How To Mine Ethereum
Just as Bitcoin, Ethereum belongs to the bucket of public blockchains. It’s a decentralized ledger that is updated and verified by members of the Ethereum network. The only way to add a new block to the Ethereum blockchain is by mining it. The word “mining” is an analogy borrowed from the process of extracting precious metals as they need to be mined from the ground at the cost of labor and energy.
To mine Ethereum, computers spread around the world compete to solve cryptographic puzzles at the cost of processing power and therefore energy. Any miner that successfully solves the puzzle first is being rewarded with ether (ETH). These rewards pay miners for securing the network, verifying transactions and adding blocks to the blockchain.
The current mining reward is 2 ether per block plus all transaction and gas fees contained in the block. A new block is added to the blockchain on average every 15 seconds.
How does it differ from mining Bitcoin?
Even though the Ethereum blockchain builds on Bitcoin’s innovations and ideas, their developers did not simply copy Bitcoin’s technology but made several fundamental modifications to fit Ethereum’s purpose best. This also has an impact on Ethereum’s mining process.
Ethererum was purposefully designed in a way that only allows for efficient mining with graphics processing units, or GPUs. This stands in stark contrast with Bitcoin, which nowadays is almost exclusively mined with specialized hardware, so called ASICs. The reason for embedding such a restriction into Ethereum’s code base was to limit the centralization of hash power as seen within the Bitcoin network. Through optimizing mining for GPUs, Ethereum developers wanted to ensure that mining would still be possible for individuals with home-owned computers and rigs even after strong network growth and an increased difficulty rate. When it comes to the distribution among miners, these measures therefore help to keep the network as decentralized as possible.
Unlike Bitcoin, Ethereum is an inflationary currency and the ether supply is not fixed at a maximum amount. As a result, ether’s supply growth never stops. But, inserting more money into circulation tends to lower its value. Should the amount of ether therefore become too great, its price could collapse. As a countermeasure, Ethereum cut its block rewards in 2017 from 5 to 3 ether. Not even 1.5 years later, in 2019, block rewards got cut once more by a third to 2 ether per block. But unlike Bitcoin, these cuts are not hardwired into Ethereum’s code base but decided on by the Ethereum core developer team. For miners, this makes it harder to calculate future returns on their hardware investments (ROI).
But the biggest difference to Bitcoin mining is yet to be implemented. Ethereum has started its development to switch from a proof-of-work (PoW) to a proof-of-stake (PoS) mechanism by 2022 (ETH2). For miners, this fundamental shift results in making them obsolete. As mining in the form of solving cryptographic puzzles is no longer required for PoS, miners can no longer use their hardware to mine ether. Many will therefore switch their computing power to other blockchains still working on PoW consensus mechanisms.
Why should you mine ethereum?
When the Ethereum network first launched in 2015, ether prices were low (≈1$). Mining ether therefore wasn’t a get-rich-quick scheme. Many of the first miners were developers or crypto enthusiasts who believed in the project and wanted to support the cause.
With an increasing ether price, mining became more lucrative, attracting tech savvy people who understood the network’s potential and possessed enough skill to run their own nodes. Nowadays, with ether prices having surpassed 2000$, mining ether is a profitable business, even though fiercely competitive. But as Ethereum is about to switch to PoS in the near future, new investments in mining equipment are unlikely still to prove gainful.
But, for individuals having access to unused GPU processing power and wanting to dive deeper into the world of Ethereum while making some extra bucks, mining is certainly a valuable option. Nevertheless, with PoW ahead and ether staking already available, it seems just as reasonable to get into staking, which is a simpler and less hardware-intensive way to earn ether.
How to mine ethereum
When mining ether, there are three different approaches miners can follow. In the following paragraph we take a quick look at each one.
Pool mining: Mining Ethereum in a pool is the simplest and quickest way to get started. Hereby you collaborate with other individuals. All of the miners in a single pool agree that if one of them can solve the cryptographic puzzles, rewards will be split among them according to the provided hashpower. The size of the pool, measured in hashpower, determines how many blocks the group finds on average and the expected rewards thereof.
However, not all pools are created equal. When choosing a pool three key characteristics should be considered: pool size, minimum payout and pool fee.
The pool fee specifies the share the pool administration gets for running the pool. If a pool has higher fees than 3% you may consider finding another pool. Minimum payout defines the smallest amount one can withdraw from the pool. E.g. minimum payout is 1 ether, it can take weeks or months until you reach such an amount in rewards payments and are able cash out.
Solo mining: Mining on your own seems like an attractive alternative to pool mining, as no pool fees have to be paid and rewards don’t have to be shared. But to have a realistic chance to solve one of the cryptographic puzzles in a reasonable amount of time, a miner needs dozens of GPUs. Therefore, solo mining is mostly for professional miners who run mining farms.
Cloud mining: This is the process of paying someone else to mine for you. Instead of possessing and running your own mining hardware, you rent someone else’s computing power and let them do the work for you. In return for the rent, you get the mining rewards. But be aware: cloud mining requires trust in the counterparty, especially when done over an online service. There is no guarantee that the money paid up front is actually used to run mining equipment or that there even exists such equipment. Therefore, it is recommended to do cloud mining through long established, trustworthy cloud mining platforms such as hashflare.
How to mine Ether
Step 1: Create Ethereum wallet
Step 2: Update your GPU drivers
Step 3: Install Ethereum mining software
Step 4: Choose a mining pool
While setting up Claymore dual miner, you will have to decide which mining pool you want to be a part of. There are many choices, e.g. 2miners or ethermine. Before settling for one, make sure to check the above mentioned criteria (pool size, minimum payout and the pool fee).
Step 5: Collect your rewards
After having mined for some time, go to your pool’s webpage to check your earned mining rewards. Copy – Paste your public Ethereum wallet address into the search bar to get an overview over your mining rewards. Depending on the pool, you can either claim your rewards manually or they get sent automatically to your ether wallet when reaching the minimum payout level.