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In this guide, you’ll learn the basics of Ethereum mining: the different methods, the equipment required, the essential steps, and more.
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No specific skills are required, but please take note of the important update below.
*Important Update:* On September 19, 2022, Ethereum marked a significant milestone with the successful completion of “The Merge.” This marked a substantial shift in Ethereum’s foundational technology, moving away from the energy-intensive Proof of Work (PoW) consensus mechanism to the more sustainable and eco-conscious Proof of Stake (PoS). This strategic decision aimed to boost network scalability, curtail environmental impact, and secure Ethereum’s long-term sustainability.
In the Proof of Stake system, you have to possess and “stake” a specific amount of cryptocurrency as collateral to validate transactions and forge new blocks. This approach reduces energy consumption but also encourages network contributors to act in the blockchain’s best interests.
The transition to PoS stands as a pivotal juncture in Ethereum’s evolution and aligns with broader industry efforts to make blockchain technology more environmentally responsible.
Ethereum (ETH) is the second-largest blockchain by market capitalization after Bitcoin. This cryptocurrency, one of the most promising ones, has much to do with the creation of decentralized applications on its platform. Ethereum mining used to be done through the Proof of Work (PoW) mechanism, which involves solving complex mathematical equations to create a new block. However, Ethereum has now transitioned to the Proof of Stake (PoS) mechanism, as a more secure and energy-efficient way to validate transactions and add new blocks to the blockchain.
For the purpose of this article, we will discuss Ethereum mining as a general concept, regardless of the differing current situation since the merge.
Mining Ethereum with Cloud Mining
This beginner-friendly technique was ideal for any Ethereum miner taking their first steps in Ethereum mining while limiting their initial investment.
Cloud mining Ethereum involves paying a third party to mine on your behalf, and in return, you receive the rewards.
This process has several advantages:
- Limited initial investment
- No technical knowledge required
- No need to buy specific hardware
- No significant electricity bills
However, the earnings are generally lower compared to classic Ethereum mining. Some of the most interesting Ethereum cloud mining platforms include NiceHash and Genesis Mining.
Solo Ethereum Mining with ASIC
This method is preferable if you already have mining knowledge or if you are willing to acquire it and have the capacity to invest in quality equipment.
Solo Ethereum mining allows you to both be independent and boost your earnings.
In this case, you will need an ASIC, a machine composed of programmed chips designed specifically for cryptocurrency mining, and an Ethereum mining rig, a computer with multiple graphics cards.
Solo Ethereum mining allows you to keep all your earnings to yourself and maintain complete control over the entire process. However, it often takes a long time to find a block, especially with Ethereum, a cryptocurrency with numerous miners.
Mining Ethereum in an Ethereum Mining Pool
Mining Ethereum in a pool is the fastest and most efficient method. An Ethereum mining pool is a cryptocurrency mining platform where multiple miners work together to combine the power of their machines.
With an Ethereum mining pool, expenses are shared, and the chances of creating Ethereum are multiplied. By pooling their computing power, miners in the same pool have more influence on the network, increasing their chances of finding a block.
Obviously, rewards are distributed among the various miners in the same pool. Some of the best Ethereum mining pools include Ethermine and Sparkpool.
Mining Ethereum in Three Simple Steps
With the necessary mining hardware for Ethereum mining, as detailed below, you could immediately start Ethereum mining by following these three steps. Mining in a mining pool is the easiest and most profitable way to mine Ethereum, so that’s the method we’ll focus on in this tutorial.
1. Download Ethereum Pool Mining Software
To begin, you need to find the Ethereum pool mining software that best suits ETH. In this regard, one software stands out because it is exclusively reserved for Ethereum mining: Ethermine.
Visit the Ethermine website and click the “Start Mining” button in the upper right corner. No registration is required, as anonymity is a key aspect of cryptocurrencies.
Ethermine will then ask you to choose from 5 servers. It is advisable to select the one closest to your location to ensure a fast connection.
Next, you need to select your hardware and download the software along with the associated user guide.
2. Configure Ethereum Pool Mining Software
Once the software is installed, you can follow the user guide to configure it according to the power of your machine.
Once Ethermine is configured, you can access the dashboard. Here, you can make adjustments, start mining, access your history, and collect your earnings based on the specified threshold.
Remember to enter your wallet data in Ethermine so that your ETH is automatically transferred to the correct address.
3. Mine… and Transfer!
Once all the information is provided, and the settings are correctly configured, you can start mining. The ETH you earn will be automatically sent to your wallet based on the payout threshold you’ve set.
Note: Ethermine deducts a commission from your earnings, which inevitably affects mining profitability.
Where to Store ETH Tokens?
To store the mined ETH, you need an Ethereum Wallet. This digital wallet allows you to securely store your tokens. There are two types:
- Hot Wallet ETH: This online wallet is accessible from a computer and is easy to set up and use. However, it is more vulnerable to hacking than a physical wallet. Examples include MetaMask, MyEtherWallet, etc.
- Hard Wallet ETH: This physical wallet is a device that connects to a computer, and it stores your ETH tokens. It offers excellent security and allows for offline storage, but it is costlier and more challenging to use. Examples include Ledger, Trezor, etc.
Mining Ethereum: What’s Involved?
Knowing how to mine ETH is good, but understanding what mining entails is even better! It’s important to remember that Ethereum has a very different foundation compared to Bitcoin. Unlike Bitcoin, Ethereum does not have a supply cap, meaning there is no limit to the number of Ethereum tokens that can exist, whereas Bitcoin will never have more than 21 million coins in circulation.
Cryptocurrency mining involves complex computational work requiring significant processing power. Mining is a way to actively participate in the cryptocurrency network.
Specifically, Ethereum mining involves not only increasing the amount of ETH in circulation but also securing the Ethereum network when it creates, verifies, publishes, and propagates blocks on its blockchain.
So, mining Ethereum is the act of securing the network through verified calculations.
An Infinite Supply of ETH?
Contrary to common belief, the supply of ETH is not infinite. The network cannot emit more than 18 million Ether tokens each year.
In 2019, Vitalik Buterin, co-founder of Ethereum, suggested implementing a hard cap of 120 million tokens to better balance the currency.
Essential Vocabulary for ETH Mining
There are a few key terms you should be familiar with before engaging in Ethereum mining:
- Nonce: An arbitrary number intended to be used only once.
- Node: A computer that holds blockchains and operates in a peer-to-peer network. It manages interactions among different participants.
- Hashrate: The rate of hash. It represents the power delivered by the CPU or graphics card, determining the mining profitability.
- Blockchain: A database containing the transaction history of a cryptocurrency. It stores and transmits data in the form of linked blocks, which are impossible to alter.
Ethereum Mining: Proof of Work (PoW)
Ethereum operated on the Proof of Work (PoW) principle.
|Proof of Work: Miners calculate the nonce, which is a string of characters that meets complex criteria and includes a fingerprint of the blockchain. PoW helps the blockchain remain consistent and nearly impossible to tamper with. When a miner finds a valid combination, they provide a “Proof of Work,” proving that they were the first to solve the problem. This proof of work allows them to receive a reward for their work and authorize the creation of a new block.
To be validated by the Ethash algorithm, each block must have proof of work. The goal is to identify the input nonce so that this number is below the threshold determined by the difficulty. Difficulty is dynamically adjusted to ensure the network produces a new block approximately every 12 seconds.
A Concrete Example
Let’s say Christophe sends 1 ETH (Ethereum) to Julie. This transaction request is publicly broadcast on the Ethereum network via a node. This is where the miner’s work begins, involving several checks:
- Verify that Christophe indeed possesses 1 ETH and that this information is indeed stored on the blockchain. To do this, a multitude of computers communicate with each other and validate, through majority voting, that the sender does possess the ETH they wish to send.
- Perform a complex verification calculation for the transaction.
- Ensure that the ETH has been successfully deducted from Christophe’s wallet and added to Julie’s wallet.
- Record this new transaction in the Ethereum blockchain so that there is a trace of the transaction in the ledger.
The process of certifying the proof of work then begins. Once the block is completed, it is inserted into the chain, and the miner receives a reward for the work done.
Ethereum Mining Hardware
Mining Ethereum inevitably involves acquiring machines, software, and specific cryptocurrency mining equipment. The more powerful the hardware, the higher the yield.
GPU (Graphics Processing Unit)
Many graphics cards allow you to mine Ethereum, provided you are willing to pay for quality hardware. To calculate the ratio between the GPU and the yield, you can use a profitability calculator, which helps you choose the graphics cards best suited to your project.
Among the best graphics cards for ETH mining are the Nvidia RTX 3080, the GeForce RTX 3080, and the Nvidia CMP 170HX for larger budgets. These graphics cards typically range from 1,000 to 4,000 euros on average.
To run your mining software, you need a compatible operating system. Most Ethereum mining software is available either in Windows or Linux versions.
- Windows: An operating system suitable for beginners because it is easy to use and relatively intuitive. However, it quickly reaches its limitations for Ethereum mining.
- Linux: A more precise and complex operating system, perfectly suited for ETH mining but less user-friendly for beginners.
The PoW process involves particularly complex calculations that consume a lot of electricity and tend to heat up the equipment. To ensure that the graphics processing unit works correctly and doesn’t degrade over time, it’s essential to prevent overheating.
Therefore, Ethereum miners are advised to install an efficient air conditioning system in the room where the mining equipment is located.
Ethereum Mining Software
The choice of Ethereum mining pool software is crucial because it allows you to harness the full power of your graphics cards.
Some software works with NVIDIA cards, some with AMD cards, and others with both. Ethereum mining software generally works on both Linux and Windows.
Among the best mining software options are Ethermine, Sparkpool, and NBMiner.
Ethereum Mining Profitability
The profitability of ETH mining depended on three major factors:
- ETH Price
- Electricity Cost
- Initial Hardware Investment
- Several studies have shown that for Ethereum mining to be profitable, it should be done at a maximum electricity cost of €0.10 per kilowatt-hour (kWh). At less than €0.07 per kWh, ETH mining can become viable.
For good profitability, the hardware should ideally be paid off in less than two years on average.
Example: A mining setup that costs €3,000 generates €300 in monthly revenue, resulting in a gross profitability of 10%. The miner has to pay €90 per month for electricity to operate the equipment at €0.05 per kWh. The equipment will be paid off in approximately 14 months. Now, consider the same example with a kWh price of €0.15. The electricity bill then amounts to €270 per month. With a net profit of €30 per month, the equipment will only be paid off after 8 years.
|ETH mining hardware, especially graphics cards, evolves rapidly, highlighting the importance of recovering equipment costs as quickly as possible.
Profitability Checking with an Ethereum Mining Calculator
The profitability of Ethereum mining also depends on the power of the graphics cards used for calculations and the various hash algorithms.
To simplify profitability calculations, various websites offer automatic calculators where you need to enter several pieces of information:
- Power consumption
- Cost per kWh
- Mined cryptocurrency
- Any pool fees
Once these details are provided, the calculator automatically determines the profitability of the operation, excluding the initial investment (hardware purchase).
Ethereum Mining Profitability Calculators:
Ethereum Mining: Pros and Cons
Advantages of Mining Ethereum:
- Direct participation in blockchain development
- Potential financial gains
- Indirect investment in Ethereum
- Skill development
- Reduction of heating bills due to the heat generated by the equipment
Disadvantages of Mining Ethereum:
- Difficulty in achieving profitability
- Significant initial investment
- Technical knowledge required
- Environmental issues related to energy-intensive equipment