This is what makes Ethereum stand out from Bitcoin and other cryptocurrencies, as there are countless different decentralized applications that can be supported. The majority of initial coin offerings (ICOs) of new digital tokens, for example, are based on the Ethereum network as a result of this.
While the value of Ethereum exploded in 2017 and into 2018, more and more people are getting involved in the mining process which makes it a lot more competitive.
It makes the mining process more difficult as more and more people are competing for the same amount of Ether for a given transactions block. As the returns are low, it is hard to become too profitable, but a lot of miners believe that as the price of Ethereum continues to rise, this could make their stockpile of Ether a lot more valuable at a future date in time.
What Is Involved in the Mining Process?
It is important to ensure that all of your funds are protected and that you have your security protocols in place long before you even begin the mining process.
Usually, the best option is to use some sort of hardware wallet to store your cryptocurrencies as this will not be connected to the internet and therefore cannot be hacked. You should also enact basic privacy controls such as two-factor authentication and relevant accounts with 3rd party platforms.
For the most part, the mining process for Ethereum is largely similar to that of mining Bitcoin.
Ethereum tokens are made through mining at a rate of 5 Ether for each block that is mined. Effectively, for every block of transactions, miners will attempt to solve the given mathematical problem.
This requires a lot of computational power to do in order to verify the transaction and allow the digital currency to be processed from the sender to the receiver.
How does Ethereum Mining Work?
In technical terms, the miner has to run the unique header metadata of the given block (such as the software version and the timestamp) by utilizing a hash function, with only the nonce value being changed as it will impact the hash value that is subsequently generated.
If the miner manages to identify a hash that will be a match for the given target, they will then receive Ether as a rewards for this and the block can then be broadcasted along the network for all of the nodes, which will be validated and a copy of this will be added to the distributed ledger.
As a result of this process, it is extremely hard for a miner to cheat the system, as there is no way of faking the work required to find a solution to this mathematical problem. This is why this process has been given the terminology “proof of work.”
What Type of Ethereum Mining Hardware is needed?
As a result of the proof of work algorithm that is used by Ethereum, there is a need for more memory to be used which means that it is a lot harder to mine effectively using expensive ASICs devices, which are the only way of profitably engaging in Bitcoin mining.
As of yet, there has been no ASIC designed specifically with the goal of mining Ethereum and since there might be a shift away from proof of work towards proof of stake in the future, an ASIC device may not be the wisest option if you are looking to focus on Ethereum mining.
Proof of stake would shift the network towards being secured by the investors rather than using the traditional proof of work method by which the network is secured through a specific verification process of solving advanced mathematical problems.
With Ethereum, mining holds together what effectively is the Ethereum decentralized app store which is another reason why the process of mining is so important.
What Does it Take to Start Mining Ethereum?
While cryptographic puzzles need a lot of computational power in order to solve them, anybody can use their computers in order to do so and receive the subsequent rewards.
However, as time goes on, increased power is needed when it comes to the major public blockchain in order to make decent profits as your competitor’s equipment is constantly getting stronger and stronger.
While low-powered setups will not be very profitable when mining, they can still generate some side income for individuals and crypto enthusiasts.
Due to the power requirements needed when mining, it’s important that you have a computer completely dedicated to mining. The main types of hardware for cryptocurrency mining are GPUs and CPUs.
A GPU has an increased hash rate so the problems can be solved faster. Currently, to start mining Ethereum, GPUs will be your sole option. It can be difficult identifying which GPU is suitable for your specific needs so you will have to complete plenty of research to see which one will be the most profitable option for you.
Variables to consider include the likes of power consumption, the card expense, and the hash rate performance. It will be optimal if you create a mining rig which is a system put together of perhaps a few GPUs.
You can use a mining profitability calculator to see what you can expect to earn depending on certain hash rates. While ASICs are popular with Bitcoin for their speed and power, they currently aren’t available for use on Ethereum mining as of yet.
Software Selection and Installation
Once you have decided what mining hardware you are going to use, you then need to select what software you are going to use. Initially, you will need to have a client installed that allows you to connect to the network.
If you are a programmer who is familiar with commands, you will probably prefer to install Geth, which is an Ethereum node that utilizes the “Go” scripting language in addition to numerous numbers of clients.
When you have installed your software, you will be able to communicate with other nodes, allowing you to connect to the Ethereum network. As well as being able to mine Ether, you can also utilise this to deploy a smart contract, as well as sending transactions.
In order to be able to mine Ether, there will have to be mining software installed. As soon as you have a client downloaded and you have connected to the network, you will be able to download Ethminer.
Once this has been installed, you will be able to participate in helping to secure the network.
Joining a Mining Pool
Unless you are planning on operating your mining on a large scale, you will want to join a mining pool for Ethereum.
This means that your computational power will be joined together with other miners in order to increase the chances of being able to solve the cryptographic problems and subsequently earning Ether as a result. Profits will be proportionally divided depending on the level of power that any given miner has contributed.
These mining pools are always changing as some of them are focused on the short-term and might be gone within a few months. Depending on the participants in the mining pool, the amount of computational power may dramatically change on a regular basis.
Depending on the given mining pool, there will be different pay-out and fee structure in place. Some will have 0% fees as they wish to attract more miners to their pool.
While this may seem like a great thing, in reality, it means that this pool has inadequate levels of miners and subsequently you are most likely not going to be as profitable as you would if you joined a mining pool with higher fees that had a lot more users.
The signup process to join these mining pools is fairly straightforward and it won’t take you long before you have joined and can begin mining.
As this is a world that is always changing, you have to be aware that what you are doing could change in an instant, so it is important to always keep an eye on how the market is changing. The same goes for the hardware and software being used, as the preferred options are constantly changing.