Ethereum is an open-source platform that uses blockchain to facilitate dApps like marketplaces for nonfungible tokens (NFTs). Transactions within such apps are publicly distributed and don’t require a central authority for governance.
The Ethereum network requires a global system of computers that compile and verify each batch of transactions (a block) within the platform’s blockchain to make it work.
That’s where mining comes in. Here’s how it works: miners use the computing power of dedicated hardware to solve complex puzzles. This process allows the network to function and protects it from malicious attacks. In exchange for their services, miners get a transaction fee – a predetermined amount of Ether upon the successful validation of a block.
Want to know how Ethereum mining works? How do you mine Ethereum efficiently? What type of mining software can you use? Do you need to invest millions in mining hardware? Keep on reading this essential guide to Ethereum mining.
What is Ethereum mining?
Just like in Bitcoin mining, in Ethereum we use the Proof of Work (PoW) consensus mechanism. Mining forms the lifeblood of PoW. Ethereum miners – which are computers running software – use their time and computation power to process transactions and produce blocks.
Note that in decentralized systems like Ethereum, everyone needs to agree on the order of transactions. Miners help this happen by solving computationally difficult puzzles to produce blocks, securing the network from attacks.
Technically, like in Bitcoin mining anyone can mine on the Ethereum network using their computer. However, miners purchase dedicated computer hardware to mine Ethereum profitably in most cases. It’s unlikely that the average computer would earn enough block rewards to cover the associated costs of mining Ether.
How long does it take to mine Ethereum?
As of March 7, 2022, mining a single Ethereum would take 27.6 days at the current difficulty level and mining hash rate of 2,500.00 MH/s. This calculation considers the power consumption amounting to 1,200.00 watts (at $0.10 per kWh) and assumes a block reward of 2 ETH.
What are the costs of mining Ethereum?
Mining Ethereum generates costs related to the following factors:
– Mining hardware required to build and maintain an Ethereum mining rig
– Cost of electrical power that keeps the mining rig running
– Fees for mining pools – mining pools usually charge a flat percentage fee for each generated block
– Cost of equipment for supporting the setup (ventilation, energy monitoring, electrical wiring, etc.)
Proof of Work vs. Proof of Stake – Will Ethereum mining still be profitable?
The Ethereum development team has been working on changing Ethereum’s consensus protocol from Proof of Work to Proof of Stake for over a year now. It seems like they are finally getting close to making the change.
In 2022, with an update referred to as “the merge,” the Beacon Chain will join the Mainnet Chain, enabling ETH staking and allowing holders to earn interest on their stake. After that, mining difficulty will skyrocket due to the “difficulty bomb,” which is a mechanism to remove mining incentives in favor of staking.
The Ethereum Foundation deployed the Kintsugi test network in a move toward the launch of Ethereum 2.0. This solution was designed to help developers start working on updates for their apps in a post-merger environment. So, it’s likely that we’ll see an official launch this year.
Is mining Ethereum still profitable? With the recent decline in cryptocurrency prices, mining is less profitable than it was during most of 2021. A single Nvidia 3080 can still generate a profit of roughly $3.50 per day mining Ethereum, depending on local energy costs, which is half the profit miners saw late in 2021.
However, the difficulty bomb will make mining on the Ethereum network challenging. This means that anyone currently mining ETH will either have to transition to another coin or sell their graphics cards in favor of staking.
Mining other Proof of Work cryptocurrencies with consumer hardware can still be profitable; however, with many miners seeking new coins to mine, these alternate options may not remain profitable for long. It may become difficult to continue profitably mining cryptocurrency unless major shifts occur in the popularity of certain coins.
How to mine Ethereum? A short guide
Step 1: Select your mining approach
You can choose from three different approaches to Ethereum mining:
Pool mining is the most efficient way to mine Ethereum, especially if you don’t have much hardware. That’s because mining Ethereum has become increasingly difficult and time-consuming as more coins enter circulation.
Pool mining allows miners to combine their computing power to solve Ethereum blocks in less time and rewards them based on their contribution to the pool.
Solo mining is more complicated and requires considerable computing power. To be profitable – and make meaningful contributions to the Ethereum blockchain – you would need a farm of mining rigs powered by dozens of GPUs.
If you choose this approach, it’s important to consider the financial and spatial implications. Beyond equipment cost – which could be thousands if not tens of thousands of dollars – you should evaluate factors like ventilation, noise, electricity costs, and physical space.
Solo mining is generally only recommended for professional miners with high-performance computers. This approach may be more profitable in the long run because you would avoid paying any fees or splitting profits with miners who have contributed computer power to your venture.
Cloud mining is a popular service, but it comes with its risks. There are many different providers to choose from, so it’s essential that you go with a reputable company that supplies the equipment and pays out reliably.
If you use scam cloud mining services, you could lose any money you’ve paid them before you mine Ethereum and get any return on your investment.
Step 2: Open a crypto wallet
Cryptocurrency is digital, so there’s no risk of losing a coin to the wind. But you still need to stash your holdings somewhere, and that’s where crypto wallets come into play.
Crypto wallets securely store your coins, just like a bank account houses your paychecks. There are two main types of wallets: hardware wallets and software wallets:
Hardware wallets – these are physical devices that store your cryptocurrency offline, also referred to as “cold wallets.” They often look like USB drives.
Software wallets – digital programs that house your cryptocurrency, called “hot wallets because they’re accessible through an internet connection.
Both wallet types provide public and private keys. While hardware wallets are generally considered safer because they aren’t linked to an online platform, they can also be more expensive and harder to use than software options.
Software options are far more convenient as you can access them through a web browser. However, they can be risky if not set up properly.
A wallet address has two purposes. A public address allows other parties to transact with your wallet, and a private address grants access to the wallet.
If you want to start mining Ether, you’ll have to get an Ethereum wallet. Once you open a wallet, you’ll get a public address you can use during the mining configuration process. For example, if you become part of a mining pool, you’ll link your wallet and receive periodic coin distributions based on your hash power contribution to the pool.
Step 3: Get the right mining hardware and software
To get started mining Ether, you’ll need some basic equipment: a computer or dedicated mining rig with one or more graphics processing units (GPUs) or alternatives (ASICs). Next, you may need mining software such as an Ethereum mining operating system, a GPU driver, and an Ethereum wallet.
Note: ASICs are designed specifically to mine cryptocurrency so they offer great mining power. That’s why they tend to generate more computing power and solve blocks in less time than standard computers (GPUs).
However, there are trade-offs to this. ASICs can cost tens of thousands of dollars and consume much more power than GPUs. They are often optimized for a specific coin — such as Ethereum or Bitcoin — whereas GPUs can mine any coin.
Step 4: Select the mining pool
If you don’t have thousands of dollars to spend on mining equipment, mining pools are a great way to get started in crypto mining. While mining pools vary in size and structure — for example, one might have 400,000 active miners while another has 80,000 — there are more than a couple of pools to choose from.
You can use a platform like PoolWatch to compare and oversee active crypto mining pools. When picking your mining pool, take these factors into account:
Pool size – the number of active miners within the pool.
Hashrate – the combined computing power of the mining pool.
Minimum payout – the amount needed before you can collect your Ether rewards.
Payout method – the pool’s process for distributing rewards to its members.
Fees – the pool administrator’s compensation for running the pool, collected from each new block of coins generated.
Note: The location of your server can affect your mining performance. To optimize mining, use a server in your region.
Step 5: Get your mining rewards
You’ve worked hard on your mining operation, and your investments may soon start earning you passive income. Once you’ve set up your mining tokens and configured a wallet, you can start earning Ether.
If you’re a member of a mining pool, you can check the pool’s online dashboard to assess mining performance, such as efficiency and yield. You are responsible for managing your crypto holdings at this point, so it may be best to diversify them into several digital assets.
For example, a major catalyst for mining a particular token is the belief that the coin will appreciate in value. So, at this point and going forward, you’re not only a crypto miner but also an investor.
And prepare for the future. With the shift to Proof of Stake, the block rewards go away, and the miners are paid in transaction fees only. This shift is going to remove the wasteful energy-intensive process of mining while introducing additional security benefits to an already robust protocol.
We hope that this guide to Ethereum mining equipped you with a solid foundation for getting started and helped you understand how Ethereum mining works. Do you have any questions about Ethereum and its future? Give us a shoutout in the comments section and keep a close eye on our blog, where we publish insights on the crypto scene.