How Does Ethereum Mining Work

Ethereum is one cryptocurrency that is maintaining its position in popularity since the time of its initiation. Ethereum uses the Proof of Work(PoW) to complete the transactions which are then added to the blockchain. Ethereum mining is based on Ethash algorithm.

Ethereum developers have introduced a Proof of Stake(PoS) based system that is likely to overrule the existing PoW system. As of now, it is in a transitory hybrid state of PoW/PoS. So instead of totally relying on the miners for transactions, Ethereum is moving to the PoS where the nodes participate and vote to decide in a consensus mechanism.

Ethereum mining is ASIC resistant. Moving to PoS will remove the need for energy-intensive mining. Ethereum is a decentralized cryptocurrency and its digital asset is called Ethers. It does not operate as a digital currency but rather supplies fuel for the decentralized apps in the network.

Process of Ethereum mining:

Create a wallet:

The first thing you require for any cryptocurrency mining is to create a digital wallet. This is where your rewards will be deposited. Create a digital wallet to store the Ether coins you earn. You can download the wallet from the website or any of the authorized exchanges.

The software you will need:

The mining software will create a link between the mining hardware you are using and ethereum network and the mining pool you registered with. Be sure to secure your connection with a strong antivirus solution to protect against any online attacks.

Hardware:

There are two types of hardware for mining- CPU and GPU. CPU are not as effective as the GPUs. The latter can boast of greater hash rate and ensure faster guessing of the puzzles. GPUs are installed on your PC and this reduces the burden on the CPUs considerably. It is vital that you have the best and the most modern GPU to mine in today’s competitive environment.

Check the hardware

Use the Ethereum mining calculator before you make your hardware procurement. The calculator will enable you to get an estimate of the profits the miner can get you.  There are a few blanks that you must fill in the calculator like the hash rate, electricity the miner consumes, hardware cost, power tariff etc, and it will display the likely profits

Solo or pool mining:

Solo mining is not lucrative. You will be mining alone, and the transactions can take a much longer time to complete than in a pool. Although the rewards are 100% yours, there is no guarantee when you will get them. Joining a mining pool will mean more hands working along with you. This will ensure faster completion of the work which in turn will mean more rewards. However, in an ethereum mining pool, you will not get the complete reward. You will get a share based upon your contribution. The reward is split among all the miners and you will also pay a transaction fee to the pool as maintenance. It is important that you chose a reliable mining pool. They differ in their charges and payout structures.