plan carefully when you are setting up a rig so that you can avoid any dangers or other unfortunate outcomes. Computers are a potential fire hazard at the best of times, and this is magnified through mining because of the constant usage and high energy outputs. It is crucial that you do not overload the electrical grid, or the plug sockets themselves. If the wiring fails, the least dangerous outcome is an overheated computer and the destruction of your equipment. Of course, the life-threatening fire potential is also something that needs to be considered. You can mitigate this risk by purchasing high-quality power supply units that can handle unexpected power surges and will automatically switch off if there is a problem. There are also specialized motherboards that will make a difference.
Review the Resources
With anything that is online, it is important that you do as much research as possible before you sign up to a mining pool, create a wallet or do anything financial. With the decentralized nature of blockchain technology, there are no regulation authorities that monitor any websites or services, so it is difficult to find services that are legitimate. This is why it is especially important to make sure that whatever software you use, whatever pool you choose, you find out enough about it to be confident that it will work effectively for you.
The End of Mining As We Know It
The Ethereum mining procedure is similar to bitcoin and most other cryptocurrencies. However, there is a school of thought about what is known as the Tragedy of Commons, which means that at a point in the future, there will be less miners of cryptocurrency because there will be little to no block rewards from mining due to the increasing difficulty and scarcity of the rewards themselves. At this point, the blockchain becomes susceptible to what is known as a 51% attack – where an entity that holds 51% of the computational power in the network could conceivably create fraudulent blocks of transactions. The PoS protocol avoids this because a 51% stake holder would want to protect the network as there would be no benefit to them in creating fraudulent blocks. This move has already begun in the Ethereum network, but it will take a while until mining becomes completely obsolete.
Final Thoughts
Ethereum is a popular cryptocurrency, with the second highest market cap behind Bitcoin – so it is immensely popular for buying, selling, trading and mining. Like any financial investment, a prospective ether miner needs to make sure that they are sure of the calculations of cost and compare it to the potential return. There is always risk involved with online business, especially financial, so it pays to do your homework and ensure that you are only dealing with legitimate companies and services. There is also the consideration that the way new ether is created is due to change thanks to Ethereum 2.0 – a massive update that will change the algorithm from proof-of-work to proof-of-stake. This means that the only people who will be able to confirm transactions and create new blocks are the users who already have a stake and hold cryptocurrency. Deciding to mine ether requires careful consideration of how to manage the costs and then ensuring that you are able to make a profit – but it is doable for a beginner. WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
