Is it Wise to Mine Ethereum in 2020/21?
Cryptocurrency mining involves solving complex mathematical problems and miners are the cornerstones of many cryptocurrency networks. They spend their time and computing power solving these challenges and providing a ‘proof-of-work’ for the network, which then verifies the ETH transactions. Additionally, miners are responsible for generating new Ether tokens through the mining process, for which they receive rewards in ETH for successfully completing the PoW task. The miner mines a new block while competing with fellow miners by running a hashing script — to create a hash to satisfy the conditions based on the ‘difficulty’ parameter. The energy-intensive task can be regulated by turning the difficulty lower or higher.
If you want to dive into ETH mining in the coming year and aren’t sure if it’s the most profitable thing to do, read on!
Why is ETH Mining So Popular?
More than 67% of users choose ETH, and it is one of the most popular coins as per the Hive OS statistics. The reason lies in the high and steady growing price of ETH (that was at $200 for a long time and has more than doubled now) and the market capacity (coins generated per day). ETH mining is considered profitable for owners of large mining farms as well as for home miners.
Mining helps turn the act of securing a network into a complex and profitable business. The primary motivation for mining is to make money. As miners get a certain reward for every block along with the transaction fees paid by the user, it’s a desirable opportunity for many. A few altruistic community members would also consider mining at a loss to make sure the network is secure as every additional hash matters. Plus, mining can help acquire ETH without having to directly invest in it.
Another unconventional reason people mine is that mining devices convert electricity into cryptocurrency and heat. So even if the cryptocurrency is worth less than the electricity cost, the heat is useful for people living in colder regions.
Will Mining ETH be Profitable in 2020/21?
Whether any kind of mining is profitable depends on the cost of electricity in any given area. A rule of thumb is that anything below $0.12/kWhr is likely to be profitable but prices below $0.06/kWhr make mining a truly economical enterprise. Home miners in developing countries where the cost is more than $0.20 may not find mining as profitable. On the contrary, professional miners get the edge if they can move to regions with lower electricity costs or take advantage of the low rates that are reserved for industries.
As more miners are joining the process, it is expected that the cost will move up and more computing power, electricity, and the software will be needed.
Building an Ethereum Mining Rig
Building the mining rig can be expensive for a home miner or a first-time miner. This includes a Motherboard, four to six GPUs that mine around 40 MH/s each, Hard Drive/SSD, RAM and Power Supply Unit. The total cost of the hardware will come to around $3000.
A miner that costs $3000 generates $200 in revenue per month and uses $90 in electricity at $0.10/kWhr will take around 27 months to repay itself.
Luckily, this year, the profit margins for ETH miners have soared to new highs. As per the research from BitInfoCharts, the daily profitability for ETH miner operators is at $5.8 per 100 MH/s of computing power. The growth in profitability is a result of higher transaction fees brought on by the DeFi activities on ETH and the price surge of the cryptocurrency. In areas where electricity cost is $0.05/kWhr, most of the ETH mining equipment can operate at a profit margin above 90% and state-of-the-art equipment can bring in profit margins as high as 97%. Just in the month of July 2020, the profitability metric soared by 60%.
Sounds like a promising opportunity, right?
Three Ways to Mine Ethereum
You can consider pool mining, mining alone, or use cloud mining services to mine Ethereum but ETH mining in a pool is often considered the easiest and the fastest way to get started. In the pool, everyone agrees that if one of them finds the secret “combination”, they will share the rewards with everyone. Depending on the pool size, you can determine how often you find blocks and share rewards. The pool size, minimum payout, and pool fee play a vital role in choosing the right pool for your mining efforts.
Although mining alone may seem like a great idea as you don’t have to share the rewards, it needs a lot of resources at your end — including about 100+ graphics cards. Plus, with the high computing power, you’ll need to worry about the heating problems, ventilation, noise, electricity costs, and space to store the mining rigs.
In case of cloud mining, you pay someone else to mine for you, but it is less profitable than mining yourself.
So, if you want to start, pool mining may be the best option!
Making ETH Mining More Energy-Efficient with PoS
Currently, transactions on the Ethereum network and Bitcoin network are processed in a similar manner — whoever has the most computing power can process the transaction blocks the fastest and receive the block reward (2 ETH is the current reward). These transaction processes require a lot of energy as thousands of computers are processing them 24x7. The system is known as Proof-of-Work as it is based on the amount of work a miner performs.
ETH 2.0 aims to switch to a more energy-efficient method known as Proof-of-Stake (PoS) — an alternative that will require less computing power from the mining computers and less energy. Instead of holding the highest computing power, owning ether will now hold more importance. When you own a lot of ETH, you will be allowed to add a transaction-filled block to the blockchain. This way, you don’t invest external money or energy, but invest in coins within the system. You will put your ethers at stake (a particular amount) and hence the name Proof-of-Stake when you add a new block. You get your stake back and compensation when the transaction has been correctly verified. If you include a false transaction, you don’t receive the compensation and lose the ethers you put at stake, too.
Whether this will encourage more miners or discourage the current ones is yet to be known. But it will surely be a step in the positive direction and the founder of ETH Vitalik Buterin is excited about Ethereum 2.0 and the changes it will bring.
The Last Word
Ethereum is the second biggest cryptocurrency after Bitcoin and is one of the top 10 most profitable crypto coins to mine in 2021. The platform introduced smart contracts to the world and is also extensively used in the DeFi movement. Ethereum currently uses the Ethash PoW algorithm, which will switch to PoS in phases starting from 2020 and does not have a limited supply.
Being an Ethereum miner, you can help it stay decentralized and also get rewarded in the process. ETH is a valuable asset to hold or trade as the blockchain technology, and ETH network has proven their worth.
So, why wait? Get started on your mining today!