Ethereum is a popular open-source and programmable blockchain, which was launched in late July 2015. Its features include a cryptocurrency called Ether (ETH).
At present, ETH is the world’s second-largest digital currency by market capitalization, after Bitcoin (BTC). In contrast to Bitcoin, there is no upper limit on the available supply of coins.
In this guide, you’ll find out how to get set up to mine Ethereum, the best types of equipment to use and where to store your coins.
What is Ethereum Mining?
Ethereum mining plays an important social function. It minimizes the risk of fraudulent entries on the blockchain by ensuring all new records are verified and agreed upon by the group.
Right now, Ethereum uses a ‘Proof of Work’ algorithm called Ethash. This system promotes decentralization by giving individual miners an incentive to confirm transactions on the ledger.
Every time a new block is released, miners from all over the world compete in a race to solve a unique mathematical puzzle. The winner gets two freshly created ETH coins as a reward.
Blocks are designed to be mined every 12 seconds (on average). If an influx of miners were to speed up the process, the algorithm would be tweaked to make it more challenging to solve.
(It’s worth bearing in mind that work is underway to move from a Proof of Work to a Proof of Stake framework. This will make the traditional role of Ethereum miners redundant.)
Ethereum Mining Hardware
The complexity of Ethereum’s hashing algorithm (and the sheer volume of mining competition) requires some serious computational power. In short, a simple CPU probably won’t cut it.
At the same time, Ethash is a memory-intensive algorithm. Accordingly, the hyper-powerful ASICs that have come to dominate Bitcoin mining are not a practical solution either.
By far, the best option is to buy a graphics card (GPU). These will deliver a much higher hash rate than a CPU, and several GPUs can be stacked in a rig to multiply your processing power.
When selecting a GPU, you’ll need to balance total costs (price and electricity usage) against performance (hash rate). Use a free profitability calculator to check if it’s a viable endeavor.
Some of the best GPU models available on the market include Nvidia’s GTX and AMD’s Radeon RX series.
Ethereum Mining Software
There are several steps you’ll need to take to configure your system before you can start mining. First, install the correct driver for your GPU (instructions should come with purchase).
You’ll also need to download the whole Ethereum blockchain. This could take a while! It’s continually expanding and, at the time of writing (June 2020), stood at over 140MB.
Once that’s all done, the next step is to connect your node to the network and start mining. Take some time to consider the range of mining software options that are available to you.
Good mining software does a lot more than just interface with your graphics cards. It will also tell you the energy efficiency, speed, temperature, and hash rate performance of each GPU.
Choose a package that has a right mix of functionality and ease of use. Two popular options are Ethminer (for PC users – see below) and Minergate (for Mac users).
Ethereum Mining: Testing
Even if you’ve got the right equipment in place, jumping in and starting mining can be a bit daunting. Testing is a great way to get a feel for mining without having any ‘skin in the game’.
You can simulate your mining capabilities on a private network using a client such as Geth. In this environment, you’ll be the only participant working to confirm new blocks.
Installing Ethminer for Ethereum Mining
As mentioned earlier, Ethminer is one of the best Windows software packages for Ethereum mining. It’s a versatile open-source application that can be used for solo and pool mining.
First, you’ll need to find and install Ethminer (available via GitHub). After that, you’ll be ready to instruct the software to run Ethash and solve new blocks of transitions on the ledger.
But be aware that you’ll need a valid public address to receive Ether once it’s been mined. For more on this, see ‘Where to Store Ethereum (ETH)’ (below).
Ethereum Mining – Getting Paid
When a miner solves a block of transactions, they are assigned a reward in the form of new Ether coins. Following a hard fork event in 2019, this payment amount has been reduced from 3 ETH to 2 ETH.
At current market value, that’s about US$250 – far less than Bitcoin’s $60,000 or so per block. That said, new ETH is mined every 12 seconds (compared to around 10 minutes for BTC).
In addition to the official reward of 2 ETH, the successful miner receives all of the transaction and processing fees from that block. The total payout is then sent to a nominated address.
Once the ETH arrives in your wallet, you can hold it or exchange it for another fiat (or crypto-) currency. If sent to a pool, you’ll need to wait for the pool to share its combined rewards.
Ethereum Mining Pools
As Ethereum mining competition has soared, the rewards available to solo miners have diminished. This means you could go for months or even years without striking digital ‘gold.’
A more attractive solution may be to join a pool. Pools are collectives of miners who put their hashing power together and divide up their rewards according to overall contribution.
The most significant advantage of a pool is a steadier (usually daily) flow of returns. But you’ll have to pay a fee, and mining performance can be affected by technical issues in the broader group.
Most pools require a simple online registration. Before you sign up, look at how the different pools compare in terms of fees, trustworthiness, payout structure, and payment frequency.
The biggest pool right now is Ethmine, which has a quarter of the total hash rate on the network and charges a 1% fee. Nanopool and Dwarfpool are two other popular options.
Ethereum Mining Profitability
Higher competition is driving up the difficulty of mining Ethereum and making it less profitable. Even if ETH prices remain on an upward path, it could still be a good speculative bet.
Whether you’ll be able to make money from Ethereum mining depends mainly on your setup. If you’re unsure about all of this, try an online profitability calculator.
CryptoCompare is one example of an accurate, free profit estimator. The calculation factors in current market conditions include mining difficulty, block rewards, and the exchange rate.
You’ll also need to plug in your GPU’s hash rate and running expenses (i.e., pool fees and electricity costs). Don’t forget about hard and software prices, including replacement costs.
As mentioned, the shift to a Proof of Stake protocol will be a real game-changer for miners. The groundwork for these changes is already being laid in the shape of ‘Ethereum 2.0’.
Where to Store Your Mined Ethereum (ETH)
There are tons of wallets of varying levels of ease of use and security. An excellent option for Ethereum miners/traders is Atomic Wallet, which consistently receives five-star reviews.
Atomic Wallet is compatible with all major operating systems and supports over 300 coins (including ETH). It’s simple, secure, and user friendly with a 24/7 client support feature.
Furthermore, there are no additional fees for using the wallet or transferring ETH. The only fee you’ll pay is the (mandatory) transaction cost of a new entry on the blockchain.
To set up Atomic Wallet, download it to your computer or a smartphone. You’ll need to choose a password and keep a secure copy of your assigned seed phrase.
There are many reasons to get involved in Ethereum mining, of which making money is just one. The community is a vibrant and innovative space for blockchain and crypto enthusiasts.
Ethereum’s hashing algorithm gives solo GPU miners a shot at achieving a positive ROI. However, the advent of Proof of Stake looks set to undermine the rewards on offer for miners.