How to Mine Ethereum: A Beginner’s Guide to ETH Mining

How to Mine Ethereum: A Beginner’s Guide to ETH Mining

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What is Ethereum Mining?

Cryptocurrency mining is a process of solving complex mathematical problems. Miners are essentially the cornerstone of many cryptocurrency networks, as they spend their time and computing power solving those math problems, providing the so-called “proof of work” for the network, which verifies Ether (ETH) transactions. Ethereum, like Bitcoin (BTC), uses a proof-of-work (PoW) consensus process at the moment and will soon switch to a proof-of-stake (PoS) mechanism.

On top of that, miners are responsible for creating new Ether tokens through this process, as they receive Ether rewards for successfully completing a PoW task.

PoW is based on the fundamental properties of the hash function, an “encrypted” piece of data that is procedurally derived from some arbitrary input. The difference between hashes and standard encryption is that the process only goes one way. 

The only meaningful way to find which input was used to generate a given hash is to try to hash all possible input combinations and see which one fits. This is further complicated by the fact that small alterations to the initial data will produce completely different results.

The proof of work starts with designating a list of desired hashes based on the “difficulty” parameter. Miners must brute force a combination of parameters, including the previous block’s hash, to create a hash that satisfies the conditions imposed by the difficulty. This is an energy-intensive task that can be easily adjusted by increasing or decreasing the difficulty. 

Miners have a certain “hash rate” that defines how many combinations they try in a second, and the more miners participate, the more difficult it is to replicate the network for external entities. By putting real work in, miners secure the network.

This article will guide you on how to mine Ethereum. How are Ethereum transactions mined? How does ethereum mining work?

Why should you mine Ethereum?

Mining turns the act of protecting a network into a complex but usually quite profitable business, so the main motivation for mining is to make money. Miners receive a certain reward for each block, in addition to transaction fees paid by users. Fees typically make a small contribution to overall revenue, although the rise of decentralized finance in 2020 helped change that equation for Ethereum.

There are other reasons why someone would want to mine Ethereum. An altruistic member of the community might decide to mine at a loss just to help secure the network, as every additional hash counts. Mining can also be useful to acquire Ether without having to invest directly in the asset. 

An unconventional use for domestic mining is a cheaper form of heating. Mining devices convert electricity into cryptocurrencies and heat; even if the cryptocurrency is worth less than the cost of energy, the heat alone could be useful for people living in colder climates.

Will Proof-of-Stake Transition End Ether Mining?

A common concern for any prospective Ethereum miner is the Ethereum 2.0 roadmap, which introduced plans to transition to proof-of-stake, a consensus algorithm that would weed out miners where all existing Ethereum miners are time-limited. available to get a return on your investment. But fortunately, PoW mining is likely to continue until around 2023. 

The release of Ethereum 2.0 Phase 0, planned for 2020, is an independent blockchain that will not affect mining in any way. It’s only with Phase 2 where mining may start to become obsolete, but there are no concrete plans for that transition as of October 2020.

Phase 2 is expected to arrive in late 2021 or early 2022. But it’s worth it. It should be noted that Ethereum has a long history of delays with its roadmap: in 2017-2018, it was widely believed that the transition would be complete around 2020. No one really knows when Ethereum 2.0 will be finished, but as of October 2020, the Most estimates suggest that new miners should have enough time to recoup at least a sizable portion of their hardware investment.

ETH Mining Profitability: Is Ethereum Mining Profitable?

The profitability of any type of mining depends entirely on the cost of electricity in a given area. As a general rule of thumb, anything below $0.12 per kilowatt consumed in an hour is likely to be profitable, although prices below $0.06 are recommended to make mining a truly viable economic venture.

These figures would disqualify most domestic mining attempts, especially in developed countries where electricity prices are generally above $0.20. Although it is possible to make a profit at such prices, the return on capital could be severely affected. For example, a miner that costs $3,000 generates $200 per month in revenue and uses $45 in electricity at $0.05/kWh will take 19 months to pay for itself. The same miner used in an area where electricity costs $0.20/KWh will pay for itself in 150 months, or 12 years.

Professional miners can gain an advantage by moving their operations to regions with the cheapest electricity or by taking advantage of generally lower rates reserved for industries. These are some of the main reasons why mining has become a serious and capital-intensive industry.

But mining Ethereum at home is still accessible to most, especially since it can be done with consumer graphics cards made by AMD and Nvidia. For Ethereum miners living in regions with low electricity prices, it can also become an important source of income. 

There are a variety of ETH mining calculators that can outline what earnings to expect, for example Miningbenchmark.net, Whattomine or CryptoCompare’s calculator. It is also possible to calculate these values ​​independently. The formula used by calculator websites is quite simple:

it provides an estimate of how much a miner is expected to earn in a day. In essence, a miner’s revenue is the total issuance of the network multiplied by its share of the total hash rate of the network. To make a profit, the cost of electricity (i.e. the cost of mining Ethereum) used by the miner must be subtracted. For example, a device that uses 1.5 kWh of electricity at a price of $0.10 will cost $3.6 per day.

The values ​​to include in the income formula can also be found online. Etherscan will provide an updated estimate of the total hash rate, as well as block times and block reward. 

On the Ethereum network, the current block times are kept at 15 seconds, so there are 5760 blocks in a day, and the reward is 2 ETH per block as of October 2020. The miner’s hash rate depends entirely on the Ethereum network. of the mining hardware, while the network hash rate is the sum total of all miners contributing to the network.

The key to successful mining is maximizing hash rate while minimizing electricity and hardware costs. Therefore, apart from the location, the choice of mining hardware is crucial for mining.

How are Ethereum transactions mined?

Ether was designed as a currency that could only be mined with consumer graphics processing units, or GPUs. This is in contrast to Bitcoin, which can only be effectively mined with specialized devices commonly known as application-specific integrated circuit machines, or ASICs. These devices are wired to perform a single task, allowing them to achieve much greater efficiency than more generic computing hardware.

Making a mining algorithm that is “ASIC resistant” is theoretically impossible and very difficult in practice as well. ASICs designed for Ethereum’s mining algorithm, Ethash, were finally released in 2018. However, these miners offer a relatively modest improvement over GPUs in terms of hashing efficiency. In contrast, ASICs for Bitcoin are substantially more efficient than GPUs due to the specifications of their mining algorithm.

Another type of specialized device is the FPGA, which stands for Field Programmable Gate Array. These are a happy medium between ASICs and GPUs, allowing for some form of configuration while remaining more efficient than GPUs at particular types of computation.

It is possible to mine Ethereum with all of these devices, but not all of them are practical or sensible. FPGAs, for example, are inferior to GPUs in most circumstances. They are expensive and highly complex devices that require advanced technical knowledge to be used effectively. Arguably, the reward isn’t worth it, as its mining performance is still very similar to that of leading GPUs.

Ether ASICs provide a measurable performance boost over graphics cards, but have a number of drawbacks in practical use. The biggest concern is that ASICs can only mine Ethereum and a few other coins based on the same hash algorithm. 

GPUs can mine many other currencies, and if the time comes, they can be resold to gamers or used to build a gaming PC. Also, ASICs are more difficult to obtain as few stores carry them, while buying directly from manufacturers can require large order quantities and long lead times.

Therefore, for the hobbyist home miner, GPUs remain the most sensible choice due to their flexibility and relatively good performance compared to price.

How to find the best mining hardware?

Choosing the right hardware should be primarily dictated by three factors: its maximum possible hash rate, its power consumption, and its purchase price. 

The purchase price is sometimes ignored, but it can make or break a mining operation, as hardware doesn’t last forever. Component wear is a factor, as all devices will eventually fail. However, this issue is often exaggerated because GPUs are fairly rugged devices, with many reporting them continuing to mine for more than five years.

The most important risk that affects miners is that the hardware becomes obsolete. More advanced GPUs or ASICs can almost completely displace existing miners, especially those with higher electricity costs. Because of this, the “payback period” (the time it takes for the miner to recover) becomes a very important metric for financial analysis in mining.

Below is a table listing the financial parameters of the leading Ether mining hardware:

You can view and clone the spreadsheet to play around with the values.

The table looks at the payback period where the lower the value, the better the result. This measure was chosen due to large differences in hash rate between devices, which would distort daily earnings comparisons.

The calculations completely ignore accrued fees, which are much more unpredictable than the block reward. Depending on the day, fees contributed between 10% and 50% of total daily revenue in the summer of 2020, but hovered below 10% historically. 

An additional caveat is that this chart was compiled in an advanced bull market. Some setups no longer make money, and any drop in the price of Ether could exacerbate the situation. In general, miner earnings fluctuate wildly and extrapolations of earnings from one day into the future can be highly unreliable. Miners compete with each other for block rewards, so lowering operating costs below the world average is the key to a resilient business.

Finally, the table ignores the cost of the remaining hardware required to assemble a miner. It is mainly a fixed cost and comparatively cheap, as GPU mining rigs use between six and 14 GPUs. ASICs are largely self-sufficient but typically require the purchase of external power supply units.

With those disclaimers in mind, the comparison highlights some differences and drawbacks of various mining hardware options. For example, a three-year-old AMD RX 580 is the best value for your money at $0.05 per kWh. But its low energy efficiency makes it a much weaker option than others in the higher electricity cost brackets.

The A10 Pro ASIC is by far the most attractive and energy efficient option for miners with high electricity costs. Other ASICs were not included due to extreme difficulty of purchase or short remaining lifespan. The Nvidia RTX 3080 is also a solid all-round alternative for every category of miner based on preliminary benchmarks. 

The SQRL FK 33 is one of the most popular FPGAs, but this model highlights why this type of hardware sees little use. Despite its high energy efficiency, its unit price still makes it unattractive compared to all other options. However, it’s worth noting that the sample price figure was derived from the eBay listing of a refurbished second-hand device.

Buying used deprecated GPUs like the AMD RX Vega 64 or Nvidia GTX 1060 can also be a good cost-saving measure, but buyers may be at greater risk of device failure.

How Ethereum Mining Works: Guidelines and Risks

Mining requires careful planning and attention to avoid unfortunate results. All computers are a potential fire hazard, and this risk is magnified in mining due to the constant use and high energy output involved.

For home mining environments, it is crucial not to overload the home power grid with excessive power consumption. The network as a whole and each individual plug is only rated for a certain maximum power, and mining devices can easily exceed those thresholds. Wiring could fail and overheat, posing an immediate fire hazard. Consult experts to assess the security of your setup.

It is highly recommended to choose high quality power supplies with a wide range of power ratings to protect yourself from power surges and other electrical problems.

For GPU and FPGA mining rigs, there are several key hardware requirements to mine Ethereum effectively. Investing in specialized motherboards such as the Asrock X370 Pro BTC+ or the Gigabyte GA-B250-FinTech can be very worthwhile as they are optimized for mining. Each motherboard can support up to 14 GPUs, which is normally impossible on standard motherboards.

The motherboard must be combined with a sufficient amount of RAM, 8 or 16 gigabytes, and at least 256 GB of disk storage. The last part is very important as Ethereum mining requires a lot of runtime memory, at least 4GB per GPU. Through an operating system trick called paging file caching, this requirement can be offloaded to much cheaper permanent storage without performance loss. The GPU RAM itself must also be at least 6GB to account for the growing DAG, a key mechanism of the Ethash algorithm.

The DAG, which stands for Directed Acyclic Graph, is a large data set that is used to calculate hashes to mine Ethereum. The mining hardware must have enough memory capacity to store it. The data set grows at a rate of about 1 GB every two years for Ether, although other coins may have different growth rates. Four-gigabyte devices will be completely unusable by the end of 2020, while 6GB cards will likely be depreciated by 2024. Online calculators can help assess the exact timeline.

The central processing unit can be as cheap as needed, as it has no relevance to GPU mining. Multi-GPU setups will likely require risers, an adapter to allow the GPUs to connect to the motherboard. The mining rig box should be open and wide enough to allow air circulation.

In terms of the operating system, Windows and Linux are valid options, although Linux may require more command line interactions to configure it. Optimizing GPUs in terms of clock speed, power usage, and memory timings is crucial to achieving the figures outlined above, but a full rundown is beyond the scope of this guide.

The easiest way to mine ETH is to join one of the many Ethereum mining pools like SparkPool, Nanopool, F2Pool and many others. These allow miners to have a constant stream of income instead of a random chance of finding a full block every now and then. Popular mining software includes Ethminer, Claymore, and Phoenix. It may be worth trying each to see which is faster for your specific setup.

Finally, devices should be regularly maintained, cleaned, and dusted to keep the hardware in good condition. There are other details involved in creating a successful mining farm, many of which are closely guarded as trade secrets. This guide is not intended to be completely exhaustive, but if you are serious about mining, you should now have a solid knowledge base to do further research.

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