The popularity surrounding Ethereum mining and cryptocurrency is only increasing as time wears on crypto regulations in South Africa may be a little more behind on regulating the processes associated with it, as Cryptocurrency itself cannot be regulated in its entirety, but more provision is being made to accommodate it.
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Choose your quick section of our Ethereum Mining – the ultimate beginners step-by-step guide below.
A Quick Overview of our Ethereum Mining Review:
- ✔️Understanding Ethereum
- ✔️The workings of Ethereum
- ✔️Understanding Ether
- A short overview of Ethereum mining
- The value of mining Ether
- Factors affecting the profitability of mining Ether
- Ether mining using GPU, FPGA, or ASIC hardware
- A guide to setting up an Ether farm
- Ways to mine Ethereum
- Mining Ethereum on a PC: step by step guide
Here is a more in-depth look at Ethereum mining, the various way to mine Ether, setup and what is required when mining this cryptocurrency.
Understanding Ethereum
Ethereum is the second-largest cryptocurrency platform by market capitalization, behind Bitcoin. It is a decentralized open source blockchain featuring smart contract functionality.
As such, Ethereum is an open-source platform that uses blockchain technology to create and run decentralized digital applications, or “dapps” that enable users to make agreements and conduct transactions directly with each other.
Importantly, these transactions enable users to buy, sell and trade goods and services without a middle man.
As an example of this, users can bypass banks to transfer money, skip using a lawyer to draw up a sales contract and launch their own fundraising site for project crowdsale rather than going through a crowdfunding Internet site.
Ethereum operates across a global network of computers that work in combination to form a supercomputer. The network assembles and runs smart contracts.
Smart contracts are essentially applications that are, in theory, independent from any third party interference or censorship, so that the blockchain is resistant to tampering.
Smart contracts run exactly as programmed, which greatly reduces the risk of fraud, and because they are self-executing they run like an automat or vending machine that carries out the contract terms digitally.
Once certain conditions are proven to have been met, such as the transfer of a payment, then the merchandise is conveyed or made accessible to the buyers.
The difference between the way Ethereum operates and the way the internet operates is that all of these agreements and all the data pertaining to a transaction are stored in individual blockchain ledgers.
With the internet, data I stored not in a central warehouse like Google’s (GOOGL) – Get Report cloud or Facebook’s (FB) – Get Report servers, so it isn’t as likely to be compromised by a data breach.
It is costly and consumers a high amount of power to run the computers that execute code, and to mitigate these factors, Ethereum created Ether.
Ether is the cryptocurrency of Ethereum, and was also created in order to incentivize programmers to run the Ethereum protocol on their computers.
These programmers are compensated in virtual Ether coins for contributing resources and writing quality applications so the network remains functional, much as with the Bitcoin mining setup.
The workings of Ethereum
Developed on the basis of the blockchain technology, Ethereum consists of a series of cryptographic, or secure, public records linked together.
Each of these records are very difficult to change because they are stamped with user data, time and date and any changes must be approved by all users.
On the ledger, anyone can create a financial contract or keep debt or ownership registries and eliminate the use of an external record keeper or trust officer.
To this end, these processes are referred to “trustless” transactions because they eliminate the need for trusting the counterparty to the transaction since the contract is self-fulfilling.
For any changes to be made to the platform, there must be a distributed consensus among the software users.
Understanding Ether
Ether debuted in a July 2014 initial coin offering (ICO), pricing at about 40 cents a coin. At its height, the cryptocurrency hit a record intraday high of $1,417.38.
Running the computers that execute code to power dapps is costly and consumes a lot of power, so Ethereum created Ether – its cryptocurrency – in order to incentivize programmers to run the Ethereum protocol on their computers.
Those programmers are compensated in virtual Ether coins for contributing resources and writing quality applications so the network remains healthy.
Just as Bitcoin miners get paid to maintain the Bitcoin blockchain by solving computational problems that allow them to add transactions to the public ledger, developers also use ether to pay to build and launch a smart contract on the Ethereum platform.
These miners are awarded 3 ether for each new block they add to the ledger. Ether is also for users who want to access smart contracts on the Ethereum blockchain.
A short overview of Ethereum mining
In simple terms, cryptocurrency mining is a process which involves solving complex mathematical problems.
To this end, miners form the fundamental basis of many cryptocurrency networks as they spend their time and computing power to solve those mathematical problems.
In the process, these miners provide a so-called “proof-of-work” for the network, which verifies Ether (ETH) transactions.
Added to this, miners are responsible for creating new Ether tokens through this process, since they receive rewards in Ether for successfully completing a PoW task.
Delivering adequate PoW relies on fundamental properties of the hash function, which is an “encrypted” piece of data that is procedurally derived from some arbitrary input.
The difference between hashes and standard encryption is that the process is one directional.
The only meaningful way to determine which input was used to generate a given hash is to try to hash all possible input combinations and see which one fits.
This process is further complicated by the fact that tiny alterations in initial data will produce completely different results.
Proof-of-work starts by designating a list of desired hashes based on the “difficulty” parameter.
Miners must brute force a combination of parameters, including the previous block’s hash, to create a hash that satisfies the conditions imposed by difficulty.
This is an energy-intensive task that can be easily regulated by turning difficulty higher or lower.
Miners have a certain “hash rate” that defines how many combinations they try in one second, and the more miners participate, the harder it is to replicate the network for outside entities. By putting real work in, miners secure the network.
The value of mining Ether
Mining turns the act of securing a network into a complex but usually rather profitable business, making the primary motivation for mining that of earning a profit.
As such, miners receive a certain reward for each block, as well as any transaction fees paid by users.
There are also some other reasons as to why individuals tend to mine Ether. For example, certain altruistic community members could decide to mine at a loss just to contribute to securing the network, as every additional hash counts.
Furthermore, mining can also be useful to acquire Ether without having to directly invest in the asset.
Lastly, an unconventional use for home mining is a form of cheaper heating. Mining devices turn electricity into cryptocurrency and heat — even if the cryptocurrency is worth less than the cost of energy, the heat on its own could be useful for people living in colder climates.
Factors affecting the profitability of mining Ether
The potentially profitability of any type or cryptocurrency mining will depend entirely on the cost of electricity in a given area.
As a general rule, anything below $0.12 per kilowatt consumed in an hour is likely to be profitable, though prices below $0.06 are recommended to make mining a truly viable economic pursuit.
As such, these figures would make most home mining attempts unprofitable, especially in developed countries where electricity prices are generally above $0.20.
Even though it may still be possible to turn a profit with such prices, the return on capital could be severely impacted.
As a working example of this, a mining operation that costs $3,000 and generates $200 per month in revenue, of which $45 is spent on electricity at $0.05/kWh, will take 19 months to repay itself.
The same miner used in an area where electricity costs $0.20/KWh will be repaid in 150 months, or over 12 years.
Professional miners can gain the upper hand by moving their operations into regions that offer the cheapest electricity as well as by taking advantage of the generally lower rates reserved for industries.
As such, these are actually some of the primary reasons why mining has turned into a serious and capital-intensive industry.
That said, mining Ether at home is still accessible for most individuals, particularly due to the fact that it can be done with consumer graphics cards made by AMD and Nvidia, amongst others.
For those miners living in regions with low electricity prices, mining can turn into a strong source of income. To this end, a variety of online calculators exist which are able to outline the type of profits which can be expected.
These calculators provide an estimate of how much a miner can expect to make in a day.
In essence, a miner’s revenue is the total issuance of the network multiplied by their share of the network’s total hash rate.
To make a profit, the miner will need to subtract the cost of the electricity used by the mining operation. For example, a device using 1.5 kWh of electricity at a price of $0.10 will cost $3.6 per day.
The key to successful mining is maximizing the hash rate while minimizing electricity and hardware costs. Therefore, in addition to location, the choice of mining hardware is crucial for mining.
Ether mining using GPU, FPGA, or ASIC hardware
Ether was designed as a coin that could only be mined with consumer graphics processing units, also known as GPUs.
This makes it somewhat different with Bitcoin mining, which can only be mined effectively with specialized devices commonly referred to as application-specific integrated circuit machines, or ASICs.
These ASIC devices are hardwired to only do one task, which allows them to achieve much higher efficiency than more generic computational hardware.
Making a mining algorithm that is “ASIC-resistant” is theoretically impossible and very hard in practice as well.
As a result of this factor, ASICs designed for Ethereum’s mining algorithm, Ethash, were eventually released in 2018.
However, these miners offer a relatively modest improvement over GPUs in terms of hashing efficiency. By contrast, ASICs for Bitcoin are substantially more efficient than GPUs due to the specifics of its mining algorithm.
Another type of specialized mining device is the FPGA, which stands for field-programmable gate array.
These create something of a meeting point between ASICs and GPUs, allowing some form of configurability while still being more efficient than GPUs at particular types of computations.
It is possible and financially feasible to mine Ether with all of these devices, but not all are the most practical solution or make the most sense.
For example, FPGAs are inferior to GPUs in most instances. This is because they are expensive and very complex devices that require advanced technical knowledge to be used effectively.
As such, the reward may not be worthwhile for most users, as their mining performance remains very close to that of leading GPUs.
Ether ASICs provide a measurable performance boost over graphics cards but carry a host of drawbacks when practically applied.
The most important concern is that ASICs can only mine Ether and a few other coins based on the same hashing algorithm.
GPUs can mine many other coins and, if push comes to shove, can be resold to gamers or used to build a gaming PC.
Additionally, ASICs are harder to source, as not many outlets sell them, while buying directly from manufacturers may require high order quantities and long waiting times.
In conclusion, for the amateur or hobbyist home miner, GPUs remain the most sensible choice due to their flexibility and relatively good performance for the price at which they are available.
A guide to setting up an Ether farm
Successful mining requires careful planning and attention to avoid mishaps and unfortunate results. As such, all computers present a potential fire hazard, and this risk is magnified in mining due to the constant usage and high energy outputs involved.
For in-home mining settings, it is therefore vital not to overload the domestic electric grid with an excessive power draw.
The grid as a whole and each single-socket are only rated for a certain maximum power, and mining devices can easily surpass those thresholds. The wiring could fail and overheat, posing an immediate fire hazard.
If you are a beginner, it could be helpful in this case to first consult experts to evaluate the safety of your setup.
Choosing high-quality power supply units with ample power rating margins is highly recommended to protect from power surges and other electrical issues.
For GPU and FPGA mining rigs, there are several key hardware requirements for mining Ether effectively.
Investing in specialized motherboards, such as the Asrock X370 Pro BTC+ or the Gigabyte GA-B250-FinTech, can be very worthwhile, as they are optimized for mining.
Each motherboard may support up to 14 GPUs, which is normally impossible on standard motherboards.
The motherboard should be paired with a sufficient amount of RAM, 8 or 16 gigabytes, and at least 256GB of drive storage. The latter part is very important as Ether mining requires a lot of runtime memory, at least 4GB per GPU.
Through an operating system trick called pagefile caching, this requirement can be offloaded to the much cheaper permanent storage with no performance loss.
The GPU’s own RAM must also be at least 6GB to account for the growing DAG, a key mechanism of the Ethash algorithm.
The DAG, which stands for directed acyclic graph, is a large dataset used to compute the hashes for mining Ether. Mining hardware must have enough memory capacity to store it.
The dataset grows at a rate of approximately 1GB every two years for Ether, though other coins may have different growth rates.
Four-gigabyte devices will have been completely unusable by the end of 2025, while 6GB-cards are likely to have been depreciated by 2025. Again, online calculators can help evaluate the exact time schedule.
The central processing unit can be as cheap as necessary, as it has no relevance to GPU mining. Multiple-GPU setups are likely to require risers, an adapter to allow GPUs to be connected to the motherboard.
The mining rig case should be open and wide enough to allow air circulation.
In terms of the operating system, Windows and Linux are both valid options, though Linux may require more command-line interactions to set up.
It is vital to optimize the GPUs in terms of clock speed, power usage and memory timings to achieve the figures outlined earlier, but a full roundup is outside of the scope of this guide.
The most straightforward way to mine Ether is by joining one of many mining pools like SparkPool, Nanopool, F2Pool and many others.
These allow miners to have a constant stream of income instead of a random chance of finding a whole block once in a while.
Popular mining software includes Ethminer, Claymore and Phoenix. It may be worth testing each one to see which is faster for your specific configuration.
Finally, the devices should be regularly maintained, cleaned and dusted to keep the hardware in good standing.
Ways to mine Ethereum
Pool Mining
Ethereum mining by participating in a pool is the easiest and fastest way to get started. With pool mining, you will work in consort with other miners, all of whom are mining within a single pool.
As such, all the pool miners agree that if one of them finds the secret number, they will share rewards with everyone.
The amount of times these groups find blocks and share rewards depends on the pool size. However, it is important to remember that not all pools are created equally.
As such, before joining a pool, it is important to take the following factors into consideration:
- Pool size
- Minimum Payout
- Pool fee
Pool size is important to determine because as the number of people that mine increases, so do the correlating chances of receiving awards. That, as more people join the pool, the size of the awards become more diminished as well.
As such, it is important to test different pools before you find the one that best works for your computer. Joining big cryptocurrency mining pools is usually a safer choice.
While you might receive fewer rewards per block with larger pools, these will still come more regularly than with smaller pools, where miners can go up to a week without receiving any awards.
Next, it is also important to examine the minimum payout, which is the smallest amount of Ether you will need to mine before it gets sent to your wallet.
For example, if the minimum payout is 1 ETH, you will need to stay in the same pool for a long time before receiving your cryptocurrency.
Pools with large minimum payouts are not beneficial to you. You should try to find pools with a small minimum payout, in order to receive as frequent a payout as possible, without having to commit your time to a single mining pool for too long.
As such, affording yourself the flexibility to switch between different cryptocurrency mining pools is essential to success in the long term.
Every pool has a fee associated with it. You have to pay a small amount in order to be able to continue using the pool.
This amount is deducted automatically, and the payments are percentage based, and are calculated into the cryptocurrency you are mining.
The amount you have to pay usually differs from 1% to 3%. You should look for a pool with around 1% fee as these are far more reliable than 0% fee pools.
Operating a mining pool is a full-time job and computing and data centre space can be quite expensive.
0% fee pools are usually supported by donations, making them less stable than pools with a fee to cover the costs.
On the other hand, if the pool fee is higher than 3%, you should consider looking for another option.
Mining independently
Mining independently comes with some definite pros, but also with several cons which the beginner miner would do well to consider.
As such, mining Ethereum alone means that you are essentially competing with other miners and will only receive rewards if you are the first one to solve the math puzzle.
Since you are competing with a very large network of people and companies that have a strong set of resources, you would need to get very lucky very often.
Mining alone is only profitable for those who have plenty of resources at their disposal, which can mean up to over 100 graphics cards alone.
That said, being able to harness this much computing power also has its own disadvantages, which include the following:
- Heating problems. If your equipment gets too hot, it could break. Once your equipment breaks, it’s usually not worth the cost to repair it. You would need to spend more money to replace your mining rig and fix the heating issues.
- Ventilation. To keep everything working correctly, you would need to have a lot of fans moving air very quickly. As already mentioned above, heating is a presents a significant challenge.
- Noise. All the fans that are spinning and cooling down your equipment would generate a lot of noise, resulting in a very loud environment, so that you would typically need to conduct your mining in a warehouse or other remote location.
- Electricity costs. Having so much equipment use power at the same time would use up a lot of electricity.
For example, with only ten graphics cards you would spend around 3-4 dollars on electricity per day. This would need to be increased to up to 100 cards to stay competitive.
Space. Finding the right location to store over 100 Ethereum mining rigs is not something that is available to most people, particularly beginners.
Cloud Mining
When participating in cloud mining, individuals essentially pay other participants to mine on their behalf, and essentially works by renting mining time from other people, and receiving all the rewards which they mine in return.
Cloud mining also comes with some distinctive pros and cons, which are described in more detail below.
Pros
- You are not responsible for any equipment that breaks. Once you pay someone to mine for you, you’re buying a certain amount of work that has to be done.
- And all of the repair costs are not your responsibility. However, be careful, some companies will make you pay for electricity and repair costs. Read the contracts carefully and avoid this.
- You don’t have to keep a significant amount of noisy equipment in your home or warehouse.
Cons
- You pay the money up-front if Ethereum price drops, you won’t have a chance to get your money back. And you’re stuck with the mining work you bought.
- You can’t change the mining software and hardware that the cloud mining provider uses.
As such, cloud mining is a safe way for mining providers to guarantee themselves profit for the equipment they have purchased.
The cryptocurrency price does not affect them because you pay them in advance. Therefore, when you buy cloud mining services, you do not have to deal with any of the complications that come with setting up your own Ethereum mining rig.
In an ideal situation, cloud mining is less profitable than mining yourself.
Mining Ethereum on a PC: step by step guide
The whole process of getting a wallet setup, downloading your miner, configuring things in Windows and setting up your batch file to run should take less than 10 minutes.
Install Drivers
Click the Download button for the current driver. Alternatively, choose “Download Previous Drivers & Software” on the right hand side to choose older versions.
Install your GPU Drivers like you normally would (Next, next, Ok, etc.) and reboot. You know your GPUs are recognized correctly if you go into Device Manager (search in Windows search bar) and you don’t see any warning marks on your GPUs.
Set up your wallet
Open the Ethereum wallet and generate a new account and contract based wallet. This wallet will contain the payout address to which you’ll receive mining rewards from your pool or directly from the blockchain.
Add your new account, give it a memorable mining name. Store the password securely. After generating the Account, add a wallet and write down or copy to a text file the unique address.
This address will start with the characters “0x”. It’s necessary for receiving ETH mining rewards.
Download Miner
Download the current version of your selected mining software from the Google or Mega download links provided. Once downloaded, extract the folder to your Desktop for easy access.
Windows settings
Some settings should be modified in Windows to get you ready for mining: First, you don’t want your computer to go to Sleep as it will interrupt your mining so go into your Power Settings and set it to “Never” turn off/sleep.
To minimize the disruptions to your mining and settings you may want to also disable Windows Updates.
Join a mining pool
The next step is to set up pool-mining, as solo-mining is unlikely to make you any Ethereum unless you have a warehouse full of GPUs.
Start mining
Double click your Bat file to start the miner (if using the Ethermine mining pool). The miner will start, run the set commands to set those environment variables, initialize each of your GPU’s, build the DAG file on each of your GPU’s and start hashing away.
Let it run for about 20 seconds and then click “s” to display your Hashing speed.
Conclusion
While Bitcoin aims to disrupt PayPal and online banking, Ethereum has the goal of using a blockchain to replace internet third parties — those that store data, transfer mortgages and keep track of complex financial instruments.
At its core, Ethereum works very similar to Bitcoin. It’s a decentralized ledger that is verified and updated by participants of the Ethereum network. Ethereum is requires mining just like Bitcoin.
The only way to update a new block of Ethereum transactions is by mining that block. However, while conceptually the two are much alike, there are significant technical differences.
Some are more obvious; for example, Ethereum blocks are added every 15 seconds (on average) while Bitcoin blocks which are added every 10 minutes (on average).
As a reward, Ethereum miners receive Ether all transaction and code-processing fees (aka gas) contained in their block, plus a possible bonus for any uncles they include.
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