How to mine Ethereum

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Every savvy investor understands the importance of diversification. Whether times are good or bad, it is never wise to pool too many of your resources into one investment, as this leaves your portfolio open to considerable risk should said investment begin to tank unexpectedly.

The same goes for cryptocurrency. Not only is cryptocurrency a great way to diversify a traditional investment portfolio, but it is also wise to hold stake in several different forms of crypto, so as to not rely too heavily on one single form of digital asset.

For many investors, bitcoin is an obvious choice when researching digital asset opportunities. It is the original cryptocurrency, the largest in terms of market capitalization, and just recently hit a new all-time price threshold.

But for those looking to add a second or third form of crypto to the mix, ether (ETH) should never go unconsidered. You may have heard of ether or Ethereum or both, as the two related terms are commonly confused with one another among recent initiates to the crypto realm.

Here is a look at Ethereum and ether and the role they play in the current and prospective future of digital assets.

What is Ethereum?

Ethereum is a global, open-source software platform for decentralized applications. It launched in 2015 and is the community-built technology behind the cryptocurrency ether.

As a decentralized peer-to-peer blockchain network, it allows users to move money or to otherwise execute transactions directly between one another – without the need for a third-party intermediary.

On the Ethereum network, users can send cryptocurrency to one another (for a small fee), in addition to engaging in activities such as smart contracts and distributed applications, which the network enables to run without any downtime or third-party interference.

What is ether?

Ether is the digital currency around which the Ethereum network was built. It is a currency – like bitcoin – that can be held in a virtual wallet and transferred or received between users. Ether is the second-largest cryptocurrency in the world in terms of market capitalization behind only bitcoin.

a chart of the top five cryptocurrencies by market capitalization

As mentioned, it is not uncommon for some to confuse Ethereum and ETH. Here is the difference

  • Ethereum is the blockchain network itself.
  • Ether is the primary digital asset traded on the Ethereum network. It also powers the network, and can be thought of as the primary vehicle used by traders and developers to navigate Ethereum.

Anytime you send ETH, use an application, or essentially perform any action on the Ethereum network, you also pay a small fee in ETH. This serves as an incentive for miners to process and verify what you are trying to do, which in turn keeps the network secure, healthy, and operational. When a miner verifies a transaction, it is rewarded with a small amount of newly issued ETH.

line graph of ethereum's price throughout 2020

How is Ethereum different than bitcoin?

Like bitcoin, Ethereum is a decentralized, blockchain-based peer-to-peer network that allows you to send cryptocurrency directly to other parties without going through an intermediary such as a payment provider or a bank.

Where they differ is in the fact that Ethereum is also its own programming language, meaning in addition to using the network to transfer ether, developers can also program it to perform other tasks and to transfer many other digital assets – including bitcoin.

New kinds of digital assets created on Ethereum are known as tokens – thousands of which exist on the network. People have used Ethereum to tokenize everything from real estate to art – and even themselves.

Because of this programmability, Ethereum is also used for much more than just digital payments. It also serves as a marketplace for financial services, games, and distributed applications that cannot steal your data or censor you – among other benefits.

How to mine Ethereum

There are many ways to obtain ether on the Ethereum network. You can:

  • Find an online ether exchange
  • Find a compatible ether ATM
  • Buy ether in-person (if you’re especially concerned with security)

Or, you can mine Ethereum.

The Ethereum mining process is almost identical to that of bitcoin, with users on the network verifying transactions and adding them to the public ledger via a method known as proof-of-work. Ethereum mining creates new tokens at a rate of two ether per block.

Ultimately, a miner’s profitability depends at least slightly on luck but primarily on the amount of computing power devoted to solving a block.

Computing power is mainly determined by:

Both hashing power and power consumption are impacted by a miner’s level of hosting and the quality of the Ethereum mining hardware utilized. If you can maximize hashing power while minimizing power consumption, you are on the path to profitability in mining Ethereum.

The long-term vision for Ethereum

Many developers choose to work on the Ethereum network because they believe in its long-term potential and in its developers’ vision to provide users with more control over their finances and online data.

Ethereum’s creators aim to use blockchain technology to eventually replace internet third parties (such as Google and Facebook) and to provide users with complete and secure control over all of their data. The Ethereum network is often referred to as the “world computer,” with advocates seeing a path to someday decentralizing the internet.

There are many critics who think this ambitious plan will fail, due largely to the current scalability limitations of Ethereum. In an attempt to make up for some of these issues, Ethereum 2.0 was created and launched on December 1, 2020.

Ethereum 2.0

Ethereum 2.0 was a long-awaited upgrade to the Ethereum mainnet, largely defined by its shift toward a proof-of-stake structure (versus the proof-of-work structure of the Ethereum network). Proof-of-stake seeks to replace the two key aspects of miners and computing power with validators and stake.

Here is a more in-depth breakdown of Ethereum 2.0 and what the shift to proof-of-stake could mean for the network.

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Contact us to learn more.

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