How mining Ethereum

The second largest Proof-of-Work network by market capitalization, Ethereum has the largest blockchain developer community and serves as the base for coin mining via GPUs. Ethereum went live in 2015. It is an open-source blockchain in which smart contracts and decentralized applications can be deployed. Ethash is Ethereum’s algorithm. It is radically different from the way BTC is mined.

Peculiarities of the Ethereum mining algorithm

Originally, the Ethereum mining mechanism was proposed in the form of the Dagger-Hashimoto system. But a lot has changed since the first implementation. Now the PoW algorithm has evolved into a system called Ethash.

History of appearance.

The first version of the Ethereum mining algorithm, called Dagger-Hashimoto, was developed by Vitalik Buterin and Thaddeus Dria in 2014. Initially, the principle of operation consisted of two parts:

The first method uses oriented acyclic graphs (DAGs) to build an array data structure. Originally, the Dagger algorithm’s structure took just over 1 GB of memory, but it is now about 4-5 GB. This structure performs a number of calculations that provide a high level of performance. It is this structure that allows cryptocurrency mining using the Hashimoto system.

• Hashimoto is an algorithm developed by Thaddeus Driya. It aims to add robustness to ASIC when obtaining a hash (converting any amount of information into a unique set of characters). Specialized integrated circuits are hardware designed specifically for mining bitcoins and other cryptocurrencies. ASICs are expensive to install, but they are very powerful. They are the hardware that can get the most hashes.

ASICs are so expensive to run that mining is done by groups of miners in pools. The strength of these pools can affect the price and direction of a coin. Some have noted the similarity of mining pools that use ASICs to centralized power, which is contrary to the true nature of cryptocurrencies.

If a coin is ASIC-resistant, it means that the way the coins are mined in that blockchain does not depend on specialized integrated circuits. Mining is associated with traditional tools – a processor and a video card. By combining both mechanisms (Dagger and Hashimoto), it is possible to get a single algorithm, which allows to design a complex mining system where ASICs cannot be involved. However, the Dagger-Hashimoto had shortcomings that led to the new version.

Principle of Ethash

The Ethereum development team introduced its algorithm based on previous developments. The operation of Ethash is completely different from the original mechanism, but the basic principles remain the same. The algorithm uses a data structure that has been computed using some particular arithmetic rule and is related to the current blockchain length (the more transactions occur in the network, the faster it becomes). This array of information is called a DAG. It is updated after 30 thousand blocks (once every 5-6 days). The principle of Ethash can be described in a few steps:

• A mechanism similar to SHA-3 combines a pre-processed header, which is taken from the last block (Preprocessed Header), and a current one-time random number (Current Nonce). This produces an initial mix of 128 bytes (Mix 0).

• Mix 0 is needed for the calculation of the page with the data volume of 128 bytes from the DAG. All this is shaped into a block called Get DAG Page.

• Using a special mixing function Mix 0 is merged with the page generated from the DAG. That’s how Mix 1 is formed.

• Steps #2 and #3 are repeated 64 times, yielding a final Mix 64.

• After all the actions performed Mix 64 is processed. The result is a shorter mix (Mix Digest) weighing 32 bytes.

• The Mix Digest is then compared to the Target Threshold (a threshold of 32 bytes). If the final mix is less than or equal to 32 bytes, the Current Nonce will be checked and sent to the Ethereum network. If the mix is larger, the Current Nonce will be invalid and the algorithm will restart with other numbers.

This operation is performed in the current version of the Etherium blockchain and uses the functions of the Keccak-256 and Keccak-512 hashing algorithms. The SHA-3 standard was developed on their basis.

Mining equipment

Ethereum mining has been designed to be profitable only when done using video cards and GPUs. Therefore, until 2018, ETH cannot be mined using ASICs.

In 2022, you can mine Etherium using GPUs and a special purpose integrated circuit. ASICs are more efficient than GPUs, but if the user is going to mine the coins in a pool, video cards will do as well.

GPU mining in a pool will require the following:

• A computer or coin mining rig with multiple GPUs.
• OS for etherium mining.
• GPU drivers to enable communication between the GPU and the OS.
• A cryptocurrency wallet for storing rewards.

Mining with ASIC is more efficient, but integrated circuits cost more. This hardware is created to produce a specific coin. It is important to understand what algorithm the ethereum is mined on and take that into account when choosing mining equipment. Ethereum is in the process of transitioning to the PoS consensus mechanism. Therefore, investing in an ASIC to mine ETH can be inefficient. Also, special integrated circuits consume a lot of power, and you need to take into account the electricity bills.

A miner will have fewer costs if he considers other types of equipment for Ethereum mining – CPUs and GPUs.

The first type of plant uses a central processing unit (CPU) for block mining. The CPU is a central processing unit. It is designed to execute a chain of instructions in the shortest possible time. This type of mining was very popular among top Ethereum miners, but has been used less and less lately.

Coin minting equipment on CPUs is very popular among beginners. CPUs cost less and are easier to use. Among the disadvantages are that the mining process is very slow – it can take months (and even years) before the return on investment is noticeable.

Ethereum uses a graphics processing unit (GPU) for the second method of chasing Ethereum. Graphics processing unit – a video card that performs the function of rendering (the process of obtaining an image) of 3D graphics and visual effects. GPU-based equipment is superior to CPU-based units in almost every aspect. The disadvantage of this method is that GPU devices are very expensive. GPU mining equipment can cost anywhere from $3000 to $5000.

Regardless of the type, all digital kino minting rigs consist of a power supply, motherboard, graphics cards, a cooling unit, and a framework that holds it all together.

NAME	PRICE	HASHING POWER	POWER CONSUMPTION
AMD RX 580	$300	32,74 MH/s	84 W
NVIDIA Titan V	$2000	70 MH/s	250 W
NVIDIA GeForce GTX 1080 Ti	$820	43.5 MH/s	220 W
AMD Radeon RX 5700 XT	$1300	55 MH/s	225 W

Cryptocurrencies based on the Ethereum algorithm

The most famous blockchain that runs on the Ethash mining mechanism is Ethereum. The algorithm was developed for this project and it has always evolved here. The Ethereum Classic project, which is a hardforward of the Ethereum network, has also kept its work on the Ethash mechanism.

In addition, many crypto market participants use Ethereum tokens (e.g., Maker, DAI or Theter Stablecoins). Thus, all of these digital units use the ETH algorithm. Other altcoins that use Ethash are MusiCoin or Callisto, to name a few projects.

Changing the ETH mining algorithm from PoW to PoS

There are 2 most common consensus and cryptocurrency mining mechanisms:

• Proof-of-Work (PoW). Here nodes must use all the power of their computing equipment. If this is not done, there is little chance of getting a reward for a completed block.

• Proof-of-Stake (PoS). This is the name of the mechanism where transactions are verified by validators (authorized participants who have a certain amount of coins in their account. For Ethereum – at least 32 ETH).

PoW is specific to mining equipment – e.g., graphics processing units (GPUs), central processing units (CPUs), and specialized integrated circuits (ASICs). Devices are connected to the blockchain so that they can track, verify, and validate transactions. It is important to remember that the network is a decentralized system, so there is no single control center. Copies of the blockchain are placed on multiple devices owned by blockchain participants. This enables secure transactions that are verified and approved by the users themselves. A transaction on the network cannot be changed or terminated. Traces of tampering and changes will show up in the blocks of the chain. The largest cryptocurrencies (Bitcoin, Ethereum) are based on the Proof-of-Work consensus mechanism.

All actions in PoS networks are checked by validators. These are users who own large stocks of coins of a particular network. The other participants (stackers) receive commissions from transactions in proportion to their contribution. PoS does not require much power. The developers of the Etherium network plan to implement this consensus mechanism as the basis for blockchain operation.

In 2016, Etherium creator Vitalik Buterin said that the transition to PoS could be delayed until 2020. As a result, the change of the consensus mechanism was postponed several times, and then it was proposed to use a hybrid algorithm of Proof-of-Work and Proof-of-Stake. Ethereum was surrounded by test networks, various sidechains, and other mechanisms to switch to another way of confirming transactions.

The developers promise that the hybrid network will not start functioning until the 2nd half of 2022. Moreover, the creators expected to switch to PoS within 1 year, while in fact they have been working on it for more than 6 years.

Despite the fact that the date of Ethereum’s final migration to the Proof-of-Stake consensus mechanism is not known, users may already be wondering about the possible consequences:

• Users will not be able to mine on GPUs, as validators who hold 32 ETH or more in their accounts will mine and verify the new blocks.

• There will be weaknesses in the network and opportunities for chain hacking. Many users will stop working with the coin. Due to the fact that participation in the blockchain involves a significant investment, the number of network customers will also decrease.

• There will be a risk of a hardforward, as some nodes will disagree with the new rules. A similar situation occurred in 2016, when Ethereum Classic appeared.

• Turnover and opportunities for additional income will decrease. This is due to the deflationary nature of Etherium, which is already actively burning coins. Of course, the transition could also bring positive results:

• Electricity consumption would be reduced, and the environmental impact would be reduced.

• Blockchain will be divided into autonomous areas that interact with each other while processing each other’s transactions – shards. Decentralization will increase.

• To mine coins, you will have to invest in the cryptocurrency of the network, not in hardware.

• Problems of scalability and speed of transactions will disappear (network will be able to confirm up to 100 thousand transactions per second).

• Commissions will go down.

Summary

Ethereum is still running on a proof-of-work algorithm in March 2022, and miners get paid for confirming all actions on the network. The advantage of mining ETH is its resilience to ASIC. This means that when the network changes, video cards configured for the mining algorithm (Ethereum’s Ethash) can be used for similar decentralized platforms like Ubiq or Expanse. That way, miners will not incur losses like they would if they invested in asics.

There are no restrictions for video cards. They can run on any available cryptocurrency algorithm. The advantage of Etherium mining is that owners of graphics processing units (GPUs) do not even need to use the hash rate from ASIC, because video cards are already programmed with the necessary algorithms (SHA-256 and Scrypt).

It is not yet known when the Ethereum network will finally switch to the Proof-of-Stake consensus mechanism, and miners can benefit from working systems. There is a chance that developers will make the final decision to use a hybrid algorithm. In this case, the profit from mining will decrease, but not disappear altogether. Diversification will help network participants maintain their usual level of income from Ethereum mining.