Ethereum is a digital platform that runs on blockchain technology. Everybody knows it for the smart contract functionality and native cryptocurrency ether it offers. The main aim of this Ethereum network is to enable dApps just like marketplaces for the non-fungible tokens or NFTs.
The transactions conducted within the programs could be publicly distributed. They don’t need a central authority for governance. Therefore the Ethereum network needs a system of computers to compile as well as verify every batch of transactions within that platform’s blockchain.
That is where mining becomes essential. The miners use the computing power of dedicated hardware in order to solve any complex puzzle. This process lets the network function smoothly and protects it from hacking and other malware attacks. In return for their services, the miners get a transaction fee- an amount that is decided in advance and is provided on successful validation of one block.
The Ethereum network is going to move to a different incentive model, which is known as proof of stake (PoS), in 2022. But if you wish to explore Ethereum mining, this is the basic setup process and their best practices.
How To Mine Ethereum
Step 1: Pick Your Mining Approach
At present, there are three approaches to Ethereum mining:
- Pool mining
- Solo mining
- Cloud mining
The simplest method to mine ether is Pool mining, especially if you do not have much hardware. This is because mining of Ethereum has become quite complicated and time-consuming as many coins are entering circulation.
Pool mining allows the miners to combine the collective computing power and solve the Ethereum blocks in less time. The rewards are then split in between the group depending on the power contribution, which we measure by hashpower.
Solo mining is also complex and needs a lot of hash power. To solve the puzzles in a realistic amount of time, you should have a farm of elaborate mining rigs that is powered by dozens of graphic cards. In case you choose this route, you should consider the spatial and financial implications as well.
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Apart from the equipment costs, you also have to check factors like noise, electricity costs, ventilation, and physical space.
It is for these reasons that solo mining is recommended only for the professional miners that are going to make a considerable capital investment. Having said that, this approach could be more profitable as you can easily avoid fees and shared profits.
Cloud mining is the most straightforward mining approach in the context of the barrier to entry. In this approach, you do not have to buy a fancy system or commit the personal computer to mine. On the other hand, you can pay another miner an upfront fee so that he mines the coins for you. They will do the mining, and you get the newly minted coins.
But if you rent any other miner’s computer power, you can introduce additional risks like scams and frauds. If you do not provide this service to a trustworthy miner, they may just take your payment and run away.
Step 2: Open A Crypto Wallet
Cryptocurrency is digital, so do not think about the loose coins. But you require something to show the holdings. This is where the crypto wallets become essential.
These crypto wallets will store your coins just like a bank account houses the paychecks. There are usually two types of wallets: hardware and software wallets.
- Hardware Wallets: These are physical devices that are also known as “cold wallets.” These look like high-tech USBS and store your crypto accounts’ private keys offline.
- Software Wallets: The digital programs that house your crypto need an internet connection to get access to them. The wallets require both public and private keys.
There are both pros and cons to each. The hardware wallets are considered as safe as they are not linked to any online platform. Having said that, they are more expensive and less convenient than a software wallet.
On the flip side, the software wallets are much more convenient, and you can access them either through the mobile app or web browser. On the other hand, it means they become more prone to hacking than an offline wallet.
Whatever their type, the wallets have two crucial keys with different purposes. The first one is a public key that allows the other parties to transact with the wallet. The second one is a private key that will grant you access to the wallet. As the name itself suggests, you should protect this private key, or else someone else can steal your funds.
If you want to mine ether, you will require an Ethereum wallet. Once you have opened a wallet, you will get a public key that you could use during the mining configuration process. For example, if you join the mining pool, you could link the wallet and get periodic coin distributions that are dependent on your power contribution to this pool.
Step 3: Make Sure You Have The right Hardware And Software
Before you begin mining ether, you must set up your infrastructure. Mining any cryptocurrency needs loads of computing power. So you require a strong computer or “rig” in case you wish to mine your ether successfully. The hardware setup mostly depends on the mining approach you choose.
If you are just a casual miner, you could join a mining pool. In such a situation, you will require the following:
- A computer or mining rig has one or more graphics processing units or GPUs.
- An Ethereum mining operating system which can differ in terms of functionality and ease of use.
- The GPU drivers allow communication between the graphics card and the operating system.
- A wallet could be a physical device or a digital program that could store your rewards.
On the flip side, if you want to be a hardcore miner and only want to do solo mining, you might have to set a considerable sum for the equipment, not to forget the physical storage space. While you can still choose to load up the GPU, you could also pick up a costly but efficient alternative called “Application-Specific Integrated Circuit (ASIC) mining.”
ASIC mining rigs are designed with the sole goal to mine the crypto. It is for this reason that they are able to generate more computing power and solve all the blocks in less time. But there can be trade-offs, and ASICs could retail for thousands of dollars, thus creating a barrier to entry for any average miner.
The Application-Specific Integrated Circuit (ASIC) could also consume higher power than the GPU’s which could drive up the electricity bills. Over that, the ASICs are optimized for a particular coin like Bitcoin or Ethereum- but GPUs could mine any coin.
Step 4: Choose A Mining Pool
If you are going to invest in small amounts, then a mining pool is the easiest way to get into crypto mining. But it is still good for the new miners to check their pool options before proceeding further.
Pools could differ in structure, like the pool size, hash rate, fees, and payout. For example, at present, Ethermine has nearly 400,000 miners while 2miners has around 80,000. This checks the pool’s block solving ability and also its payout. But there are other pools from which you can pick. You may use PoolWatch to compare and oversee all the active Ethereum mining pools.
Have a look at the common mining factors:
- Pool Size: This is the total number of miners in the pool
- Hashrate: We have already told you that the hashrate combines the computing power of this mining pool.
- Minimum payout: The amount needed before you can collect your ether rewards
- Payout method: This is the pool’s process to reward the members
- Fees: This is the pool administrator’s payment for running the pool. It is usually a fixed percentage that is collected from every block that is solved.
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Step 5: Reap Your Rewards
Now is the time for the hard work to pay off. Once the mining operation is set up and the wallet is configured, you may collect the ether passively. If you are a member of any mining pool, you should receive your payouts in installments based on how many blocks solving you have accomplished as a group. Most of the mining pools have an online dashboard that the user could access to analyze their mining performance, like the efficiency and yield.
In simple terms, a significant factor in the mining of any crypto is the thought that this coin will increase in value. So at the point at later also, you will have to manage the crypto holdings. In simple terms, you will not only be a crypto miner as well as an investor.
Though Ethereum is a rather popular cryptocurrency, there are some pros and cons to mining ether. The platform has developed in terms of development and application; the NFT marketplaces are a classic example of the same.
Apart from that, Ethereum has got a lot of attention from both miners and investors. If you aim to take advantage of Ethereum’s scope, you should think of buying it instead of mining.
It is also essential to monitor any changes to this Ethereum protocol. Ethereum is a decentralized platform, and its developers will update the mechanics frequently, which may affect the block validation procedures and mining profitability.
Before you decide to invest time and money into the mining of ether, think of any announced updates made to the network.