Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
In this handy guide, we’ll cover what Ethereum is, what mining is, how mining works, and how to mine ETH should you decide you want to do it yourself. We’ll also explain how to assess the risks of Ethereum mining and how to determine whether it’s profitable given the eventual move away from a proof of work system to proof of stake. (We’ll teach you the difference between those things, too.)
What is Ethereum?
In terms of market cap, Ethereum is the second-largest blockchain network after Bitcoin. But what’s a blockchain, you ask? Blockchain networks are ledgers that function as huge, publicly available databases of financial transactions.
One feature that distinguishes blockchains from conventional financial databases maintained by banks and credit card companies is that blockchain ledgers are distributed. That means copies of the blockchain are shared on every single computer in the system. There’s not just one master file, but hundreds (or thousands or millions, depending on the blockchain size). They are maintained by entities known as miners, and anyone can set up a mining computer. (If you decide you are interested in setting up your own mining computer, we’ll teach you how to do that below.)Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
Blockchain networks don’t help people transact regular cash, like the Canadian or US dollar, but forms of digital cash called cryptocurrencies. The blockchain networks mint new coins each time a miner validates batches of transactions (known as blocks) and uploads them to the blockchain. In proof of work systems like Ethereum will be until the summer of 2022, this work is computationally intensive, and you’ll need a beefy computer to get started. Some people think that it’s so worthwhile that they have set up entire warehouses of computers dedicated to mining cryptocurrencies like Ethereum.
Since the process of mining blocks is distributed, or decentralized, it’s very difficult to shut down a blockchain network. To do so, a single entity would have to go through a great amount of difficulty to corrupt the network, since they’d have to control more than 51% of the network to confirm spurious transactions, like those that attempt to spend the same coin more than once.
Each blockchain network has a native currency. Bitcoin’s is Bitcoin, also referred to as BTC, and Ethereum’s is known as Ether or ETH. These coins can be worth a lot of money; as of December 13, 2021, Bitcoin had a market capitalization just shy of a trillion US dollars, and Ethereum had a market cap of $474 billion.
Ethereum was launched in 2015 by a team of computer scientists and entrepreneurs led by a then teenager named Vitalik Buterin. The Ethereum blockchain popularized something called the smart contract; self-enforcing bits of financial code that made it easy to, say, borrow and repay money. The decentralized finance network grew by $100 billion between January 2020 and December 2021, according to DeFi Pulse.
What is Ethereum mining?
Mining is the process by which new Ether is minted on the Ethereum blockchain. Like Bitcoin, as of March 2022, Ethereum mining works via proof-of-work, which means that computers mine by brute force. (It is scheduled to shift to a less energy-intensive proof of stake system — a way of mining transactions that grants those with the most coins the right to verify new blocks — in the summer of 2022.) Put simply, the Ethereum blockchain thinks up an incredibly long number, and then mining computers race to guess the right number by pushing data through a mathematical function. The only way to speed up the process is to have a more powerful computer.
Mining takes place whenever you place a transaction on Ethereum. This might involve sending coins between people, minting a non-fungible token (NFT), or depositing money within decentralized finance smart contracts in Ethereum dapps.
How do I mine Ethereum?
To mine Ethereum, you’ll need either a powerful mining computer or to rent space in a cloud mining pool, which provides the computing power for you. For many people, the time and expense involved make mining Ether unappealing. But if you decide it’s for you, here are a couple ways to do it.
Option 1: Buy an ETH mining rig and work alone
The most straightforward way to mine Ether is to mine it directly on your computer. Unlike Bitcoin, which relies on expensive customized machines to mine new coins, Ethereum mining is heavily reliant on graphics cards, meaning you’ll need a computer with a powerful GPU.
One of the easiest ways to get your Windows computer to mine Ether is to download QuickMiner on Nicehash, a popular mining service. Simply download the miner, set it up on your computer, register with Nicehash, and earn your coins.
If you’ve got a Mac, head to a site like MinerGate and download their crypto miner. Install it and click on ETH and start mining within a couple of clicks. Once you mine enough coins, you can withdraw them to your own wallet.
Other alternatives may use more of your computing power and be more profitable, but they could also be slightly more complex to set up. They include NBMiner, PhoenixMiner, TeamRedMiner, CudoMiner, GMiner, LolMiner, and T-Rex Miner.
Option 2: Join a mining pool
A mining pool is a way for you to combine the computational power of other computers with your own. Ethereum mining pools help you combine your computing resources with others on the internet so that you’re more likely to beat other, less powerful computers in the race to win new Ethereum.
Popular Ethereum mining pools include xnpool, Ethermine, and F2 pool. Each pool will take a different cut of your earnings to compensate the people who set up the pools. Ethermine is the largest pool, making up for about 30% of the miners on the network. Getting set up on a mining pool is almost as easy as setting up your own miner: You download a mining program, connect it to the server and start mining.
Option 3: Skip the powerful computer business and try cloud mining
One problem with setting up your own mining computers is that you have to maintain them, plus pay local rates for the electricity they consume. These power-hungry machines might be cheaper to run in other countries, or by companies who have brokered special deals with local energy grids or mine with cheap electricity, like hydroelectric power.
That’s where cloud mining comes in. This approach lets you rent the computational power of other computers and earn profits for doing so. You don’t have to set up anything yourself and can select the miners from afar. Genesis Mining, Minergate, Hashflare, and Nicehash are among the more popular options.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
Is Ethereum mining profitable?
Ethereum mining can be profitable if you time the market right and find a cheap source of hardware and electricity. When you mine Ether yourself, your liabilities are your mining rigs and your electricity costs, plus any fees you have to pay a regular mining pool. When you mine through a cloud mining pool, your only cost is the rental of hash power. Your currency risk is the value of Ether itself. Like most cryptocurrencies, Ether is a volatile cryptocurrency with a value that can rise and fall dramatically within a couple of hours. Historically, Ether has risen over time—in August 2020 ETH was worth about $400 and rose to about $4,000 as of December 2021—but strong past performance does not indicate future success.
To get an idea of the possible profitability of Ethereum mining, you can use an Ethereum mining calculator like this one. Plug in your hash rate (the computational output of your mining operation), any expected fees, your power consumption, and the cryptocurrency you want to mine, and the calculator will work out if your operation is likely to be profitable. You might find that Ethereum mining is not profitable with a lower-powered computer in a country where energy costs are high.
Is Ethereum mining risky?
Yes. Ethereum mining poses several risks. As mentioned, the price of ETH is highly volatile, and it’s possible that the value of your earnings will plummet in a market crash. The Ethereum market has historically proven highly sensitive to political events, like interest rate risings, the pandemic, and the Evergrande debt crisis.
Cloud miners could also be shut down in the event of government crackdowns, as happened in China in 2021, which could alter the costs of cloud mining if your mining pool can no longer draw computational power from a region with cheap energy.
If you buy fancy hardware to mine Ether yourself, you’re taking a risk with your capital. That hardware could get burned out by your mining operation, and crypto market booms have inflated the prices of GPUs, meaning that you might pay a premium on a graphics cards capable of mining.
There’s also risk within the Ethereum infrastructure. In August 2021, Ethereum developers introduced something called EIP-1559, which burned Ethereum paid in transaction fees instead of giving it to miners, reducing their income. As of December 2021, $4.7 billion ETH has been burned by EIP-1559.
What about Ethereum 2.0.?
Ethereum developers are currently upgrading the network, and a major part of that upgrade involves transitioning the blockchain to proof-of-stake — a system in which you get the right to record transactions by offering enough Ether as collateral. You can already “stake” (not mine) on the new system. by locking up your coins.
Large Ethereum nodes can become validators, and you can earn a cut of their profits by delegating your stake to them. Coinbase offers up to 5% a year and Kraken estimates that rewards are between 4% and 7% a year. You can’t unstake ETH 2.0 funds until the network is ready, which is estimated to happen in the summer of 2022. This transition will be known as “the merge” and will mark the end of proof-of-work mining on Ethereum.
When that happens, you won’t be able to mine Ethereum anymore; you’ll only be able to earn staking rewards by locking up your ETH. You can use your Ethereum mining rigs to earn other coins, such as Ethereum Classic, an older version of Ethereum (the blockchain called Ethereum today is technically an Ethereum fork).
Michael Carter, who hosts a cryptocurrency mining YouTube channel called BitsBeTrippin, expects that Ethereum miners will begin to look elsewhere to earn money. He told Coindesk: “You’re going to see network discovery and you’re going to get buzz around other networks naturally because people are going to want to know: where are the miners going to be pointing their hashrate?”
Frequently Asked Questions
You should know that when you mine Ethereum, you’re exposing yourself to the volatility of the underlying currency. You should also work out whether your operation is likely to be profitable.
An Ethereum mining rig is just a computer with a very powerful graphics card. A gaming computer would suffice, so long as it’s packed up with the latest hardware. You can work out what kind of computer you’ll need to turn a profit by checking sites like Minerstat. Some miners, like the Antminer and Innosilicon series, are purpose-built for mining Ethereum.
Joining an Ethereum mining pool is pretty easy. You have to set up your miner yourself, then add your resources to a popular mining pool by connecting your computer to their server.
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