Is it Profitable to Mine Ethereum in 2021?

Why Ethereum?

First, a little context: In January 2018, the market capitalization of the Ethereum protocol crossed the mark of 100 billion US dollars. In January 2019, it came down to 11.2 billion US dollars. In the next two years, the protocol was gaining back its lost ground slowly but steadily. In December 2020, it managed to get back to a market size of more than 80 billion US dollars. But, what happened in the subsequent months was astounding.

By the time it was January 2021, the size of Ethereum’s market had risen to more than 150 billion US dollars for the first time in its entire lifespan.

As per the latest available data, the total market size that Ethereum commands has crossed the mark of 200 billion US dollars. The network processes more than 1 million transactions per day. The total value locked in its DeFi applications, the worth of the larger Ethereum digital economy, has almost reached 40 billion US dollars.

What is Ethereum Mining?

At its core, Ethereum mining is the process where one maintains the Ethereum ledger by solving complex mathematical problems. It is the process of adding valid blocks to the chain. The miners go through intense bouts of trial and error to locate the nonce for a block. The blocks that have a corresponding valid nonce to them can only qualify for inclusion to the chain.

When creating a block, the miner repeatedly puts a dataset that one can only obtain from downloading and running the full chain with a mathematical function. It results in the generation of mixHash that is below a target nonce. Once generated, it becomes much easier for the other miners and clients to verify. The hash would become completely different and would signal fraud even if one transaction was to change.

Ethereum miners get rewards for the work they do. Every 15 seconds, an Ethereum block is added to the chain. The miners receive 2 ETH plus all transaction and code-processing fees. These fees are what is known as gas in the blockchain terminology.

The Ethash algorithm used by Ethereum for mining is compatible with the special hashing hardware known as ASICs or application-specific integrated circuits. Ethash is developed in such a way, however, that it is also well suited for GPU mining, which is the method of choice for recreational miners.

The System and Hardware Requirements

Although some Linux versions can be put to use, choosing Windows 10 is the most efficient option in terms of the ease of configuration, the time to set the system up, and running it at the best speed possible. Make sure that you are using a 64-bit system. At a broader level, your hardware configuration must cater to the following needs:

Your motherboard should have a sufficient number of PCI-E slots so that it can support all the cards you are running. If you are using more than one graphics processing unit or GPUs, it’s better to have a powered PCI-E riser for each additional one. Most miners utilize multiple cards to maximize profit but it is possible to eek out a small profit with one card.

When it comes to the power supply, ensure that your PSU has an adequate number of connections. The number should suffice the number of GPUs you are running, and it should have enough wattage overall to support your total system power draw. It’s best if it gives an additional buffer of at least 10-15%.

A simple basic CPU and at least 4 gigabytes of ram are mandatory. There are sets of a compatible motherboard, a CPU, and RAM. Ensure that you have got one such set. For instance, an LGA 1151 motherboard needs an 1151 socket CPU and DDR4 RAM.

A simple PC power button works fine. All you need is to connect it onto the headers of your motherboard to turn your system on or off whenever you need it. Next, you need to have a standard keyboard, a mouse, and a monitor. If you are operating your rig from a remote location, you will need a headless HDMI dummy plug. It helps your rig to boot into your Windows operating system for remote access.

When it comes to the minimum requirement, you need to have at least one GPU and one 3GB RAM to mine Ethereum. It’s better to go with a desktop-type configuration. Although gaming laptops come with high-end cards, the heat generated from mining can harm your device. On the other hand, rented virtualized environments often fail to offer robust and profitable GPU support.

Companies like AMD and NVidia offer robust GPU cards. GPU selection is often a matter of trial and error. At the start of 2021, the Nvidia 30-series cards are very popular for mining ETH. That includes:

• GeForce RTX 3090
• GeForce RTX 3080
• GeForce RTX 3070
• GeForce RTX 3060 Ti

On the AMD side of things there are a few decent cards but the new Radeon VII is definitely a standout.

Unfortunately it’s extremely difficult to get any of next-gen cards at retail price right now as a convergence of ETH miners and gamers have created an incredible demand for hefty GPUs. Expect to pay hundreds if not thousands for cards on the second-hand market.

The Actual Process of Ethereum Mining

The first step is to install your GPU drivers. Go to the website of the brand and download the current driver version. You can either choose to install all your GPUs at once and then install the drivers, or you can install a single card first, install the drivers, and then shut down the system.

The rest of the GPUs can be installed when the system is off. Once done, you can turn the system back on and let all the GPUs be recognized by Windows at one go. Next, you need to create a digital wallet to hold all of your newly found currency. The most efficient way is to choose a secure and reliable wallet that has got good user reviews.

The next step is to choose and install an Ethereum mining software. Make sure that you download the most updated version of the software from their site. While downloading the mining software, Windows may issue a warning. But, you can ignore the warning and proceed with your installation. Once you’ve downloaded the mining software, extract the folder to your desktop for anytime access.

Now, that you’ve installed your GPU driver, set up your wallet, and installed Ethereum mining software, you are almost ready to start mining. However, Windows may need some modification in some of its settings before you dive into your job. These setting modifications are important as they ensure that your system does not come in the way of a successful mining exercise.

First, go into your power settings and set it to ‘Never’ turn-off or sleep mode. It will prevent the system from turning off or going into sleep mode when you are mining. It’s also better to manually set your system page file to 16 GB. Next, you should disable the automatic windows updates for the same reason you had turned it to a never turn off or sleep mode. It ensures that Windows does not start taking an auto-update when you are mining.

The last precaution to keep in mind is about the anti-virus software you use in your system. The software may flag the executable files of your mining software as a virus. So, add an exception to your software.

Now, that your system and software are both ready to start mining, you should make a selection of exactly what type of mining method you want to follow. There are three methods of mining Ethereum: pool mining, mining alone, and leveraging cloud mining services. It’s always better to go for pool mining. We will have a brief look at why one should not go for mining alone or cloud mining in the next segment.

Why You Should Choose Pool Mining

When mining alone, you compete with very large networks of people and companies who have a lot of resources at their disposal. You need to have a lot of resources to get lucky, and by a lot of resources, we imply more than 100 graphic cards if possible.

Deploying this much computing power is practically unmanageable for a single miner. You can face heating problems that may even result in breakage in your equipment. You will face problems with ventilation and noise. Most importantly, the cost of electricity and space you need to maintain your rig will suck you out of any chances you have of making a profit.

The problem with cloud mining is you need to pay money up-front. If there is a drop in Ethereum prices, you don’t get your money back. Also, there is very little flexibility when it comes to cloud mining. You have no say over the mining software or hardware that the cloud mining facilitator uses. Therefore, it is always an intelligent decision to opt for pool mining.

In pool mining, you work with other people who agree that if any of the pool members find the secret number, they will share the rewards with everyone in the pool. However, you should make a balanced selection on which pool to go with depending on the size of the pool, the minimum payout, and the pool fee.

How to Join a Pool

Once you have chosen the pool you want to go with, the home page or the help section of the pool will guide you with detailed instructions on how to mine. Depending on the location that you are in, connect to the closest server to you and update it with your settings.

Once you have chosen the most appropriate stratum server for you based on your location, make necessary changes in the configuration and save your batch file. Once your batch file is ready to mine, create a shortcut and send it to the desktop.

Everything is ready now. Double click on the batch file that you’ve saved on your desktop and start with the miner. The miner will first run the ‘setx’ commands to set the environment variables up. Then it will initialize each of your GPUs and build the DAG file on each of them and start hashing away. Allow it to run for about 20 seconds, and then click “s” to display your Hashing speed.

To check your earnings from time to time, go to the mining pool website and paste your wallet address in the check status box that you have on the site.

Is Ethereum Mining Profitable?

To ascertain whether Ethereum mining is worth your investment, you need to have a constant tab on your ROI (Return on Investment).

There are Ethereum mining profitability calculators available online that help you calculate your exact ROI based on several parameters. These parameters include the difficulty factor, the hash rate in MH/s, the per-block ETH reward values, the ETH-Fiat exchange rate, the pool fees %, the hardware cost, the consumption of power in watts, and the power cost in USD/KWh.

If your electricity is particularly expensive there’s a good chance that you won’t be able to turn a profit.

Ethereum Mining Beyond 2022?

At the risk of harshing your vibe, it should be mentioned that there isn’t much of a future in mining Ethereum.

That’s because with the upgrade to Ethereum 2.0, the network will move to a proof of stake consensus mechanism. The major implication of this upgrade will be that the network will no longer remain mineable. Ethereum expects that the shift from PoW to PoS would make Ethereum more scalable, fast, and accessible. But, once this shift happens, miners will be replaced by validators who would stake their ETH to participate rather than solving complex mathematical problems required in mining.

In the short-term there’s also the Ethereum Improvement Proposal (EIP)-1559, which could have a significant impact on ETH mining profits. EIP-1559 is a proposal to deal with Ethereum’s rapidly ballooning transaction fees. Unfortunately for miners, that’s a significant part of where their profits are derived. It’s estimated that miners could take a 30% hit thanks to EIP-1559, which is schedule to go live sometime this summer.

It means that before making any new investment in Ethereum mining, you should get a thorough grasp of Ethereum’s prospects. Although you can deploy your GPUs to mine other PoW coins, GPUs depreciate rapidly. Therefore, the chances of recovering your investments through resale are looking bleak, especially for cards that are used for constant, intensive work of mining.

There are other coins to mine, of course, but at this time they don’t offer the profitability of mining ETH. It remains to be seen as to whether any coins will fill that void.