Ethereum currently uses mining to add new coins to its outstanding inventory. Participants, known as miners, use the Proof of Work (PoW) mechanism to create a new block by solving complex mathematical equations, although, in the coming years, there are plans to move to the Proof of Stake (PoS) mechanism. A reward is given for creating a new block for the first miner to solve a puzzle.
The other participants verify the block before it is added to the blockchain. Thus, no one can create new coins on the network without miners. You can mine Ethereum either by yourself or through a mining pool. This tutorial will teach you the best way to mine Ethereum profitably.
This section explains what Ethereum mining is all about. It offers tips that miners need to mine the coin profitably. Our goal is to give you all the essential information you need on this topic, including the role of miners in securing the Ethereum network and creating new blocks.
What is Ethereum mining?
The Ethereum network allows miners to add new blocks after an average of about 15 seconds. As a reward, they receive 2 ETH plus gas. They can also get a bonus for updating the Ledger and securing the network.
After successfully solving a mathematical problem, a miner broadcasts this new development to other participants in the network. If 51% or more of the participants agree that the answer is correct, the new block is added to the blockchain. The miners then begin to solve a new problem, and the process continues.
Because of the decentralization, the Ethereum network gives participants a lot of power to control the production of new coins. Nevertheless, the PoW mechanism reduces the risk of mismanagement. More than half of the miners must validate all Ethereum transactions. This means that millions of participants have to make crucial decisions.
Why Ethereum miners are important?
In the previous section, we presented how the Ethereum mining process works. One thing stands out: miners validate transactions and secure the network. In particular, they prevent the problem of double spending.
In decentralized systems, some individuals can take advantage of some loopholes in the network to duplicate transactions. This threat was the reason for the late adoption of cryptocurrencies.
Blockchain technology ensures that all blocks are timestamped and assigned a unique hash (special number). Each block also contains the timestamp of the previous block, which eliminates the risk of changing the time a transaction takes place.
The hash rate increases the reliability of the Ethereum network. As the number of miners on the network increases, its hash rate increases. It also increases the security of the network as more participants are needed to verify transactions and make critical security and management decisions. The Ethereum network, therefore, depends on miners to be secure and continue building its blockchain. Miners should therefore receive block rewards, bonuses, and more for their services.
Limitations of Ethereum mining
ETH is one of the few cryptocurrencies with a fixed issuance schedule. It issues two new circulating coins for every block introduced to the network. The number of active participants, transactions, or market price has no impact on supply.
If supply exceeds demand, ETH could become an inflationary currency. However, the current limited issuance schedule of 2 ETH/block may minimize this risk. In 2019, the fixed issuance schedule was 3 ETH/block. Two years earlier, it was 5 ETH/block. This means that the supply of issuance is steadily decreasing.
ETH does not have a limited number of coins like Bitcoin. However, the supply is capped at 18 million ETH per year. It, therefore, mimics fiat currency. However, since the annual limit does not reflect changing economic factors globally, the crypto could be exposed to inflation. To avoid this, it potentially has a fee-burning mechanism that removes certain coins from circulation, which could be implemented in July 2021.
Ethereum intends to move to Proof of Stake (PoS), which is more cost-effective and energy-efficient than PoW. This move is expected to reduce the emission rate from about 5% to less than 1% per year starting in 2022. In the absence of an increase in total supply under this new model, the value of the wedge could increase as the difficulty of mining increases.
Technical aspects of Ethereum mining are explained
In this section, we cover some of the technical aspects of Ethereum mining. We’ve selected the ones you need to mine the coin profitably, such as hash rate and processing power. This section explains the benefits of a higher hash rate within the Ethereum network and more.
The simplified hashrate for cryptocurrencies
What does hash rate mean?
In simple terms, hashrate is the number of attempts an Ethereum miner can make to create a new block in a given time. It can also be defined as the mining speed. The hashrate determines the computing power of the miners.
When the number of participants within the Ethereum network increases, the hashrate of the entire system also increases. However, when this happens, the proportional hashrate of individual miners decreases.
Why is a higher hashrate important?
As we saw above, a higher hashrate for the network means two different things for the network and the participants. It means an increase in competition for the miners. Thus, they can make limited successful guesses.
At the same time, it means that the network is more secure. If a bad actor intends to attack the Ethereum network when the hashrate is high, he has every chance to fail. It costs too much to control at least half of the miners at those times. In other words, a higher hashrate offers the best protection against 51% attacks and the resulting problems. In addition, it ensures fast validation of transactions.
How is the hashrate measured?
The hashrate is measured in solutions (or hash) per second (h/s). It uses other prefixes such as K (kilo), M (mega), G (Giga), or T (tera) to designate orders of magnitude.
- 1Kh/s means 1 000h/s
- 1 Mh/s means 1 000 Kh/s or 1 000 000 h/s
- 1 Gh/s means 1 000 MH/s, 1 000 0000 Kh/s, or 1 000 000 000 h/s
- 1 Th/s means 1,000 Gh/s, 1,000,000 Mh/s, or 1,000,000,000 Kh/s, or 1,000,000,000 h/s
Ethereum’s hashrate is currently 482,703 TH/s. This figure was calculated using the current average Ethereum network difficulty of over 6,000 TH as of March 28, 2021.
Processing power: CPU & GPU
Due to the high difficulty of the network, network participants no longer use central processing units (CPUs) to mine Ethereum. Their performance is about 5 Mh/s. The use of graphics processing units (GPUs) is increasing, as they can produce at least 68 Mh/s. GPUs can be used for many different hashing algorithms, as they are not specifically designed for one.
The Ethash PoW algorithm used by the crypto-currency is quite resistant to ASICs. Thus, few miners have adopted application-specific integrated circuits (ASICs) despite their incredibly high processing power, up to 110 TH/s. Keep in mind that these machines are custom built and can only be used for one hashing algorithm.
The emergence of FPGAs (Field-programmable Gate Arrays) marked a major change in Ethereum mining. They are capable of 800 Mh/s, highly scalable like GPUs, and affordable. However, the requirement to create the software and digital circuit design has hindered its widespread adoption.