If you want to get started in crypto, learning Ethereum mining rig basics might be one of your first steps. With an investment in crypto mining, there’s the possibility of earning passive income, diversifying your assets, and learning about the future of financial technology and computing power.
Mining cryptocurrencies is one way to earn passive income and invest in an asset class with massive potential for future growth. But out of the hundreds to thousands of crypto coins out there, which one should you choose?
The price of Ether (the Ethereum network coin) has skyrocketed in recent months to all-time highs. This blockchain-based platform serves as the foundation for many Decentralized Finance (DeFi) applications that peer-to-peer transactions.
DeFi technologies built-in the Ethereum network have the potential to disrupt the modern financial industry by creating new ways to handle financial transactions in the digital era, including Non-Fungible Tokens (NFTs) and peer-to-peer contracts.
Investing in Ethereum
For investors like us, that makes mining Ether an asset to own. While you can undoubtedly purchase Ether using some fiat money and wait for it to appreciate, another way to earn Ether is through a process called mining. We’ll discuss how to mine Ether and the gear and software required for crypto mining.
Some of the same mechanics underpinning Ethereum mining can be applied to other coins like Bitcoin. However, optimizing mining for a specific cryptocurrency will require different hardware, software, and strategies. We’ll also discuss the costs of mining and considerations before investing in a crypto mining rig.
But first things first…
What is Crypto Mining?
To answer this question, we need a general framework for how cryptocurrencies really work while focusing on the specific mechanics of the Ethereum blockchain network. Blockchain technology is the basis for how cryptocurrencies function. As per IBM,
“Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network”
What makes blockchain different from a traditional ledger are two factors: transparency and decentralization. Everyone in the network has a copy of a public and real-time updating ledger, making blockchain a highly transparent way to trace transactions between individuals and businesses. Another innovation from blockchain technology is this idea of decentralization: the network isn’t operated by an individual or group of individuals but is managed by all participants.
Why Do We Need Crypto Miners?
In short, blockchain helps us verify and trace complex transactions securely and transparently. There are other benefits to blockchain technology that we won’t dive into, such as reducing compliance costs, speeding up data transfer processing, and DeFi applications such as managing contracts and managing deeds.
Now there is a need for people to ensure the network’s security, verify transactions, and add new pages to the ledger (in blockchain speak, this is a block). After all, it’s easy to manipulate digital objects, like photos and other files, so why can’t people just manipulate the ledger? This is where miners come in.
The ledger must be up to date with all debits and credits, and people need to sort through the blocks and ensure the transactions are correct. This is what a crypto miner does. Mining is a process where computers worldwide are competing to solve these complicated cryptographic problems to ensure the network is working correctly.
Specifically, once the sequence of transactions has been validated, a new block is added to the ledger. The reward for supplying the time and energy it takes to run these computations is a small payout of crypto.
How Does Ethereum Mining Differ From Bitcoin Mining?
While the general process of the blockchain and mining was first developed with Bitcoin, Ethereum built on Bitcoin’s ideas to fill the need for decentralized financial transactions. There are several distinctions between the Ethereum and Bitcoin mining processes we need to address.
A key difference is the mining protocols used to mine for Bitcoin and Ethereum and how they ensure that their ledgers reach a consensus for the transactions occurring in each network. Bitcoin transactions use the Proof of Work (PoW) system, where several individuals compete worldwide to solve cryptographical problems that will add a block to the Bitcoin blockchain. While PoW is a clever way to ensure that transactions are correct, it requires a lot of redundant processing power across many computers trying to solve the same problem (aka tons of dead dinosaur fuel).
There was a time when Bitcoin mining rigs and Ethereum rigs worked utilizing a PoW system. Recently, Ethereum’s developers issued an update to implement a mining protocol that could scale with their ambitions to be a global DeFi platform.
Proof of Stake
Specifically, the Ethereum network implemented a Proof of Stake (PoS) system, where a network of validators to stake crypto they own for a chance to validate new transactions and earn a reward. This means that the more coins a miner owns, the better the probability they can successfully mine for a block reward.
The good news is the PoS method doesn’t require a competitive pool or a large number of miners to spend electricity competing to solve the same puzzle. Instead, the person who owns the most coins will essentially win. This allows Ethereum to continue validating its network with less energy consumption, more energy efficiency, and less environmental impact.
The update for Ethereum 2.0 (ETH2.0) is called the London hard fork. While this update may end Ethereum mining as a profitable way to get ETH2.0, it will take a few years to fully propagate throughout the entire Ethereum network. This leaves a good option and some opportunities for Ethereum mining to be profitable in the short term while leaving other mining opportunities open for the foreseeable future.
What Do You Need to Mine Ethereum?
From both a hardware and software perspective, there are 5 things you need to mine Ethereum:
- A mining application
- A mining pool address
- A GPU or mining rig
- A crypto wallet
- An operating system
The first thing you need to begin mining Ether is specialized software that works with your GPU mining rig. The software you use depends on the operating system and the type of GPU you have. If using more than six GPUs, the power supply unit should be at least 1400 watts of power. If your rig is four to six GPUs, a 1200W power supply unit (PSU) should be sufficient.
The two main operating systems used to run mining apps are Windows and Linux. For those without programming experience, Windows tends to be more user-friendly for the newer miners. However, as you increase your mining capabilities and seek to automate some processes, Linux would be a more scalable option.
A mining pool is a group of crypto miners that combine computational resources over a network to increase the probability of successfully mining crypto. While joining a mining pool is not necessarily required, your chances of getting Ether as a solo miner are smaller. This is because you are competing against these groups and large corporations that are investing in mining capabilities owning superior computing power with more powerful GPU.
A crypto wallet is a secure place to store the public and private keys associated with the coins you own. Most people store their crypto in a third-party account through a browser such as Binance, in software that keeps the keys offline or with internet access, or through hardware in a storage device.
Ethereum Mining Rigs
The critical hardware you need to begin mining Ether is the mining rig, which is essentially a computer dedicated to mining. Alternatively, you can use GPUs that you may have associated with your computer or gaming system to mine Ethereum.
An Ethereum mining rig consists of the following components that you can purchase separately and assemble:
- Power supply
- Processor – GPU or ASIC miners
While assembling your own mining rig will allow you to customize and scale your mining operations, it will require a certain amount of technical knowledge. The easiest way, and possibly your best option, might be to start mining with a pre-built mining rig.
The All-In-One Ethereum Mining Rig
Vendors like Bitmain offer all-in-one solutions like the Antminer mining rig series. Complete with mining software, the best graphics cards, and a central processing unit. The Antminer is a popular choice and a great way to get the very best performance packed into an all-in-one mining rig.
Processors for your Ethereum Mining Rig Versus other Cryptocurrencies
You may be wondering if it’s possible to use your Ethereum mining rig to mine other cryptocurrencies. The answer is maybe.
Application-Specific Integrated Circuit (ASIC) machines are designed to specifically mine cryptocurrencies. The drawbacks are that you cannot use these machines for anything else other than mining crypto. Still, it may be the only way you can successfully compete against other miners for cases like Bitcoin.
Alternatively, Ether and other cryptocurrencies can also be mined using graphic processing units (GPUs), hardware containing thousands of processing units working parallel. These GPUs are typically found in gaming computers and in computers for training machine learning models. While you will not necessarily have the performance advantage of ASIC machines, you can use your computer for multiple tasks and mine some crypto in your sleep.
You will need to choose between AMD graphics cards or Nvidia GPUs for your Ethereum mining rig. Most graphics cards are from these two manufactures.
Why Mine Ether Instead of Buying It?
Right now, I’m guessing you’re thinking something along the lines of “The process of mining sounds a bit complicated, requires some upfront capital / increased electricity payments, and requires the best GPU that might be sold out – all to get a little Ether. Why should I mine when I can go to Coinbase and just buy some Ether?”
That’s a great question, and I think your excitement and interest in cryptocurrencies will be a huge factor in this decision, as well as other factors that play into the cost of your Ethereum mining rig.
One factor you would need to consider is power usage and electricity costs in your state. For example, the Antminer S17 Pro mining rig is expected to net an income of about $6,765.45 per year, assuming that it costs $0.12 / KWh for electricity in your local area.
Ethereum Mining Rig Power Usage
According to Electric Choice, the average electricity bill is about $0.12 / KWh, and about 30 out of 50 states charge a rate less than or equal to that rate as of October 2021. Rates vary from state to state, so your location can impact your power consumption cost, and therefore the bottom line for your Ethereum mining rig.
Another consideration is whether you already have some hardware that you’d like to repurpose. If you own a GPU or a couple of GPUs right now for other tasks like gaming, you can use the time offline to get some Ether as passive income.
Mining Ether can still be a profitable way to earn passive income, but there are several factors you need to consider before investing in a mining rig.
A useful metric for anyone interested in Ethereum is the mining difficulty. This figure is represented in Terahash, or hashing, which is the amount of processing power a computer uses to build the blockchain. In March of 2021, Eth mining difficulty hit an all-time high of 6,000 Terahash. The higher the mining difficulty, the more miners are working to verify the blocks.
The Future of the Ethereum Mining Rig
As of August 2021, Ethereum upgraded with the London hard fork, which changed the network’s transaction fee model and switched the mining protocol from Proof of Work to Proof of Stake (PoS).
What does this transition to PoS mean for Ethereum miners? Essentially, it means less revenue: what happens is that the ETH transaction fees that once went to miners are now destroyed. Miners will only get the newly minted ETH as their reward. In short, this means mining for ETH2.0 will not be profitable.
While this essentially starts a death clock for Ethereum miners, this doesn’t mean mining will go away. In the short term, miners may start abandoning the Ethereum network, making it easier to mine Ether during this transition to PoS. For the miners that are staying in the game until the network is 100% PoS, they could be more profitable.
The London Hard Fork
Additionally, it is also possible that ETH miners could create a fork of Ethereum that doesn’t use PoS and continue mining in that fork. This is undoubtedly possible with Ethereum Classic, and it has been speculated from other sources that there could be an “Ethereum Classic 2” with dissenters that don’t agree with aspects of the London hard fork.
Even though the London fork has helped the Ethereum network burn gas fees, ETH mining seems to be a little more profitable since the fork because of the high price of Ethereum.
Finally, depending on the processors you have in your Ethereum mining rig, your hardware may be able to be repurposed to mine other cryptocurrencies like Bitcoin, Cardano, or even Dogecoin.