What is Ethereum mining?
Ethereum mining is the process by which transactions are verified on the Ethereum blockchain. This is made possible by miners who contribute their computer power to create new blocks to add to the chain, and in return are rewarded with a reward in ether (the cryptocurrency used on the Ethereum network).
Why is it called mining?
The term ‘mining’ emerged in relation to Bitcoin and is now used to refer to the verification process across most blockchains. The term originated as a reference to physical mining, as Bitcoin is a finite resource (capped at 21 million coins) and miners expend energy in order to extract coins from the system – except with cryptocurrency this energy is computer power rather than the physical labour associated with regular mining.
Unlike Bitcoin, though, Ethereum has no overall cap, so can continue to be mined indefinitely. Ethereum’s co-founder Vitalik Buterin hinted that if the community votes the proposal, they would consider capping the supply, but this is still hypothetical at this point. The Ethereum governance model was designed to allow for such democratic modifications to be made.
How does Ethereum mining work?
The energy required for mining Ethereum comes from computers solving complex mathematical problems, a process known as ‘hashing’. These computational problems are solved by miners, verifying several transactions at a time bundled into a ‘block’, which is then added to the chain of previous blocks (the ‘blockchain’).
The miners who do this job are rewarded with transaction fees (which everyone pays whenever they transfer ether), and then one at random is rewarded additionally with some newly created Ethereum for solving a block (around 3 ether currently).
A possible future change in the Ethereum mining process may happen if the community decide to switch from a proof-of-work (the system described here which is currently used by both Bitcoin and Ethereum) to a proof-of-stake algorithm. This new development in Ethereum is referred to as the ‘Caspar protocol’.
If this were to happen, then people would be chosen to verify blocks through how much they have invested in the network, and relying on powerful hardware would be a thing of the past. Nothing is yet set in stone, and if Ethereum were to make this change we’d be the first to let you know about it, so bookmark this page to be kept up to date.
What do I need in order to start?
The two main options you have are buying hardware and setting up a mining rig, or buying an Ethereum cloud mining contract. Let’s take a look at what each one of them entails:
- Mining using your own rig. To use this option, you’ll need to buy the right hardware and software. Mining Ethereum doesn’t usually require (and in fact discourages) you to use the advanced ASIC rigs used in Bitcoin mining; GPUs (graphics cards) are the most common piece of hardware.
In order to increase your chances of getting the mining reward, it’s always a good idea to join a mining pool, where you pool resources together with other miners and get a high hashrate (speed of mining). We have a page to guide you through hardware mining Ethereum that will take you through all the details and how to get started.
- Cloud Mining. If you don’t want to go through the process of buying and setting up your own mining rig, you can opt to buy a mining contract and earn ether through mining with hardware you don’t own or run. You just need to pay to lease some hashing power and get a percentage of the Ethereum income. If you want to find out more, head over to our Ethereum cloud mining page.
What is a mining pool?
A mining pool is a group of Ethereum miners working together to solve blocks, increasing their chances of one receiving the block reward, and then sharing profits between them. Because of the numbers of people now mining Ethereum, miners band together in pools to increase their computer power and try to guarantee a steady income from their mining operation.
When ether are generated and earned by the miners, each is paid according to the percentage of hashing power they are contributing. It’s a bit like if a large group of people playing a lottery together and agree to split the winnings (although with a much higher chance for winning and lower amounts of money being paid out).
Is Ethereum mining profitable?
This is a tricky question because there are a lot of factors that determine if you make decent profits or not.
For starters, it’s certainly not a get-rich-quick scheme. During the early days of Ethereum mining, you could just use your regular laptop to mine ether, but these days you have to invest in proper GPUs to start mining, and any investment in the hardware will take a while to regain. But in the long run, yes, if you consider all factors, Ethereum mining could be profitable. Issues you need to consider are:
- Cost of mining hardware. As cryptocurrency mining has become more popular, the hardware used for the process has risen in price. Most of the GPUs usually range from around £400 – £700, but you can find others such as Nvidia GTX 1080ti going as much as £900.
- Electricity costs. Ethereum mining rigs consume a large amount of electricity because of the huge energy required for mining. This means that your electricity bills will be higher than normal.
- Cooling costs. Considering that mining rigs use a lot of energy, they release a lot of heat, which needs to be cooled down. This means that you will need to set it up in a cold area or get more equipment such as additional fans to help with the cooling.
- Cloud mining fees. To help maintain the hardware of cloud mines, transaction fees are charged at various rates according to the number of hashes carried out by the system. For instance, a popular platform such as HashFlare usually charges $1.80 per 100 KW/s of hashing power.
- Mining pool fees. Mining pools usually charge around 1-4% to all the users who are part of them. This means that there will be a small impact on the profits you make.
- Popularity of mining. As more miners join the network, the difficulty of mining tends to increase, and hence the amount of Ethereum that you receive for each unit of energy your GPU expends.
- Ether released per block. Currently the reward a miner receives for verifying a block on the Ethereum blockchain is 3 ETH, but this is likely to drop in the future as more miners join the network, which will affect profits.
- Fluctuations in the value of ether. The fluctuation of Ethereum prices makes it hard to determine the mining will be profitable. If the price of ether falls, then mining might not be as profitable as expected (however, if it rises, your profits will increase).
That’s a lot of factors, how do I figure out if it will be right for me?
You can figure this out using one of the plenty of Ethereum mining calculators on the internet. You will be asked to enter some information, which include hashing power, power consumption (w), cost per KWh, and pool fees (if you are using a mining pool), and the system will give you some estimate on how much ether you’ll make.
Should I get involved in Ethereum mining?
Well, it depends on what you want to achieve. Ethereum mining is no longer a path to making a huge amount of Ethereum in a short space of time because of the increasing difficulty and price fluctuations, but if you are looking to do it for long-term investment, you can make some decent profits in the long run. If you love the technology behind mining, it can be a lot of fun as well.
How do I get started?
It all starts with finding the right hardware or cloud mining service. Luckily for you, we have reviewed the most common hardware to enable you mine Ethereum, as well as the best cloud mining services that you can use. Go ahead and check out our reviews and comparisons for the best options for you.