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How Do You Mine Ethereum?

Ethereum, like most cryptocurrencies, relies on the work of Miners. While it’s easy to assume that miners work to generate ether tokens (ETH) so that these tokens do not need to be created by a central issuer, there is more to the process of Mining than this. ETH is generated through the mining process at a fixed rate of 5 ETH per block.

Mining is also essential for a variety of other reasons: it helps to provide a log of the total pool of ETH which is available through the ethereum blockchain, thereby preventing fraudulent activity. It can also be a profitable venture for an individual. Before one can begin the process of mining ETH, though, it’s essential to know a bit about how ethereum mining works. (See also: What Is Ether? Is It the Same as Ethereum?)

Basics of Ethereum Mining

The process of mining for ethereum is very similar to that of bitcoin mining. Miners utilize powerful computers to make educated guesses about complex mathematical problems. This system is known as “proof of work,” because it requires that miners go through the puzzle-solving process in order to receive their ETH reward.

Mining is accomplished by running unique metadata like timestamp and software versions for a block of transactions through a hash function repeatedly. Each repetition alters the “nonce value,” which has an impact on the resulting hash value (a scrambled string of letters and numbers with a fixed length and a random appearance).

If the hash value matches up with the current target for the block, the miner is rewarded with ETH, and the block is transmitted across the network so that each node in the network can validate the process and update the blockchain ledger. Other miners who had previously worked on solving the puzzle will move on to the next block, repeating the process.

The process of mining is slower than the process of verification, which is nearly instantaneous. As a result, miners “find” a block roughly every 15 seconds. Ethereum adds some further stipulations and incentives: if miners develop new tools to find blocks more quickly, the algorithm automatically adjusts to ensure that the mining rate for a single block remains in the 12 to 15 second range. (See also: What is Bitcoin Mining?)

Further, the “ethash” proof-of-work system requires additional computer memory, meaning it’s more difficult for miners to operate with particularly powerful chips called ASICs, and they are incentivized to use other types of computing systems. Ethereum mining is likely to shift in the future, however, as the network aims to transition to a “proof of stake” system which would upend the mining process as it currently exists. 

Tools for Ethereum Mining

Because ethereum mining requires a lot of electricity, it is a constant struggle for miners to achieve efficient means of mining so that they are able to earn more money by selling ETH they earn than they spend on electricity and rig equipment. Personal computers with a graphics card and at least 3 GB of RAM are necessary. 

A GPU system is preferable to a Central Processing Unit (CPU) system, as graphic card setups are significantly faster (by about 200 times) than CPUs. The reason for this is that GPUs have a higher hash rate, meaning they are able to input “guesses” to the block puzzles more quickly. Further, AMD cards are generally seen as more efficient than Nvidia cards as well.

A standard setup usually consists of 6 video cards (3 GB minimum, although 4 GB is preferable), 6 risers to connect the graphic cards to the motherboard, a motherboard with adequate slots for the risers, CPU, memory setups, a power supply with at least 80% of maximum capacity, a hard drive or solid state drive, and miscellaneous equipment like an ethernet cable, a power button for the motherboard, and fans for keeping the system cool.

A system of this type typically generates around 0.5ETH per month. Most miners spend time researching and planning as they determine which specific products to use for each of the above categories.

(Image source: ethereumnoobs.com)

Software, Testing, and Other Considerations

With the hardware for an ethereum mining rig in place, the next step is to make use of mining software. Geth is a common application in this process. It is written in the scripting language “Go” and is a communications hub application which allows you to link your mining rig to the broader ethereum network. It has the added benefit of assisting miners in setting up their rigs and alerting them of any new development which requires changes to the rig itself. (See also: Ethereum Fans Build Their Own Rigs to Mine Cryptocurrency.)

Once downloaded, geth should be unzipped and transferred to the rig drive. Miners must use the command prompt to execute the application once it is installed. For Windows users, ‘C:UsersUsername> is typically the display format for the command terminal. Locate geth and create an account.

With geth installed and set up, your rig will be a “node” in the network and will be capable of communicating with other nodes. This is an essential step in mining ethereum, as it allows you to deploy your own smart contracts and to send transactions across the network. However, you’ll still need mining software in order to proceed.

Geth will allow you to conduct mining tests on your own network so that you can experiment with the use of smart contracts or other decentralized applications which require tokens. However, these fake ETH tokens will not be useful outside of your rig, and they are worthless. A common piece of mining software is Ethminer, available for download online. Ethminer allows your node to officially be a part of the broader ethereum network, meaning that ETH you mine will be validated.

Even with your hardware, geth, and Ethminer set up, you’re unlikely to be able to actually mine ether on your own. The reason for this is that your device will simply not be able to compete with the hash rates of much larger systems and networks of miners. For that reason, most ethereum miners join a mining pool. By pooling together computational power, these miners increase their chances of solving block puzzles and thus earning ether. At the same time, the profitability for each individual goes down, as the profits are split proportionally, with those miners able to provide more computing power receiving a greater share.

Mining pools exist in a variety of forms, and many have different types of payout structures. They are typically headquartered on the internet, where prospective partners can learn about the benefits and drawbacks of each pool and petition to join. Nonetheless, there is no guarantee that any particular mining pool will continue to thrive or even to exist, so miners are cautioned to do their research and select carefully before joining any specific pool.

Benefits of Ethereum Mining

Besides the financial rewards of mining ETH, there are also longer-term and more broad benefits to the cryptocurrency industry. While decentralized networks already offer advantages including security and immutability, ethereum allows the creation of applications relying on the blockchain network with a level of ease previously unheard of.

As the fuel for the ethereum network, ETH tokens allow for these applications to run smoothly, ensuring the network continues to grow and develop over time.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest incryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns cryptocurrencies.

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How Do You Mine Ethereum?

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