The question of how to mine Ethereum begins with knowledge of the cryptocurrency itself. It is the second-largest cryptocurrency in the world, and ether holders can use it at the best crypto casino for crypto gambling, as well as for creating smart contracts and for app development, among other things.
There is a lot to learn, so we have put together this guide on mine, Ethereum. Included is information about the different kinds of mining and protocols involved in the process.
What Is Ethereum?
As mentioned, Ethereum is the second-largest cryptocurrency after bitcoin. Like bitcoin, it is powered by blockchain technology, although there are major differences between the two.
Ethereum’s transaction time is much faster than Bitcoin’s, allowing for the implementation of smart contracts. These smart contracts allow developers to create applications on the blockchain that cannot be altered. These are called Decentralised Apps (dApps).
Furthermore, Ethereum’s coin, Ether, is a currency on the blockchain. Users pay Ether for block validation and application development.
Unlike the BTC coin cap of 21 million, there is no limit on the amount Ether miners can mine.
It has the second largest market cap of all cryptocurrencies, but its price on the market remains volatile.
What Is Crypto Mining?
Cryptomining is a process of adding more information to a distributed ledger. Miners have to solve complex mathematical puzzles to add this information, which applies to how to mine Ethereum. They need to use computing power to solve these problems. Each time a miner solves a problem, a block is added to the distributed ledger or blockchain.
The blockchain is a decentralised network, so miners need to reach a consensus on the solution to a puzzle before a block is added to the blockchain.
Furthermore, each time miners verify a block, they receive a reward in cryptocurrency. The amount of the reward depends on the difficulty of the block.
The process of reaching a consensus is called Proof of Work, which works with the hash function. A hash is an encrypted line of code unique to a piece of data. Miners need to find the correct input that matches with a hash. This is a long process that requires a computer to compute all possible inputs for the hash and find the correct one.
Moreover, if someone alters the piece of data, the hash changes, this means that other miners can see if a transaction was altered, and the block will not be verified.
Different Types Of Mining
There are a few methods of mining cryptocurrencies. All of them include using a computer or piece of hardware, and it is a time-consuming and costly process.
First, there is CPU mining. Any prospective miner with a computer can use this method. That said, because crypto mining has become much more difficult over the years, it is unsuitable for mining bitcoin or Ethereum.
Next is GPU mining. GPUs help computers generate 3D graphics and play high-definition media. GPUs are better at mining crypto, and miners use them to mine ASIC-resistant coins.
Then, there is ASIC mining. An Application-Specific Integrated Circuit’s only purpose is to mine crypto. Not all cryptocurrencies are compatible with this device. Bitcoin and litecoin miners only use ASICs. Ethereum miners have also begun using ASICs.
Finally, FPGA (Field-Programmable Gate Array) is a device that uses truth tables to process data. It works with any set of data that has a parallel process. It works well with crypto mining because the hash functions can be matched with input.
Knowing how to mine Ethereum needs an understanding of mining difficulty. The mining difficulty began with bitcoin. In the beginning, it was simple to mine BTC. Miners only needed a computer. But as the cryptocurrency became more popular, more miners added their computing power to the blockchain. It meant that all 21 million bitcoin could have been mined within a few years.
This is why the creators of BTC created the difficulty system. It works with miners attempting to solve complex mathematical puzzles by adding a nonce to the hash of a block. They then hash the entire string. A new block is added to the chain if the result is less than an agreed-upon number. But finding the nonce is extremely difficult and time-consuming.
The process is as follows: First, the hash of a new block is taken, and a random nonce is attached to it. Next, the new string (block) is hashed again. The hash is then compared to the difficulty level to see if it is less than it or not.
The difficulty is directly related to the rate of blocks mined. Bitcoin has an average block time of 10 minutes, whereas Ethereum has a block time of 15 seconds. The difficulty increases if the block time is below the average block time. The difficulty decreases if it is higher than the average block time.
Finally, mining difficulty is adjusted every 2016th block.
Mining Ethereum is a resource-intensive activity. A miner with a homemade rig has little chance of successfully mining a block because of mining pools.
These are groups of miners who pool their resources and share the rewards. These pools are run by pool managers who upgrade the network on behalf of individual miners.
Members of mining pools also have a better chance of gaining rewards because the pool would have a higher hash rate than an individual. This means that pools are faster, and, as a result, the rewards will be more frequent.
The downside of any mining pool is trust. Are the pool managers making the correct decisions when upgrading the network, and can they be trusted with doling out the rewards?
As a result, choosing between a mining pool or mining solo requires some thought into the bigger picture.
How To Mine Ethereum
Why Should You Mine Ethereum?
People mine cryptocurrencies to earn a reward. The process of receiving rewards for verifying blocks on the blockchain can be profitable if the value of a coin like ether increases. Also, developers pay miners gas fees (Ether) to verify applications.
Of course, miners use lots of computing power in the process, and this raises their energy bills. This is mostly true if a miner builds their mining rig at home.
Getting started with how to mine Ethereum begins with choosing the correct hardware. Miners in the past could only mine it using a GPU, but now some ASICs can mine Ethereum. That said, ASIC miners do not offer many performance improvements over GPU mining for Ethereum.
Miners could also use an FPGA device, but they are more expensive than GPUs and more complex. Furthermore, similar to ASICs, they do not provide any major performance improvements over GPU mining.
So, the best option for Ethereum mining would be GPU mining. A prospective miner would need a computer with a motherboard with enough slots for multiple GPUs, a mid-range CPU, at least 4GB RAM, and a suitable power supply with enough wattage to handle lengthy computing.
Most importantly, a miner needs a high-end GPU. There are two popular GPU manufacturers, namely Nvidia and AMD. AMD GPUs are more suitable for crypto mining, so any recent AMD GPU on the market would be ideal.
Proof Of Work
Proof of Work (POW) is the basis of all crypto mining and is important when learning how to mine Ethereum. Previous attempts to create a blockchain network were unsuccessful because developers could not solve the Byzantine General’s Problem.
The idea is that an army’s generals are on either side of a city they want to attack, but they can only win the battle if they attack simultaneously. Accordingly, the generals need to send messengers for when the attack needs to take place.
The problem arises with the messenger. When the messenger travels through the city, they could be captured, killed, or turned.
This idea can be applied to blockchains too. The generals are the original hash inputs, and the messenger is the hash function.
Satoshi Nakamoto, the inventor of BTC, used the proof of work protocol to bypass the problem. The attack message is assigned a nonce (a random value). This nonce is then hashed. The generals then agree on only sharing messages with a specific hash result, like a sequence of numbers.
If the hash result and input match, they will send the messenger to the other generals. If it does not match, they need to hash the message until it does. This is where miners need a large amount of computing power and time.
If the generals send a message without the correct hash result, the other generals can simply ignore the message and wait for the correct message to arrive.
Hence, if a transaction does not match the hash result, it cannot be completed and added to the blockchain.
Proof Of Stake
Ethereum plans to transition from the Proof of Work protocol to the Proof of Stake protocol. Ethereum 2.0 launched at the end of 2020. It is a new blockchain. Therefore, it will not impact current Ethereum mining.
Proof of Stake will remove the need for mining rigs because all mining will be virtual. Also, miners will be replaced with validators.
First, validators will use some of their coins as stakes. This is collateral for becoming a validator. Next, they will begin validating blocks. This means that validators bet on blocks they think will be added to the blockchain. If the block is added, they receive a reward. If not, they lose their stake. Therefore, how to mine Ethereum becomes more about betting and less about mining hardware.
Why Do We Need Proof Of Stake?
Proof of Stake (POS) has many benefits over Proof of Work. Firstly, it helps with decentralisation. More nodes appear on the network because mining pools would become ineffective. This is because the validator’s stakes remain the same value.
Pooling coins would not result in a higher return, as opposed to POW, where mining pools could combine their computing power to mine blocks faster and make more money than other nodes on the network.
Next, it saves energy. POS is entirely virtual, so little electricity is used during the mining process.
Finally, POS ensures economic security for validators because, with their stakes, they are directly invested in the blockchain. Essentially, it means that they will lose money if they attempt any malicious activity. They also have more reason to stamp any malicious activity on the blockchain because they might lose their stake.
Nothing At Stake
POS is much more cost-effective than POW because it is entirely virtual. But it also has a flaw. For instance, if there are two branches in the chain, a validator could place a stake on each block. They would not have anything to lose and everything to gain. It would not matter if they were malicious or not. This is called “Nothing at Stake.”
Now, suppose a blockchain uses POW to mine blocks. Here a miner would need to use their computing power to solve both blocks. It would be expensive and a waste of time, so a malicious miner would not attempt to fork the blockchain.
Accordingly, to solve this problem, Ethereum developed its Casper POS protocol. It differs from other POS protocols because it punishes validators that attempt nothing at stake.
Moreover, Casper also punishes validators that go offline. Also, because validators stake some of their coins, malicious agents have something to lose. Attempting to fork or create a 51% attack is unprofitable.
How to mine Ethereum begins with understanding the basics of crypto mining. These are types of mining, mining difficulty, and the concepts of Proof of Work and Proof of Stake.
Prospective miners also need to know hardware like ASICs and FPGAs. In addition, they need to choose suitable computer hardware like a motherboard, CPU, GPU, and power supply accordingly.
Lastly, consider joining a mining pool or becoming a validator on Ethereum 2.0.