What is Ethereum Mining
The world has gone digital and every of aspect of our lives is going to change. Technology and innovation remain the key factors driving the change. Have you heard as much about Ethereum mining few years ago? What what about space travel, artificial intelligence, smart contracts, cryptocurrencies, decentralisation and other phenomena’s that where born during digital revolution are coming into play.
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One of the main drivers in progress is automation of processes, that aims to increase profitability as well as to promote sustainable development in all spheres of life. The liberal views of decentralisation have brought the birth of cryptocurrencies – the new currencies of the new world. Some people even call it a New World Order.
Ethereum features smart contract functionality and is a tool that aims to make these aspirations into reality. It is blockchain-based distributed computing network which is is public and open-source, It is aiming to disrupt the world and change the way we do things and interact with each other. It also does it in a simple fashion so everyone can apply it in different aspects of life.
What is Ethereum mining and where Ether comes from
Mining of cryptocurrencies, and Ethereum in particular, is computationally highly intensive work. It requires a lot of processing power, time and energy resources. Effectively mining is an act of participation, in consensus, in a peer-to-peer distributed blockchain cryptocurrency network. The miner is rewarded by the system for providing it’s computational power to solve mathematical problems (equations). It is done by putting the computer power to use with appropriate mining applications.
Blockchain is the data block about each cryptocurrency transaction linked internally together. To verify each transaction these blocks must be analysed as fast as possible. This also ensures smooth running of all the transactions on a platform. The issuers of cryptocurrencies do not have enough processing power to handle them on it’s own and this is where the miners come into play.
Mining is essentially compensation for computational power and resources spent. The person mining cryptocurrency devotes his time, computer processing power and energy to solving certain mathematical tasks and sorting through blocks. When the miner solves one such task and hits the hashtag, they will submit their solution to blockchain network and issuer for verification. When the transaction is confirmed as legitimate, the miner receives an reward which is a portion of transaction they helped to verify. Effectively miners receive digital coins for the their work.
Such results of digital mining is called Proof of Work (PoW) concept, where there is a consensus on a blockchain network to reward miners for their work. There are some digital currencies that also depend on Proof of Stake (PoS) concept in addition to Proof of Work.
As many people might think, mining is not some sort of “get rich quickly” scheme where people promised large reward for doing no work. The actual word “mining” originates from the analogy with gold mining, where one had to put a lot of effort to mine the precious metal. The cryptocurrency mining requires a lot of energy and resources and it is simply uneconomical to do it alone on one computer. Before digital coins are produced, some mining requires to take place. Right now the largest mining farms are located in China and Russia, and such mines could combine thousands of computers. Quite often these mines are located near cheap sources of energy and all these mines consume an enormous amount of electricity.
Same mining approach applies to Ethereum, which is the only mean to get it and it is not just the way to increased the volume of Ether in circulation. It also secures Ethereum network as it creates, verifies, publishes and maintains blocks on the blockchain.
Mining Ether ensures the maintenance of the blockchain network, which in turn ensures verification computation. Ether is a product of Ethereum mining and serves as a fuel for running Ethereum platform. Effectively, Ether is used as an incentive and reward to motivate developers to create new good applications for the network.
Ether is often called the fuel to run Ethereum because it is required for every developer who wants to engage and be able to make a use of smart contract on Ethereum blockchain.This is why a lot of developers get involved in mining Ethereum and it also less expensive way to get it rather then buy it. One can also sell the Ether after mining on an open market and generate profit, and that is what a lot of people do.
Another distinct feature of Ethereum is infinite supply. The amount of Ether and network operations were established in 2014 during pre-sale and no more then 18 million Ether gets issued every year. That is roughly 25% of the first issue and this approach is used to reduce inflation.
Every Ether block must be validated in consensus (by more than 50% of the network) and have the Proof of Work of the given difficulty. Esthash is an algorithm used for validation.
It’s main purpose is to identify the nonce input to the result. It must be done in such a way that it is below the threshold determined by the difficulty of the transaction.
Uniform outputs in distribution guarantee that the time required to find a nonce depend on the difficulty. It is possible for miners to manipulate the difficulty allowing them to control how much time they need to find each new block.
The difficulty of the mathematical tasks adjusted in such a way that every 12 seconds new block is produced. It is not possible to rewire and change that history or maintain the fork, thanks to synchronisation. If one attempted to do so, more then half of the computational power of the whole network would be required to perform such action.
Ethereum mining is relatively easy and can be done at home. All you need is a hardware, mining script and knowledge of command prompt. Once you break it down in easy to understand and manageable steps it becomes quite interesting and exciting.
But before we dive into details of Ethereum mining let’s cover the basics first
Ethereum Mining – The Basics
One of the potential downsides of Ethereum mining, as well as Bitcoin and other cryptocurrencies, is that it takes a lot of electricity. Many large mining farms are specifically located near the source of cheap energy and some people are quite creative about it (which we’ll cover in a separate post). If carried out efficiently, Ethereum Mining could generate enough money to cover the electricity and other cost as well as make considerable profit to a miner.
Another important aspect in Ethereum mining is hardware. There are two ways to mine Ether. First is via Central Processing Unit (CPU) which is effectively your computer’s processor. But this method takes too long to produce enough Ether and cost is too high, so most of the people prefer different method, which is using Graphic Card (GPU). This approach is 200 times faster compared to CPU when it comes to mining Ethereum. Also AMD graphic cards seems to be more efficient compared to Nvidia.
Another crucial thing when it comes to mining Ether is hard drive space. You will need at least 50 GB free memory to install blockchain and other software.
Before following the below steps, here are some essential information that you need to be aware of before you start mining Ethereum. As this mining process takes a lot of electricity, you can calculate potential profitability using Ethereum Calculator. This tool allows you to calculate the profits that you can generate from mining by taking into the account electricity cost.
The Ethereum Mining Procedure – step by step guide
Before you start mining Ethereum, you need to Download Geth – an application which serves as a communication hub. Geth will link you to Ethereum platform and will help you to coordinate the set up, including hardware and everything else. It will also report to you any new developments on the network that will require action on your part.
Unarchive Geth. It usually comes in zip file. Transfer this file to HDD and install on C drive.
Open Command Prompt to install Geth. Search for CMD if you are using Windows
‘C:\Users\Username>’ is the display format by the command terminal and usually that is the username placeholder. Type ‘cd/’ into the command prompt terminal to locate Geth; this is a change directory instruction. If you are located in the C: drive ‘C:\>’ should be highlighted.
As the next step you need to create account. Type in ‘geth account new’ followed by an Enter key to make a call to Geth. You should see ‘C:\>geth account new.’ on your command terminal,
At this stage you need to create a password. Make sure you use secure password, using letters (including capitals), numbers, special signs etc. Make sure to remember the password and ideally write it down and keep somewhere safe. Press enter after typing the password and bang! your account is created.
Before anything happens, Geth needs to be connected to the network.
In the command prompt type ‘geth —rpc’. This will start download process for Ethereum blockchain and get your computer synchronised with a global network. This might take some time and will depend on current size of the blockchain network and speed of your internet connection. You need this process is complete before starting Ethereum mining, so be patient and wait.
Download Ethminer. This is mining software that helps your GPU to run hash algorithm that is required on the platform.
Install Ethminer or any other mining software. We recommend Ethminer for heavy lifting, but you can also find alternatives that are ok too.
Repeat Step Four in a command terminal but make sure to change directory command.
In the new terminal window type ‘cd prog’ followed by the tab key. You should see ‘C:\>cd prog’ on display, then press Tab key again to display ‘C:/> cd “Program Files”’. Press Enter to view the ‘C:\Program Files>.’
Go to Ethminer (or other mining software) folder that you created. Type in ‘cd cpp’ then press Tab and Enter. Press Tab one more time and ‘C:\Program Files\cpp-ethereum>.’ message should be displayed on the terminal screen.
Now, after all the installation procedures have been completed, you can start the mining process with GPU.
Type in ‘ethminer –G’ and press Enter key. This will create the DAG ((Directed Acyclic Graph) and start the mining process. DAG is a large file stored in the RAM of your GPU. It is required to make it ASIC (Application Specific Integrated Circuits) resistant. Make sure that you have enough space on hard drive before starting this process.
Ethereum mining – what is next?
At the present time Ethereum uses the Proof of Work (PoW) approach, which was a cornerstone technology in blockchain bitcoin and many other cryptocurrencies. Proof-of-Work means solving complex mathematical tasks in a form of equations, which is the main requirement for a miner in order for his block to be added to the blockchain. This approach been heavily criticised by many people for the environmental damage it causes and massive electric costs that it generates.
However, there is a solution. There is a Dagger Hashimoto algorithm, which allots home computers to mine Ethereum at a minimal cost.
In addition to that, Ethereum is working on introducing a Proof of Stake concept, which will most likely come with new update called Serenity. This will allow to move away from mining entirely and replace it with consensus algorithm.
Right now, the Ethereum network is a massive string of connections maintained by computers all over the world. And the profit that Ethereum mining generates is massive. Many people fear that this opportunity will disappear once blockchain moves to Proof of Stake concept and consensus algorithm. So we advise those who are just curious but haven’t taken any action yet, to start now and think later, otherwise it could be too late.
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