Ethereum is the world’s second-largest crypto network, in large part thanks to its infrastructure, which enables developers to build decentralized applications (DApps) on its blockchain. Just as for Bitcoin, the viability of Ethereum hinges on the operations of mining nodes tasked with validating and confirming new transactions. In return for these efforts, the network releases new Ether (Ethereum’s native cryptocurrency) to successful miners. All users of the Ethereum network pay gas fees (denominated in gwei) to execute their transactions, which are paid to the network’s miners and incentivizes them to continue to participate in maintaining the network.
Thanks to these financial incentives, Ethereum mining has become a popular crypto venture. This guide will provide an overview of key details about mining the network, as well as what it takes to become a miner on the Ethereum network.
What Is Ethereum Mining?
Before diving into the intricacies of Ethereum mining, it’s important to have a basic grasp of the principles behind mining cryptocurrencies in general.
Miners contribute their computer resources to ensuring that a given crypto network is not vulnerable to the risks of double spending or attacks. To do so, they operate mining nodes and dedicate all their computing power to solving exceptionally complex mathematical puzzles. Miners’ degree of success at repeatedly solving these highly complex puzzles determines their chances of becoming successful block validators and thereby generating profits.
Depending on the level of competition, as well as the difficulty, of the mining process on a given crypto network, mining operations can often be a highly capital-intensive venture. This is due to the energy, hardware and software requirements associated with running mining operations.
In the case of Ethereum, each miner’s goal is to become the first to confirm and log broadcasted transactions into the next valid block, for which they get to pocket newly minted Ether and transaction fees as their reward. Like most crypto mining processes, mining on the Ethereum network demands the use of high levels of computing power to solve mathematical puzzles.
Since Ethereum is a highly popular crypto network, miners need to compete against thousands of other miners to become the first to validate a new block. As such, any prospective miner must first consider the costs associated with mining and weigh up their potential chances of successfully validating new blocks before setting up an Ethereum mining business. This sort of planning can shed some light on their potential profitability in the medium and long term. Below are some of the key factors that any budding miner should take into account.
As mentioned above, mining demands the dedication of computing resources to solving complex mathematical puzzles. Therefore, miners need to set up specialized hardware that can provide sufficient processing power to mine Ether. Note that processing output is very much determined by the quality and power of mining rigs, which are often an expensive investment.
Since mining rigs typically run round the clock and guzzle large amounts of energy, electricity costs are a major factor. Miners must therefore have access to stable – and ideally cheap – electricity.
Due to the round-the-clock operations and the intensity of mining processes, it is normal for mining rigs to overheat. This is why miners invest in cooling systems. As you would expect, this expense forms part of the initial costs of setting up a mining business. To reduce their overhead costs, miners are increasingly relocating their mining businesses to locations or countries with a cool climate.
Legality of Crypto Mining
It is worth noting that an increasing number of countries are reviewing their stance towards crypto mining activities due to its high electricity consumption rate and nefarious impact on the environment. Thus, you need to clarify whether or not crypto mining is legal in your jurisdiction before taking the plunge and setting up your operations.
How to Start Mining Ethereum
Once you have considered and carefully analyzed all of the aforementioned factors, you can go ahead and prepare to set up as an Ethereum miner.
The first thing you’ll need is a crypto wallet. Every miner needs a wallet where they can store and manage their Ether mining rewards. Although there are many different wallet service providers you can choose between, it is advisable to choose one that gives you full control over your coins. The most secure wallet solutions enable you to store your private keys offline.
After you’ve chosen a reliable wallet, you can now start investing in mining hardware. A standard mining setup consists of the following:
- Stable electricity supply
- Cooling system
- Graphic cards
For the most effective mining operation, it is best to opt for GPU mining rigs (rather than CPU). With these, you’ll be able to use more than one graphic card to boost the processing power of your mining rig. However, this choice will increase your initial costs significantly. Whereas a mining rig with one graphic card roughly costs $1,400, one with 6 graphic cards comes with a $4,500 price tag.
Alternatively, you can buy an application-specific integrated circuit (ASIC) miner that is purpose-built for mining Ethereum. Note that this type of hardware is expensive but it will perform better and therefore ensure the profitability of your mining operations.
The next item on your shopping list is mining software. This software provides an interface where you can track and manage your mining activities. It also integrates your rig with the Ethereum network. Some of the most popular Ethereum mining software out there includes WinETH, Claymore, ETHmine, MinerGate and CGMiner. Before choosing any of these software packages, ensure that they are compatible with your mining rig’s operating system.
What Is the Best Ethereum Miner?
As a basic guiding principle, you’ll need to take into account the energy efficiency, costs and hash rate of the miner’s GPU card. Highly-rated Ethereum miners that have been proven to be highly efficient include AMD Radeon RX580 and Nvidia GeForce GTX 1070.
Solo Mining Vs. Pool Mining
You may choose to run a solo mining operation, in which case profitability depends solely on the output of your individual mining rig. In this case, the rewards and transaction fees you earn will be yours alone to keep.
However, considering an increasing number of miners competing for limited rewards, as well as the network’s hash rate, most miners eventually find that it is unsustainable for them to run an individual Ethereum mining operation. Solo miners are often large organizations or wealthy individuals that have the financial resources to establish and operate large mining farms.
What Is Ethereum Pool Mining?
For those who lack the capital to run a solo mining business, the next best option is a mining pool that supports Ethereum. A mining pool is a network of miners that combine their computing power to boost profitability and reduce the costs of mining for individuals. By pooling computing power, these miners attempt to level the playing field and increase their chances of collectively validating a new block. However, unlike solo mining, mining pools share rewards between active members of the network. Usually, how much Ether is distributed to whom will be determined by the contribution of each miner.
What Is Ethereum Cloud Mining?
Ethereum cloud mining involves the outsourcing of hardware maintenance and management responsibilities to a third-party service provider. It can in some cases involve a process of renting hash power with the sole aim of mining Ethereum.
In both scenarios, the miner does not own physical mining rigs but trusts a cloud mining service provider to deliver the computational power required to either partake in solo or pool mining.
Is Ethereum Mining a Sustainable Crypto Business?
It is worth mentioning that Ethereum mining will eventually become increasingly unprofitable, as the blockchain is on the verge of switching fully to the proof-of-stake (PoS) consensus mechanism. As expected, this systemic change has faced some resistance, with a faction of the Ethereum mining community hellbent on stalling or halting the planned upgrades.
However, Ethereum developers seem undeterred and the highly anticipated London fork set for July 2021 entails significant changes to mining operations on the Ethereum blockchain. In particular, the EIP 1559 upgrade will allow the network to both and burn the transaction fees. This is in stark contrast to the current system, in which miners themselves set and earn transaction fees.
In light of this, you may need to transpose the knowledge you’ve gleaned mining Ethereum and plan to eventually transition to other crypto mining ecosystems.
Once you’ve grasped the key mining concepts and processes discussed in this guide, you should understand the basic requirements for setting up an Ethereum mining operation. Usefully, you can estimate the potential profits of such a venture in advance with the help of an online Ethereum Mining Calculator.