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How to Mine Ethereum: An Overview of Ethereum Mining

by CryptoWordTalk
How to mine ethereum

Simply put, cryptocurrency mining is the process of solving complicated mathematical problems. Miners are the backbone of many cryptocurrency networks, since they devote their time and computer power to solving math problems, thus providing a “proof-of-work” for the network to verify Ether (ETH) transactions. But that’s not all. By performing PoW jobs, miners may also generate fresh Ether tokens.

PoW is based on the fundamental properties of a hash function. This is an “encrypted” bit of data that is procedurally derived using some arbitrary input. The only difference between standard encryption and hashes is that the process only works in one direction. To find out which input was used to generate a given hash, you must first try to hash all possible input combinations to see which one matches. The fact that even small changes in the initial data can produce totally different results complicates matters.

The first step in proof-of-work is to create a list with the desired hashes that are based on the “difficulty”. To create a difficulty-satisfying hash, miners must use brute force to combine a number of parameters including the block’s previous hash. This is a time-consuming task that requires energy. However, it can be controlled by increasing or decreasing difficulty.

https://etherscan.io/chart/difficulty

The “hash rate” of miners is the number of combinations they attempt in a second. Outside entities will find it more difficult to replicate the network if there are too many miners. Miners can secure the network by putting in real effort.

Why Should You Mine Ethereum

Mining makes the act of protecting a network a complicated but often very profitable business. The primary motivation to mine is to make money. Each block is rewarded with a reward, as well as any transaction fees. Fees generally make a small contribution to overall revenue, though the decentralized finance boom in 2020 helped change that equation for Ethereum.

There are many reasons someone might want to mine Ethereum. A member of a charitable community could choose to mine at a loss to help secure the network. Every additional hash counts. You can also mine Ether to obtain it without the need to invest directly in the asset.

A cheaper form of heating is an unusual use for home-mined electricity. The heat generated by mining devices converts electricity into heat and cryptocurrency. Even though the cryptocurrency is less valuable than the energy cost, it could still be of use to people who live in colder climates.

Will Ether Mining Be Affected by the Proof-of-Stake Transition?

The Ethereum 2.0 roadmap is a common concern for prospective Ethereum miners. It introduced plans to transition from proof-of-stake to a consensus algorithm that would eliminate miners. Existing Ethereum miners only have a limited amount of time to earn a return on their investment. However, PoW mining will likely be functional until around 2023.

The launch of Ethereum 2.0 Phase 0 is expected in 2020. It’s a separate blockchain and will not have any impact on mining. Mining may only be phased out in Phase 2, although no specific preparations for that transition have been made as of October 2020.

Phase 2 is expected to come around the end of 2021 or early 2022. But it’s worth pointing out that Ethereum has a long history of delays with its roadmap — in 2017-2018, it was widely believed that the transition would be completed by around 2020. Although no one knows exactly when Ethereum 2.0 will be completed, the majority of estimates indicate that miners will have enough time to recoup at most a portion of their hardware investment by October 2020.

Is Ethereum Mining Profitable?

The cost of electricity in each area will determine whether any mining activity is financially viable. A rule of thumb is that mining should be profitable at a cost below $0.12 per hour. However, it is recommended that prices not exceed $0.06 to make mining economically viable.

These figures would disqualify most home mining attempts, especially in developed countries where electricity prices are generally above $0.20. Although it is possible to make a profit at these prices, the return of capital may be seriously affected. A miner who costs $3,000 will generate $200 in monthly revenue, and then use $45 to pay $0.05/kWh for electricity. It will take 19 months to repay the investment. A miner that uses electricity at $0.20/KWh in the same area will repay itself in 150 months or more than 12 years.

Professional miners have the advantage of moving to areas with low electricity costs or taking advantage of the lower rates that are reserved for the industry. These are the main reasons that mining has become a capital-intensive and serious industry.

Mining Ethereum at home is still possible, thanks to the availability of consumer graphics cards from AMD and Nvidia. It can be a great source of income for Ethereum miners who live in low-priced regions. There are many calculators that can help you estimate your potential profits, such as CryptoCompare, Whattomine, and Miningbenchmark.net. These values can also be calculated independently. Calculator websites use a simple formula:

This gives an estimate of the expected daily earnings of a miner. The miner’s income is simply the total network issuance multiplied with their share of its total hash rate. The cost of electricity used by the miner is subtracted to make a profit. A device that uses 1.5 kWh of electricity at $0.10 per day will cost $3.6.

Online you can find the values that will be used in the revenue formula. Etherscan will provide you a current estimate of the overall hash rate, as well as block timings and prizes. The current block times on the Ethereum network are 15 seconds. There are 5,760 blocks per day. As of October 2020, the reward for each block is 2 Ethereum. While the miner’s hash rate is dependent on the mining hardware used, the network hash rate is the sum of all miners who contribute to the network.

Successful mining requires optimizing the hash rate and minimizing hardware and electricity costs. Mining is not only about the location but also about the right mining hardware.

Which Is Better for Ethereum Mining: a GPU or FPGA?

The purpose of Ether was to be a cryptocurrency that could only use consumer graphics processing units (or GPUs) to mine. This is in contrast to Bitcoin, which can only effectively be mined with specialized devices, also known as ASICs or application-specific integrated circuit machines, or ASICs. These devices can be hardwired to perform one task. This allows them to work at a much higher efficiency level than other generic computational hardware.

It is impossible to create a mining algorithm that is “ASIC resistant” theoretically, and it is very difficult in practice. In 2018, ASICs for Ethereum’s mining algorithm Ethash were released. These miners are still a small improvement on GPUs in terms of hashing efficiency. Due to its specific mining algorithm, ASICs for Bitcoin perform significantly better than GPUs.

FPGA stands for field-programmable gate array and is another type of specialized device. These devices are somewhere in the middle of GPUs and ASICs. They allow for some configurability, but they also perform better than GPUs at certain types of computations.

Although it is possible to mine Ethereum using all these devices, not all are practical or feasible. FPGAs are, in most cases, inferior to GPUs. FPGAs are complex and expensive devices that require technical expertise to use effectively. Their mining performance is very similar to those of the best GPUs, so it’s hard to see how they are worth the reward.

While ASICs for Ether provide a significant performance improvement over graphics cards, they have a number of limitations in terms of practical use. ASICs cannot mine Ethereum or other coins that are based on the same hashing algorithm. This is the most important issue. GPUs are able to mine other coins and can be used to make a gaming computer or resold to gamers if necessary. ASICs can be difficult to source as not many shops sell them. Additionally, ordering directly from manufacturers could require large quantities and long wait times.

For hobbyist home miners, GPUs are still the best choice because of their flexibility and relatively high performance.

How Do You Find the Best Mining Hardware?

Three factors should be considered when choosing hardware: the maximum hash rate, energy consumption, and price.

Sometimes the purchase price is overlooked, but it can be a major factor in a mining operation’s success or failure. Hardware does not last forever. As all devices eventually fail, component wear down is an important factor. This issue is often exaggerated, as GPUs are extremely resilient and can continue mining for many years.

Hardware becoming obsolete is the biggest risk to miners. ASICs and GPUs that are more advanced can make it difficult for miners to work, particularly those who have higher electricity prices. The “payback period”, which is the time it takes for a miner to repay itself, becomes an important metric in the financial analysis of mining.

Below is a table that lists the financial parameters for Ether mining hardware.

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

This table shows the payback period. The lower the value, it is better. This was due to large differences in hash rates among devices which could distort daily profit comparisons.

Fees accrued are more unpredictable than the block rewards and are completely ignored in the calculations. Depending on the day, fees contributed 10%-50% of the total daily revenue in the summer of 2020, but historically, they hovered below 10%.

Another caveat is the fact that this table was created in an advanced bull markets. Some configurations are already losing money and any fall in Ether’s value could worsen the situation. The overall fluctuation in miner revenue is quite high, so extrapolating one day’s profits into the future can prove to be difficult. Block rewards are shared by miners, so it is important to keep operating costs down below the global average in order to have a resilient business.

The table does not include the cost of remaining hardware needed to build a miner. It is usually a fixed price and relatively inexpensive, since GPU mining rigs typically use six to 14 GPUs. Although ASICs can be self-sufficient, they do require external power supplies.

These disclaimers aside, the comparison highlights some differences and drawbacks among various mining hardware options. At $0.05 per kWh, the AMD RX 580, which is three years old, offers the best value. However, its low energy efficiency makes this a less viable option than other options in higher electricity cost brackets.

A10 Pro ASIC offers miners who have high electricity bills the best choice. Other ASICs were not included due to extreme difficulty in purchasing or a short remaining lifespan. The Nvidia RTX 3080 is also an all-around strong alternative for every category of miners based on preliminary benchmarks.

Although the SQRL FK33 is a popular FPGA, this model shows why it sees very little use. It is still not attractive despite its energy efficiency. It’s important to note that the eBay listing for a second-hand refurbished device was used to calculate the sample price.

Although buying used GPUs such as the AMD RX Vega 64 and the Nvidia GTX 1060 may be a cost-saving option, buyers might face a greater risk of device failures.

How To Set Up an Ethereum Mining Operation: Guidelines and Potential Risks

To avoid untoward outcomes, mining requires planning and attention. Computers are all a fire hazard. Mining is more dangerous because of the high energy consumption and constant use.

It is important not to overload the domestic electrical grid with excessive power draw for in-home mining applications. Each socket and the grid as a whole are rated at a maximum power level. Mining devices can easily exceed those limits. Overheating wiring can cause a fire hazard and lead to its failure. Ask experts for advice on how to ensure safety.

It is highly recommended that you choose high-quality power supply units that have a large power rating margin to prevent power surges and other electrical problems.

There are several hardware requirements to mine Ethereum efficiently with GPU or FPGA mining rigs. Asrock X370 Pro BTC+ and the Gigabyte GAB250-FinTech motherboards are highly recommended as they are optimized to mine. Up to 14 GPUs may be supported on a motherboard. With normal motherboards, this is not feasible.

A motherboard should have sufficient RAM (8 or 16 gigabytes) and at least 2GB of storage. This is critical because Ethereum mining consumes a significant amount of runtime memory (at least 4GB per GPU). This requirement can be offloaded to permanent storage using an operating system trick called “pagefile caching”. There is no performance loss. To account for the DAG growing, the GPU’s RAM must be at least 6GB. This is a crucial mechanism in the Ethash algorithm.

DAG stands for directed acyclic diagram and is a large dataset that is used to calculate the hashes needed for mining Ethereum. It is essential that mining hardware has enough memory to store the data. Ether’s dataset grows at an average rate of 1GB per year, although other coins might have different growth rates. By 2020, four-gigabyte devices are unusable. 6GB cards will be worthless by 2024. Online calculators can help evaluate the exact time schedule.

As it is not relevant to GPU mining, the central processing unit may be as inexpensive as you need. Multiple GPU setups will likely require risers and an adapter to connect the GPUs to the motherboard. You should leave the mining rig case open and wide enough for air circulation.

Windows and Linux both have valid operating systems, although Linux might require more command-line interactions. To achieve the above figures, it is crucial to optimize GPUs for clock speed, power consumption, and memory timings. However, this guide does not cover all of these issues.

Joining one of the many mining pools such as SparkPool or Nanopool is the easiest way to mine Ethereum. These pools allow miners to earn a steady stream of income, rather than a chance to find a block every once in a while. Ethminer and Claymore are popular mining software. You might want to test each one to determine which one is the fastest for your particular configuration.

To keep your hardware in top condition, it is important to clean and dust the devices regularly. Many details are highly confidential and must be kept secret in order to set up a profitable mining farm. Although this guide isn’t meant to be comprehensive, if you are serious about your mining career, you will need to have a solid knowledge base in order to do further research.

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