If you’d have read our previous article on Bitcoin Mining, we had mentioned that Bitcoin is only one of the many cryptocurrencies based on Blockchain technology. Another popular cryptocurrency is Ethereum – which allows the developers to construct and launch decentralized applications.
Ethereum, just like Bitcoin, makes use of blockchain technology. But there are quite notable technical differences between the two, the most significant being the difference in motive and potential.
Bitcoin blockchain focuses on tracking the possession of Bitcoins, while the Ethereum blockchain is used to run the programming code of any decentralized application. Miners in Ethereum blockchain mine to earn Ether. Apart from being used as a tradeable cryptocurrency, Ether is also utilized by Dapp developers as a transaction fees for the services provided by the Ethereum network.
What is Mining?
Mining is a computer-intensive task that needs a lot of time and processing power. While mining, one is volunteering to be a part of a given peer distributed cryptocurrency network in consensus. The miner is rewarded for solving complex mathematical problems.
Mining requires the use of mining applications with the computer’s hardware. When it comes to mining Ethereum, it does more than just expand the volume of Ether available for use—it creates, verifies, publishes, and propagates blocks in the blockchain as well. Mining is quite vital for anchoring the Ethereum network.
An expansion in the crypto market is leading more people to invest in Ethereum. As competition is becoming fierce in the market, setting up mining equipment for Ethereum can be quite a challenge for those who don’t have an expertise in technology or have sufficient funds.
Requirements For Ethereum Mining
The first thing required for mining is a computer or a graphics card which is able to compute an algorithm that tries to solve complex mathematical problems to produce some Ether. In the case of Ethereum, the ‘block’ that the video card is trying to find, creates, on average, every 15 seconds. This implies that Ethereum network pays every 15 seconds to whoever finds the block. The value of one block is currently at 5 Ethereum.
Hardware For Ethereum Mining
To set up your computer for full-time mining, it is important to select dedicated hardware. There are two ways to do it: CPU (Central Processing Unit), using the processor of your computer and GPU (Graphic Processing Unit), which involves purchasing an expensive graphics card.
Mining Ether which uses CPU is neither beneficial nor worth the price, as even basic GPUs are around 200 times quicker than CPUs for mining purposes. Before purchasing a graphics card, one ought to consider the expenses related to the purchase itself as well as the energy consumption. Above all, one should consider the hash rate execution, which is the speed at which the math problem will be solved.
A hash is the yield of a hash function. In Ethereum, the Hash Rate is the speed at which a computer finishes an operation in the Ethereum network. The higher the hash rate, the better it is for the miner as it escalates the chance of finding the next block and getting the reward. In a hash function, a similar input will always produce a similar output, but they are intended to be unpredictable. Therefore, the most ideal approach to locate a specific output is to attempt as many random inputs as possible. Besides, mining is competitive. To get a reward, one should have the capacity to go through those random inputs very fast. Hence, picking hardware with higher hash rate is critical for successful mining.
Software for Ethereum Mining
After picking the hardware, the next thing to do is to install the software. The first thing a miner will require is drivers for the graphics card. These drivers are available on the manufacturer’s website or are given along with the card.
Then comes setting the node up and connecting it to a network. For this, it is important to download the entire Ethereum blockchain, which currently is more than 20 GB in size. At this point, it is vital to connect your node to the network. Those users who are comfortable with the command line can install Geth.
Geth is a multipurpose command line tool that runs a full Ethereum node implemented in Go. It offers three interfaces: the command line subcommands and options, a Json-rpc server and an interactive console.
After completing the setup, the node will be connected with all the other nodes to the network. It will enable one to begin mining as well as launch their smart contracts, build decentralized apps and send transactions.
Installing the Ethminer
The next step is installing a mining software called Ethminer for Windows. The directions for GPU mining other operating systems are found here. Ethminer uses the proof of work to makes the CPU or GPU run the hashing algorithm fundamental for anchoring the network. The interface is a command line, however, future forms of Ethereum network are expecting a more easy user interface.
How Mining Works
Miners use computers and give answers to complex puzzles till one of the miner wins. This is done for each block of transactions.
The miners will run the block’s unique header metadata (including timestamp and software version) through a hash function (which will give a fixed-length, mixed series of numbers and letters that looks random). The only thing it changes is the ‘nonce value’ impacting the resulting value of hash.
In case a miner manages to find a hash that matches the target at that time, an ether will be awarded to the miner. The block is broadcasted across the network for every node on the network to approve and add to their own copy of the record. If a miner finds a block before the other, the latter has to stop mining for that block and shift to the next block.
Difficulty and Complications
The mining process involves ‘Proof-of-Work’. It is a framework that requires miners to solve complex mathematical problems to create a block on a blockchain. Whoever comes first in solving the calculation, gets a reward. Producing a proof-of-work is a random procedure with low chances, so there is a need for a lot of trial and error to produce a valid proof-of-work. In the case of Ethereum, ‘ethash’ is what works as a proof-of-work.
A miner finds a block approximately every 12–15 seconds. The algorithm readjusts the difficulty of the problem to 12-second solution time in case the miners are taking longer than to mine a block. There is no selection process to earn Ether. It is random and the profitability depends on luck and how much computing power the miner has.
The equipment used for Ethereum mining is nothing short of an investment due to which it has some additional costs. The energy consumption increases with the increase in the power of the hardware. Before buying, it is important to consider the desired equipment’s power consumption in watts and work out the expense of the next electricity bill. Nobody has the desire to spend all their money on power to mine coins that won’t be worth it.
The founder of the cryptocurrency analysis site Digiconomist, Alex de Vries shows that each ethereum transaction done by mining could utilize as much as 45 Kilowatt-hours of electricity. This is equal to the electricity consumed by the average American household in a day and a half. As per him, the entire Ethereum network could be using as much as 4.2 Terawatt-hours of electricity which is a little more than the country of Cyprus.
Profits in Ethereum
Like any other cryptocurrency, the profitability of Ethereum also depends on various factors. A miner’s hash rate with respect to the entire’s network hash rate determines the profit for the miner. A miner’s earning might also depend on Ether’s price relative to fiat currencies like the US dollar. The profitability also depends on how much computing power does a miner have. Profits margins are also high if the miner’s hardware can convert electricity to Ether in a more efficient manner.
Miners can use the Ethereum mining profitability calculator to get an idea of their earning based on their hash rate, the network hash rate, block time, and the price of one ETH. An example of the calculator can be found on EtherScan.
What is a Mining Pool?
For miners who are mining Ethereum for the first time, a mining pool can be quite beneficial. A mining pool involves a group of miners who join their computational power and efforts keeping in mind the end goal to enhance their chances of solving the cryptographic puzzles and earning Ether. The computational power decides how the profits are to be divided. The more the computational power, the more the profit.
Before joining a mining pool, one needs to consider a lot of factors such as the payout structures, the computational power of the entire pool, fee and so on. There are cases where some pools might shut down. The fees range from 0 % to 2 %. One can get payouts once every 24 hours, depending upon the kind of pool. In order to give frequent payouts, the balance of the pool should be above one Ether (ETH).
Many pools don’t require a registration, hence making the joining process very simple. There are also some pools that require a proper signup process on the website. At present, the largest Ethereum mining pools are Ethpool and Ethermine, owning 25% of the network’s hashing power. Both Ethpool and Ethermine have different websites but they function as one huge mining pool.
A Shift Towards Proof-of-Stake
Unlike Bitcoin, Ethereum may not need mining for long. Ethereum developers are planning to shift from the proof-of-work algorithm to the proof-of-stake algorithm. In the proof-of-stake algorithm, the owners of the tokens keep the network protected.
If the proof-of-stake algorithm is rolled out, it will be the end of mining Ethereum. This will happen because proof-of-stake relies on achieving a distributed consensus which will need fewer resources.
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