What is Ethereum Mining And How Does It Work?

How Does Ethereum Mining Work? Not only Bitcoin, but also Ethereum can be mined. Ethereum mining is particularly interesting, as it can be mined here with the graphics card (GPU). How Ethereum mining works exactly is illustrated in the following tutorial from Codingcompiler.

What is Ethereum Mining?

  • How does Ethereum mining work?
  • Ethereum Mines itself
  • Ethereum Cloud Mining
  • Ethereum Pool Mining
  • Is Ethereum Mining still worth it?

Relate Article: What is Ethereum?

How does Ethereum mining work?

To validate transactions, they are grouped into blocks, similar to Bitcoin, and finally added to the existing blockchain. This is currently happening through a process called proof-of-work. Every five seconds, a new block is added to the existing Ethereum Blockchain. In the Ethereum network, the Smart Contracts must also be processed, which also falls within the scope of Miner.

The miners group correct transactions into a block and create a hash from the metadata of the block and a so-called nonce. This is a kind of checksum. The nonce is iteratively chosen so that the hash corresponds to a certain given shape called a target.

In order to accomplish the tasks – the validation of the transactions and the smart contracts as well as the creation of blocks – an incentive is created: every miner whose block is selected for the blockchain (ie who first finds a block with the given target) five newly generated ether tokens. At a current price of 200 euros, every five seconds there is a chance of winning 1,000 euros. In addition, that miner receives all accruing mining fees.

Related Article: What is Bitcoin Mining & How Does It Work?

Another incentive for Ethereum Mining is that those Miners whose block has not been selected will still receive a reward (the so-called uncle / aunt reward). The background is that with a short block time of five seconds, the probability of two miners finding a valid block at the same time is relatively high. In order to still financially reward the miner’s work, whose block was not eventually added to the longer blockchain, and to counter mining centralization, this smaller reward of an average of two to three ethers was introduced.

It is important to emphasize at this point that the days of this form of mining for Ethereum are numbered: with an upcoming update, what runs under the name of Casper, is going from a proof-of-work consensus to a so-called proof-of-stake -Consense converted, which no more mining in the classical sense needed. When this will be the case is unclear. It may be that there will be a gradual shift from proof-of-work to proof-of-stake later this year.

But even if this happens, the equipment used to date can continue to deliver profits: Ethereum Classic uses the same proof-of-work mechanism as Ethereum and does not intend to switch to a proof of consensus.

Related Article: What is Bitcoin And How Does It Work?

Why Does Ethereum Mining Need?

As with Bitcoin, there are several ways to participate in the mining process. First, there is the possibility to pay an external provider for cloud mining. On the other hand, Ethereum can also be independently remediated with the right hardware and software.

Ethereum Mines Itself

Of course, Ethereum can also be mined in-house. An important difference to Bitcoin mining, which benefits the Ethereum Miner, lies in the mining process itself: the proof-of-work from Ethereum – called ehash – requires more memory than Bitcoin’s. This stood in the way of development of Ethereum-reducing ASICs for a long time, thus preventing centralization of mining.

Although such ASICs supposedly exist in the meantime, still today most of them are mined with GPUs.

As hardware GPUs are needed. Currently, with respect to the hashrate, the Radeon R9 HD 7990 with 35 MH / s (35 million hashes per second) or the Radeon R9 295 × 2  with 46 MH / s (46 million hashes per second) are recommendable cards.

These cards can be either connected to your own PC or installed in a mining rig to increase the hashrates. Technically savvy miners can do it themselves: multiple GPUs are installed on a motherboard, a hard drive and RAM are connected, and a power supply is connected to the mining-only computer. Since the GPUs get warm when the load increases, it is advisable to use a fan to cool them down. If this is too complicated for you, you can now buy a finished mining rig via Cryptocompare or Gpushack .

The software can be basic Windows or various Linux distributions such as Ubuntu be used. Some work steps can be skipped by installing the (unfortunately not available for free) Linux distribution EthOs , which is designed as the operating system for Ethereum mining rigs.

Regardless of whether you want to work with your own PC or a mining rig, the following software is required:

First, you need Geth , which can be downloaded directly from the Ethereum website. Geth is an Ethereum client that can be used to connect to the network. For the actual mining the Eth Miner is needed.

It’s important to mention that you have to work on the command line here. For the average Linux user, however, this is probably the daily bread. Mac OS X or Windows users, on the other hand, will have to make friends with the cool charm of the command prompt. Should questions arise at one point or another, one can obtain a complete command overview of the two programs via the geth -help or ethminer -h commands.

For Geth you need an account. This requires the geth account new. Now you are asked for a password, which is to be repeated. However, you will not see the password or placeholder for each letter here. Then the blockchain is synchronized. The correct way would be to download the entire Blockchain, which takes a long time. Therefore, one usually only downloads the headers of the blocks. This is done via the following command:

geth -rpc -syncmode = fast -cache = 1024 console

It may be that a firewall wants to block Geth – this would have to be allowed if necessary. The subsequent synchronization takes some time. After the final synchronization ethminer can be started. This is done via this command ethminer -G.

A good tutorial about building a mining rigs and install the necessary software can be here  found .

Although solo mining may be profitable with a large mining rig, for those who have built only a small rig or only want to mine through their PC (or the associated GPU), the achieved hashrate would be higher than the total Network so small that it would not be profitable. Alternatively, pool mining is an option.

Related Article: What is Blockchain and How Does it Work?

Pool Mining

Similar to Bitcoin, there are also mining pools in the Ethereum area. An up-to-date list of existing pools and the distribution of hash rates can be found on the website Etherchain .

Currently, Ethermine is the largest of all Ethereum mining pools. Accordingly, this pool will be considered in more detail below. However, the procedure is analogous to other mining pools.

First write down the address. Earlier, Geth created a new account. In this context, an address was generated, which is now available for this purpose. If you already have a wallet, of course, this can also be used. The purpose of this address is to tell the pool to which address the rewards (ETH units) should be transferred.

The Ethminer described above is started in the case of pool mining with:

ethminer.exe-farm-recheck 200 -G -S eu1.ethermine.org:4444 -FS us1.ethermine.org:4444 -O <your Ethereum address>

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Cloud Mining

While many miners want to earn money by mining, they do not need to purchase, configure, start, and maintain the hardware they need. For all of them, cloud mining is an alternative: here, mining is carried out for a certain fee by external service providers. Payouts are transferred to a specified wallet at regular intervals.

Ultimately, the way to cloud mining Ethereum is the same as Bitcoin:

  • Set up wallet (if not already available)
  • Rent cloud miners
  • Dig Ethereum

A provider for cloud mining is about Genesis mining. In general, it is important to pay close attention to the terms and conditions of cloud mining providers.

Now start Cloudminer

Cloud Mining by: Bitcoin, Ethereum, Dash, Monero and many more.

Is Ethereum Mining worth it?

In addition to the question of how ethereum mining works, another question is extremely relevant: is ethereum mining still worthwhile? In addition to the above-mentioned conversion to proof-of-stake consensus, the expected revenues are to be offset against the acquisition costs of the hardware and the ongoing electricity costs. A big help here are profitability calculators, for example from Crypto Wizzard , which calculate projected profits against electricity consumption and – in the case of pool mining – the pool fees.

In general, it can be stated that ethereum mining is still worthwhile. However, one should always keep an eye on the electricity costs and the increasing difficulty. Just because mining with the current equipment may still be profitable today does not necessarily mean it will be profitable in the future.

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