Welcome to my comprehensive guide on how to mine Ethereum. I’ll help show you all you need to know about Ethereum mining. First off, it helps if we start by examining why we need to mine in the first place, before moving on to how we go about the fun the fun bit – actually mining cryptocurrency!
Essentially, when you mine with your computer (or ‘rig’) it is solving a maths problem. By solving this particular maths problem, your computer helps to validate a transaction. It makes sure that transactions on the blockchain or network are correct, and aren’t fraudulent. If your computer manages to solve the problem, you get rewarded. It turns electricity and computational power into an immutable string of transactions, via a cryptographic process. Whilst a currency isn’t a necessary part of how distributed ledgers function, they have become an almost inseparable feature of what we now think of as a cryptocurrency since Bitcoin’s inception. It combines a digital currency with the cryptographic nature of a distributed ledger -hence the term crypto+currency. And the process which sorts this all out is called ‘mining’. Anyone with a computer can take part and is rewarded in the specific cryptocurrency for helping the network out.
(for those that also want a succinct explanation of Ethereum before we get on to the mining, check out this video!)
A short explanation of mining Ethereum
As I’m sure you know, Ethereum has its own blockchain. All transactions that take place using Ethereum need to be approved by the miners (as mentioned at the beginning). This is one of the reasons why there can be a delay between you sending Ether and reaching someone else. Transactions are verified, and put ‘onto’ the Ethereum blockchain. This particular process, or verification, is called Proof of Work (PoW for short). By mining, you are validating the transaction, making sure no one is committing fraud on the blockchain. Miners, therefore, solve complex mathematical equations to help this process. Once solved, this solution is broadcasted to other miners on the network.
Other miners then have to validate this solution, and if 51% (or more) agree (or find ‘consensus’) a new block will be added onto the blockchain – hence the now truncated ‘block + chain’=blockchain. The newly formed block contains a record, or ledger, of all of the transactions that have been verified, and the miner (or miners) who verified it are rewarded. Miners will then move on to the next transaction to verify.
Different ways to mine Ethereum
So, that’s the technical theoretical bit out the way. How do you actually start mining Ethereum? Well, there are three main ways to do so.
1. Join a mining pool
2. Set up your own blockchain core (i.e. going it alone)
3. Join a cloud mining service
By joining an Ethereum mining pool, you will experience arguably one of the easiest and most user-friendly ways of participating in the network. Because the pool shares the computational burden, if one person finds the ‘secret number’ then every member of the group will share the reward. The frequency with which blocks are mined depends on how many people participate in the pool, with the distribution of the rewards also depending on the relative size. Not all pools were born equal, however. Before deciding which one to join, consider these following factors:
1. Pool size
2. Minimum payout of group
3. What, if any, pool fee is due
Let’s examine why the pool size is important. In short, the more people there are mining, the greater the chance of getting rewarded. The downside? As more people join the pool, the percentage of the reward you’re allocated gets smaller, as there are more people for the reward to be distributed to. By experimenting with joining different pools you’re more likely to find one that works well for your particular hardware and reward objective. Bigger mining pools are usually a better bet for beginners. Whilst you may get less than 1 reward per 1 block, you will be guaranteed a steady, albeit smaller pay-out.
Minimum payout is the second most important factor to consider, calculated as the smallest amount of Ether your computer has to mine before being transacted to your cryptocurrency wallet. For example, the minimum pay-out may be 1 ETH, which could mean you wait a while before receiving any funds. Depending on your needs, such a pool may not be right for you. Weigh-up your available time vs income needs. Is this a side project for some extra income? Or is it going to be a full-time venture? These and other factors will help steer you to which pool and pay-out size suit your needs best.
Lastly, check the pool fee(s)! This is the fee collected for participating in the pool and goes towards upkeep as well as the administrators of the group. It’s normally deducted automatically and calculated as a percentage of what you’re able to mine. Rates tend to be between 1% and 3%. As the old-wives tales suggest, a free lunch is often too good to be true, so steer clear of 0% fee pools, as the mild reward of no fee is often outweighed by less scrupulous undertakings. Even if a 0% fee pools is supported by voluntary donations, they may be less reliable than fee collecting groups, which are able to absorb running costs more effectively. On the flip side, more than 3% probably demonstrates poor value. Unless such a group offers exceptional benefits, keep shopping around!
Mining alone, or not as part of a pool, can seem like a brave adventure. For a start, you don’t have to share your crypto rewards. When you’re mining alone, you compete with other miners, and only get rewarding if you are the first to solve the cryptographic puzzle. You will, therefore, be competing against a very large network or miners, and companies/organisations that have a large amount of resources at their disposal. In short, you need to get ‘lucky’! If you have a substantial amount of resources, then going it alone can be profitable. However, you will need a substantial amount of hardware – for example over 50 graphics cards (tens of thousands of dollars’ worth). This equipment requires some serious maintenance, with the following to consider:
• Electricity cost. You would have to live under a rock to not know that mining cryptocurrencies, especially ones like Ethereum, can be prohibitively expensive with electricity costs. Depending on the size of the rig, and how the location of your hardware, you could be paying $10’s daily.
• Overheating. Where your hardware becomes too hot and potentially breaks. Repairing equipment is not possible, so the only option, and expensive option is to replace any damaged components.
• Cooling/Ventilation. Fans, water cooling, the artic or even deep-sea containers (!) Cooling is a major and growing problem of sizeable mining rigs.
• Space. Storage, unless owned, adds to the overall costs with rental fees.
Essentially renting someone else’s hardware over the internet. Zero overheads, no risk of costly equipment breaking and repair bills. However potentially vastly reduced profits.
• No equipment repair or replacement costs. You are ‘hiring’ someone to mine for you, and funding a certain proportion or percentage of their output. There are some cloud mining contracts out there that also charge for electricity and repair costs – so, carefully read any arrangements you enter into. It would be a shame to receive a reduced profit AND foot the bill for someone else’s equipment.
• No noisy equipment or rental space to manage.
• A low barrier of entry to the cryptocurrency mining space. Can help provide an invaluable experience which is put towards setting up your own equipment.
• Underlying price of the fundamental currency (Ethereum) can increase during the mining operation – increasing your potential profit.
• Money is often paid up-front. If the underlying cost of Ethereum drops significantly during the process, you will be out of pocket. Volatility, therefore, works against you in this instance.
• No customisation of mining equipment and therefore output.
It’s debatable whether cloud mining has any real use case when compared to just purchasing a portion of the underlying asset and speculating on its appreciative value. The miner, or miners, often receive a fee and are offsetting their equipment costs and inherent instability of Ethereum’s price by receiving this upfront. There is certainly less control than owning the underlying asset, as owning a position gives you the potential to liquidate your position when desired – providing invaluable flexibility. I thoroughly suggest weighing up the pros and cons of cloud mining, taking into account the reduced profit margins compared with the speculative potential of the underlying asset, in this case, Ethereum.
How to pool mine Ethereum – checklist
Let’s go over what you need to mine Ethereum from your computer:
• An Ethereum wallet to hold the cryptocurrency;
• A mining application (Claymore miner);
• A mining pool address if you’re going to mine within a mining pool;
• GPU drivers;
• A graphics card (GPU) with at least 3gb of RAM;
• A compatible operating system (Windows 7 or 10 64bit ).
Get an Ethereum Wallet
Create a digital wallet, which supports Ethereum. Just like keeping your cash and cards in a wallet in real life, you need a digital one for your cryptocurrency. There’s a great guide here.
Update your graphics card firmware
Mining is most profitable when the latest software and firmware is used. Make sure everything is as up-to-date as it can be!
AMD Graphics Cards
If you have an AMD graphics card, you can download the latest drivers for your card right here.
Nvidia Graphics Cards
If you have a Nvidia graphics card, you can download the latest drivers for your card right here.
Watch this video on installing Ethereum Mining Software
Check how much you’ve mined
Every mining pool will have a different user interface. The principles will be the same, however. You’ll need to go to your pools website and type in your public wallet address. Let us use 2miners pool as an example.
You type your public wallet address in the search bar and you’ll be able to see all of the information about your Ethereum mining efforts. In the case of 2miners pool once your balance reaches 0.01 ETH it will get sent to your wallet address that you’ve typed into the start.bat file earlier.
Calculate your profits
• Check how many Megahashes per second your hardware is submitting in your miner(Mh/s)
• Open a mining calculator – like this one.
• Type in your Mh/s, the cost of electricity and power consumption. You’ll get average results based on how much 1 ETH is at the time.
Mining Ethereum not only creates a source of income but also contributes to decentralising the network. It’s also a valuable asset to hold and trade – and may be worth keeping for the foreseeable future if possible. You can google historic prices of the asset on something like www.coinmarketcap.com, to help you decide when to sell some or all of your Ethereum.