What is Ethereum? What is Ethereum Mining?

Ethereum is more than a cryptocurrency. It’s an open source shared world computing platform. A ‘world computer’ that allows for the decentralized verification of transactions for any Turing-viable implementation. Thanks to Ethereum, Blockchain technologies are now easy to employ without having to reinvent the wheel.

Ethereum definition (What is Ethereum?)

It is clear that Ethereum grew out of desire to apply Bitcoin/Blockchain concepts to realms outside of money. As a result, it provides open source platform to developers who seek to write decentralized applications. This appeals to developers who seek an easy introduction to Blockchain projects

A series of innovative features definite Ethereum. As a result of its extended capabilities, Ethereum comes with two types of accounts. EOA, or Externally Owned Accounts, provide bitcoin-like capabilities such as providing a balance that is secured by private keys. Contract Accounts provide the ‘Turing Complete’ room for application development that makes the protocol so desirable.

These accounts are used as holding objects to constitute ‘Smart-contracts’ which provide Ethereum’s capability for accommodating decentralized autonomous organizations; a way of structuring organizations without a vulnerable center.

Most importantly, Ethereum capitalizes on the realization that consensus allows for currency and currency allows for consensus by providing economic incentive. As such, verifications are paid for on a pay-per-use basis, a system that replaces mining as we know it from Bitcoin.

Ethereum right now uses PoW mining to secure its chain.

Ethereum vs Bitcoin

Vitalik Buterin, the creator of Ethereum, stressed that his idea was fueled by the desire to “ [Avoid] the swiss-army knife protocol ”. That is to say that use-case specific Blockchain solutions were expending unnecessary effort on the building of equivalent infrastructure. Here Ethereum enters the picture.

With Ethereum, Buterin created the first universal application of the principles underlying Bitcoin. Instead of using Blockchain just as a way of establishing/providing value, Ethereum offers the ability to use that technology in a Turing complete environment. Where Bitcoin implements Blockchain technology in combination with proof of work to form a currency, Ethereum’s value is derived from the ability to create universal applications.

We also see differences between the way that Ethereum and Bitcoin implemented their decentralized currency. Most notably, BTC supply has a universal cap whereas ETH supply is capped yearly at 18 million ETH but is otherwise unbound.

Ethereum vs Ethereum Classic

Ethereum and Ethereum Classic are different versions of the same Blockchain. The fork served as damage control to the issue caused by the DAO hack in 2016 and was ultimately fueled by ideological differences between early Ethereum workers. As DAO collected 150 million USD worth of ETH but almost 50 million USD in ETC were hacked, about 80% of miners decided to hard-fork the Blockchain. The other miners remained with the initial Blockchain which we now call Ethereum Classic. That is why there now are two Ethereum-based currencies that can be used to trade.

Ethereum Wallet

Ethereum has a standard wallet, called Mist, that is used as a gateway for developers to use ÐApps. Ethereum wallets act much like BTC wallets. You can use the tools integral to the system or use the convenience of other wallets that wrap the software in a more user friendly way.

A legal disclaimer on the Ethereum page jokingly requires you not to be a ‘jerk’ and to be responsible for your own computer security. So there is the caveat of exposing yourself (although securely) to a massive network of active computers. But that’s a risk you’re exposing yourself to anyway by using the Internet.

Other than the Mist Wallet, you can also handle Ethereum with online wallets like MyEtherWallet.com, EthereumWallet.com and EthAddress. CLI (Command Line Interface) wallets like Geth provide power-user functionality. An Ethereum hardware wallet is also an option, like Ledger’s Nano S.

Ethereum buy (Buying Ethereum)

Buying Ethereum takes place just like you would buy any other cryptocurrency.

You can do it via exchanges over GUI or programmatically over API. You can even send and receive Ethereum directly, meaning that you can trade currency privately with clients or friends without paying an additional fee to an exchange.

After all, the act of buying Ethereum is simply the trading of Ethereum for another currency. Whether you use the service of an exchange is up to you.

However, the easiest way to purchase Ethereum is to go through an online exchange.

Even though Ethereum is the second most prominent blockchain platform, it is considerably harder to find reliable local trading possibilities as provided by localbitcoins.com for Bitcoin.

If you’re looking for a reputable exchange that deals in ETH, you will find no shortage of options.

Good places to start looking are Poloniex, Bitfinex, Kraken and GDAX. These exchanges largely perform the same function, but by comparing fees and payout methods/schedules between these you can make sure to find the exchange that suits you best.

Ethereum Stock

Stocks are commonly searched with reference to Ethereum. Truth is, Ethereum is not a stock. However, as it represents value based on a free-market supply-demand structure, Ethereum, just like other cryptocurrency blockchain implementations, effectively acts the same way a stock would. There is, however, an important difference to stress. Unlike stocks, Ethereum’s decentralized nature makes it less malleable by specific market forces and fluctuations, making it act more like a diversified asset. Even if Ethereum’s core team disappeared from the face of the earth, Ethereum tokens should, in principle, retain their value (at least until the lack of updates would make it fall out of date). Stocks, on the other hand, live and breathe by the company of which they hold value.

As a result, stock exchanges all over the world are introducing Ethereum into their trading options.

So what is Ethereum?

Ethereum presents a universal application of blockchain technology. The currency is the icing on the cake. Investors and miners have made large sums of money on Ethereum’s meteoric uprise. Now that you’ve been briefed on the core aspects, whether Ethereum is worth investing in is up to you to decide.

What is Ethereum Mining and How It Works

Now that Ethereum has taking a seat as the second most dominant cryptocurrency on the market you might be wondering what it means to mine Ethereum.

Here is an overview of Ethereum mining, what it is, and what you should know to get involved (go here if you just want to buy Ethereum).

Ethereum Mining

Ether mining is the accruement of ETH via the validation of network transactions. More specifically, mining is the participation in the validation of transactions that take place in order to confirm all activity in the Ethereum Blockchain. This can be done on every platform meaning that it is available to home computers as well as tailored rigs. Note that it’s usually easier to get started with Unix machines than with Windows, especially when it comes to Ethereum.

The challenge in mining is to generate more money by the collection of ETH than is spent on the electricity consumed to do so. As a beginner, the best chance of generating any money by mining is by participating in a mining pool. Otherwise, even the most expensive gaming card will readily be edged out by professionals. There are multiple mining clients that can ease your way into Ether mining. Ranging from the miner provided by the core software and other CLI tools to fully fledged GUI apps that allow fine-tuning and a clear view of all mining activity.

Ethereum Mining Hardware

Since Ethereum’s implementation of the Casper Proof of Stake algorithm, ASIC hardware that is known to be particularly effective for mining BTC and other Proof of Work based cryptocurrencies can no longer be used for Ethereum. As a result, Ether mining is limited primarily to Graphics Processing Units (GPU). This excludes the use of Bitcoin ASICs that have significantly limited the pay-off to entry-level mining hobbyists. It also makes Ethereum interestingly favor the home consumer over big-time investors. Either way, a similar playing field has arisen where capitalism still manifests itself in the form of high-stake miners simply buying far more of the same equipment that the hobbyist would also have.

Just like a normal Computer, you will need the following for your Ethereum mining rig :

Note that the graphics card plays the most important role in determining how lucrative your rig will be.

Ethereum Mining Pools

Ethereum mining pools significantly increase your chance of acquiring Ether. This is because Ether’s probability of allocation, just like other cryptocurrencies, is proportional to relative productivity within the entire network. This means that joining a large group of miners can increase your chance of receiving Ether. The revenues received by the pool are then divided between participants where distribution agreements vary between pools.

Types of pool payouts range from Pay Per Share (PPS) and proportional (PROP) payouts to obscurer algorithms like the Double Geomitric Method (DGM). You can find out more about types of available mining pool payout methods here, and find guidance for Ethereum specific mining pools here and here.

Along with a mining pool you will also need Ethereum mining software and an Ethereum wallet to receive your payouts.

Ethereum Cloud Mining

Cloud mining implies the management of pre-existing mining facilities packaged by a service provider. This is perfect for novices who want to get their foot in the door. There are multiple kinds of Cloud mining services. Typically, users purchase site-specific tokens that represent the rights to a certain amount of hash power. This hash power acts as the mining power that the service will use to mine Ether for you.

However, there are also other types of cloud mining services.

Several posts can be found advising against the use of cloud mining services by arguing that it would ultimately be more productive to directly buy the ETH from an exchange. This should make you wonder why somebody would offer an opportunity to earn Ether at a lower rate than what the resulting Ether would be worth. However, there is a wide range of cloud mining services to be found and they should at least be taken into consideration when seeking the most appropriate Ether mining solution.

Ethereum Mining Profitability

Ethereum mining profitability depends on two key factors: hardware and electricity. Mining returns can vary wildly. As the value of the currency can decrease, so can the revenue relative to your electricity and hardware costs. The volatile nature of cryptocurrency exchange rates spills over to all types of cryptocurrency mining. However, given the right hardware and energy source you could be well on your way to building a sizable income.

It can be argued that Ethereum, due to its lack of ASIC mining hardware, is relatively more accessible to mining hobbyists than Bitcoin. However, as time progresses, Ethereum seems to be heading the same way as Bitcoin in terms of market mining saturation.

You can help determine projected profits by using online Ethereum mining profitability calculation tools as mining profitability is directly related to hardware and energy investment.

Ethereum mining algorithm

Ethereum uses the Casper Proof of Stake algorithm instead of traditional Proof of Work used in Bitcoin. Proof of Stake wastes far less computational power to achieve the same end as PoW (Proof of Work), implying that it is meant to act as a better alternative to the PoW algorithm used for Bitcoin. Casper is part of the cutting edge of PoS and prioritizes availability, or speed, over consistency, meaning reliability, resulting in faster validations with similar properties as that of a Proof of Work Blockchain. Where Proof of Work makes use of hardware to give computation value, Proof of Stake takes a miner-less approach that rids the network of vast energy requirements. Instead of receiving rewards for mining, Ethereum ‘miners’ acquire rewards that are proportional to the transaction they are validating. Note that this has only been the case since 2016, before which Ethereum also ran off of a Proof of Work system.

Worth it?

All in all, there are many ways of mining Ethereum. From cloud to hardware approaches, the best solution for your needs can always be found. It is hard to predict whether your situation will lead to a profitable opportunity, but given enough research into required hardware and energy expenses, you should be well on your way to learning where you stand.