What is Ethereum?
Ethereum was introduced in 2014 and is run by the Ethereum Foundation, a Swiss non-profit. The main aim of Ethereum is to decentralize the internet.
At the moment, all of the internet data is stored on servers, such as Amazon, Google, Facebook etc. These servers are centralized and subject to corruption and hacking.
But if this data was distributed across multiple independent servers it would be virtually incorruptible, which is what the blockchain accomplishes.
Aside from bitcoin, Ethereum is the most well-known cryptocurrency in the market. While bitcoin has applications in the financial space as a symbol of monetary freedom, the potential of Ethereum reaches beyond this.
Ethereum was the first cryptocurrency to introduce the concept of smart contracts. With a smart contract, you can simply program the code to execute… whatever you want.
A good analogy is that bitcoin is like Skype, in that it is an application that can do one thing. Skype can be used to communicate messages and videos. Bitcoin can be used to send BTC from one address to another replacing the financial system.
Ethereum, on the other hand, can be used to do anything. It is like an operating system with limitless potential to build any type of software, the ingenuity limited only by the developer making smart contracts which will get smarter with time.
Smart contracts are written and uploaded onto the blockchain and are tamper proof, as a copy of the smart contract is stored on all computers, with no centralized party. Ethereum also has a token, called “Ether,” which can be used to build smart contracts.
Many believe that Ethereum is going to overtake bitcoin in terms of market cap quite soon. But bitcoin and Ethereum are not competitors.
Bitcoin is designed specifically to disrupt the financial system, and it is doing a wonderful job. Ethereum is going to transform pretty much everything else with smart contracts.
How to Mine Ethereum
Mining Ethereum is a little different from mining bitcoin and other cryptocurrencies. Like mining bitcoin, it is far easier to get started than most people think.
And like bitcoin, making money is a lot harder than simply setting up a mining rig. There are a lot of moving and interrelated variables in mining cryptocurrencies.
Ethereum runs off its own blockchain. The blockchain is a list of transactions/records, and these transactions are verified by miners, who get rewarded in Ether tokens. These miners verify the transactions by using their computers to solve a mathematical equation, and this is very intensive on electricity.
But with the Ethereum blockchain, the programming logic to make smart contracts is also stored. When these smart contracts are executed, they are permanently embedded in the blockchain, stored on every server that has a copy, meaning they are bulletproof.
But if the script/smart contract has a flaw in it, then the flawed code will be executed, which has happened. But with this is human error, the code simply ran as it was designed.
To get started mining Ethereum, the first thing you need is a wallet to store your Ether coins. There are plenty of options for high-quality Ethereum wallets.
If you want ultimate security, then you can go with a physical hardware wallet. The two best and most popular hardware wallets are the Ledger Nano and the Trezor. Your cryptocurrencies are stored completely offline and are only activated when you log in with the password.
The Trezor currently supports 10 cryptocurrencies including bitcoin, Bitcoin Cash, Ethereum, Litecoin, DASH and Zcash. The Ledger Nano currently supports over 23 cryptocurrencies. Many Hardware wallets are a little over the top for many, and a desktop/local wallet also offers a very high level of security.
Exodus is a fantastic multi cryptocurrency wallet with over 29 cryptos available right now. It is almost a necessity for people considering investing in a portfolio of cryptocurrencies that are easily accessible, as it can be difficult transferring cryptocurrencies to hardware wallets in some instances.
Another secure desktop wallet is Mist, the official Ethereum wallet. For ease of use you can also store Ethereum online on MyEtherWallet or even on the Coinbase exchange, though these options are a little riskier, particularly the Coinbase exchange.
Note that some exchanges do not allow mining to their address, so check first. The easiest option is to go with a desktop wallet.
Some estimates indicate that up to 25% of users keep their cryptocurrencies on exchanges, a shockingly high number given the shutdowns.
Next, you need to acquire mining hardware dedicated exclusively to mining your Ether coins. Choosing a mining rig involves a lot of factors. You need to choose a GPU to perform the mining operation.
At the early stages it was possible to use a CPU, but this is no longer the case. Entry-level GPU’s are still over 200 times faster than CPU’s.
You may even want to build a mining rig, which is a machine built of multiple GPU’s. You will want to join a mining pool in order to increase the chances of profits. This is simply a number of miners who work together and split the profits in proportion to the power generated by each machine.
After you have your mining hardware, you now need to download the software. Be extra careful when downloading mining software.
Like online wallets, many are scams to steal your coins. Only download from official and well recognized sources. For Windows, Ethminer and oneETH are easy to use, and Claymore is also a popular option.
Ethminer is also available on Linux, and for Mac you can use Minergate. Once you have your software downloaded, you will need to join a mining pool.
Ethereum Mining Essential Concepts
The term used to describe the power of the individual computers in a mining pool is the hash rate. This is the most important term you need to learn in terms of cryptocurrency mining in general.
A more powerful computer has a faster hash rate and guesses the answer to the puzzles quicker than miners with a lower hash rate. The hashing algorithm used by Ethereum is called ethash.
Currently, the miner that gets the solution to the puzzle gets a reward of 5 Ether, and each Ether block is mined every 15 seconds.
Ethereum currently uses a Proof of Work (POW) system on its blockchain to validate transactions. Ethereum is moving to a Proof of Stake (POS) system in 2019.
Blocks will no longer be mined, but they will be forged. People with Ether tokens will get rewarded simply by holding them – like having a stake, or shares, in a company. This eliminates miners and is better for the environment and the economy.
Mining cryptocurrencies is incredibly inefficient and uses quite a lot of electricity with the POW system, which is what bitcoin and the majority of other cryptocurrencies use.
Be aware that most types of cloud mining sites are scams. There are no third party audits. In the cryptocurrency sphere, you really need to take security into account.
Download official and well-known wallets and software where possible. Many phishing sites will have URL’s that are similar to the official sites with a slight difference, which has caught many unwitting consumers.
Choosing Mining Hardware
When buying hardware, be aware that Ethereum mining is different from bitcoin mining in terms of the required hardware. Because bitcoin mining is now so difficult, ASICs (Application Specific Integrated Circuits) have been developed for this specific purpose.
But ASICs are not compatible for Ethereum mining. Specialized ASICs are presently the only way to profitably mine bitcoins. But the Ethereum mining market is a little less hostile to those unfamiliar with mining hardware and software.
Choosing Ethereum mining tools can be a daunting process. In order to mind Ethereum successfully, you need a GPU to put into your computer. What most are doing right now is building their own mining rigs.
A mining rig consists of a motherboard, processor, memory, power supply, GPU, boot device, and case. All of these components are found inside a typical computer, except perhaps the GPU.
A Graphics Processing Unit(GPU) is usually used for 3D graphics for video games and is perfect for hashing on the Ethereum blockchain due to their superior processing power. If you have a gaming laptop you can use it to mine Ethereum, but it is intensive on your system and will generate a lot of heat. Desktops are a better option.
Building your own mining rig can be quite intimidating. But you can mine Ethereum using your laptop provided a few conditions are met.
One of these conditions is that your computer has a GPU. If not, you will have to purchase and install one. The card needs to have at least 3 Gigs of RAM for the purposes of Ethereum mining.
As a general rule of thumb AMD GPU cards outperform Nvidia for the purposes of cryptocurrency mining. How much you spend is up to you.
A great budget-friendly card is the AMD RX 470 that comes with 4 Gigs of RAM. These types of GPUs are usually in the region of $250 minimum. It might make sense to get a high-quality GPU, as it can pay off the price in the long run once electricity costs are not too high.
It is also recommended to get an electricity power usage meter when mining Ethereum, as this will tell you specifically how much electricity your machine is using and give an indication of whether it is profitable or not. It can also help in diagnostics, when you want to tweak your system and see what results in the lowest power usage while still maintaining a powerful hash rate.
Something to keep in mind when mining cryptocurrencies is that raw power (in terms of Mega Hashes per second when talking about Ethereum mining) is not an indication of efficiency. A GPU may be twice as powerful but use three times as much electricity as another card. Efficiency has to be considered, represented as Joule per Mega Hash per second.
At present, one of the top cards is NVIDIA’s GeForce GTX 1080 Ti which is excellent for hashing Ethereum but unfortunately, it consumes a lot of power when compared to other mid-range cards such as the Radeon RX 480 or the GeForce GTX 1070.
The GTX can even be tweaked to deliver more performance in terms of the memory clock and tuning of the power target, while still consuming far less power. All metrics included, the performance per watt GPUs which are the best would include the MSI GTX 1080, the GeForce GTX 1070 and the Radeon R9 390X. All cards can be made to run more efficiently with a bit of tweaking to deliver better performance per watt.
Choosing your GPU is a matter of getting a high hash rate relative to how much power they use. You also want to consider the price of electricity in your country as you are at a disadvantage to countries with cheaper costs.
Electricity costs are the main consideration for the miners of many cryptocurrencies, especially bitcoin, which takes an incredible amount of computing power.
The most popular and efficient GPUs are probably the Radeon Series, which includes the Radeon R9 295X2, the Radeon R9 HD 7990, the Radeon RX 480, and the Radeon RX 470. The 295X2 has an incredible hash rate of 46 Mega Hashes per second but costs around $600.
The 7990 costs around $680 and its hash rate is 36 Mega hashes per second. The RX 480 and the RX 470 are a little more economical retail, each retaining at around $200 and doing a more than adequate job.
The hash rate for each is around 25 Mega Hash per second. For people starting out mining Ethereum, these models are highly recommended.
You can also go down the route of setting up your own mining rig if you have enough technological savvy. There are a number of things to consider when choosing this option, and the following guide is for a Windows mining rig.
Your Windows 10 OS should be 64 bit. You want to have a motherboard with enough PCI-E slots to support the number of cards/GPU’s you intend to use.
You need enough power supply unit slots for the number of GPU’s you are using (each GPU needs a power supply unit). You will need a low-end CPU with at least 4 gigabytes of RAM. You will also need a power button and keyboard, mouse, and monitor.
This might be overly technical for many individuals but is not outside of reach if you have an interest in cryptocurrency and technology, and are serious about learning the process. If you believe the cryptocurrency industry is going to rise, have an interest, and are in a low-cost electricity area, then Ethereum mining might be for you.
Running the Software
Running Ethereum mining software is a little technical, but nothing that can’t be learned. You can learn it yourself, if you have some experience with command line interfaces, or get a tech savvy friend to complete it for you. The following is a brief run through, using Mist as a wallet and Ethminer as the mining software.
Create a new folder calling “mining” on your PC. Download the following software and put the downloads into the folder:
Rename the Geth download to “Geth”. Rename Ethminer to “miner” and rename the Ethereum wallet to “wallet”.
- Open up the command line interface (Win+R, type cmd).
- Type ‘cd’ and navigate to your “Eth” folder.
- After changing directories to Eth, type ‘geth account new’ into your cmd. Enter a password to encrypt your wallet when prompted.
- Navigate to your wallet folder and open up the file “Ethereum-Wallet.exe” on your computer. Wait for Ethereum to sync. You are downloading the Ethereum blockchain. This could take a while.
- Copy Ethereum address from Ethereum wallet.
- In your command prompt, use ‘cd’ to navigate to the folder your miner is saved to. Use the following syntax, and enter this into the command prompt:
- ethminer -U -F http://eth-eu.dwarfpool.com:80/WALLET_ADDRESS_HERE (NVIDIA)
- ethminer -G -F http://eth-eu.dwarfpool.com:80/WALLET_ADDRESS_HERE (AMD)
Note that this is for mining in a pool, being the easiest guide. Solo mining is more difficult and technical, and is best left to the experts. Unless you happen to have a manufacturing plant full of mining computers, you are unlikely to mine any Ethereum without joining a mining pool. But, they are easy to join and very safe.
When mining Ethereum on Windows you might want to tweak a few settings. You never want your computer to go to sleep as this will interrupt the mining process.
If you have not already done so, you definitely want to turn off the Windows updates. And add an exception to any Windows anti-malware program you are running, such as Windows Defender, for your mining software (including Claymore or whatever client you happen to be using). You can also mine Ethereum using ethos OS instead of Windows, which was designed specifically for mining Ethereum.
Is Mining Ethereum Still Worth it?
You will have to determine for yourself whether or not Ethereum mining is worth it. The truth is that experts and algorithms can answer whether it is worth it today, but it might not be worth it tomorrow. This is mainly due to the cost of electricity and the changing price of Ethereum.
Cryptocurrencies rise and fall almost daily, many noted for falling 50% in a month or less before possibly rising again. As well as this, the price of hardware has to be considered.
In response to the profitability of cryptocurrency mining, miners flocked to buy high quality GPU’s which skyrocketed the price upwards.
There are cryptocurrency calculators online which take in a number of metrics and they can give you an answer as to whether or not Ethereum mining is worth it. But that answer could change by the end of the day.
In truth, miners believe in the currency they are mining and hope to gain coins because they will gain value in the long term as the cryptocurrency sector rises. So, you could choose a coin that you think will appreciate in the future and take short-term electricity losses in the hope of long-term gain, but you would need the initial capital.
But in this case, you might be as well out simply invest in cryptocurrencies, despite losing a significant percentage on exchange fees.
If you are in a region such as China with low-cost electricity or have your own in-house energy system setup, it could be worth it. If you are going ahead and purchasing a GPU anyway or have one on your laptop, you can put it to use.
Bear in mind that Ethereum is moving from a Proof of Work System to a Proof of Stake System. Miners who have large shares of Ethereum at this time will be rewarded simply because they have high stakes. So, building your store of Ethereum now could pay double time in future.
Ethereum Mining Summary
To sum up the process of mining Ethereum, you first need to figure out whether it is profitable for you to start Ethereum mining or not. After this, you will need
- An Ethereum wallet
- A computer with a GPU or an Ethereum mining rig
- Ethereum mining software
- Connect your Ethereum mining software to a pool
These are the 4 primary steps to mining Ethereum, and they are all you need to get started. But there are a number of variables that will determine whether or not it will be profitable for you.
If you make a reasonable effort, have a subsidized power supply, and hold on to your Ethereum for a long time period, chances are you will make a profit. But the largest profits are going to be made by the technicians, engineers, and programmers.
They are more scientifically skilled and better at tweaking their mining rigs to run more efficiently, and mining cryptocurrencies is a numbers game where two numbers are not constant – The price of your cryptocurrency relative to USD and the cost of electricity.