How mining works
Mining serves two purposes: To create new coins and to maintain a log of all transactions of existing digital tokens.
As is the case with bitcoin and other cryptocurrencies, “miners” around the globe contribute their computing power to verifying and adding all exchanges of ether to a public ledger. This public ledger is known as a blockchain. Ether’s blockchain is called ethereum. Once a transaction is added to the ethereum blockchain, it can’t be altered or erased, giving observers a permanent and verifiable record.
In order to log exchanges of ether, miners run a computer program, which computes millions of math equations. But miners aren’t doing all these math problems in a vacuum. They are competing against miners all over the planet to be the first person to verify a block of transactions.
Someone wins this race roughly once every 13 seconds. And whoever wins is awarded two newly minted ether. They also get a transaction fee.
To mine ether, you’ll need to build a custom mining rig.
The main components of any mining rig include a power supply, a motherboard, an operating system to run on your motherboard, computer memory, and a GPU, or graphics processing unit. An Ethereum mining rig is just like any other computer you would build on your own; only instead of having an actual case that all the components live in, it’s in an open area. You need to do this because when the GPUs are running, they get really hot, and it’s important to have a lot of air circulation.
One graphics card, can run roughly 27 million math equations every second.
That sounds like a lot, right?
But on ethereum’s network right now, there are 600 trillion math operations happening every second.
That is why people join something called a mining pool. A pool lets a single miner combine their hashing power with thousands of other miners all over the world.
The only other thing left to do is to create a wallet. You can think of it like a digital address for crypto cash. There are dozens of options, ranging from physical hardware wallets that let you store your crypto offline, to web wallets that allow you to interact with your account via a web browser.
Once you connect the rig to a power source and link it to the network, ether starts to go into your crypto wallet within minutes.
Profitability of mining
With one graphics card, the rig we built costs roughly $1,400. Tack on five more GPUs, and the price rises to $4,400.
If the rig runs at full capacity with all six GPUs, it can earn about 0.348 ETH/month, which, at this week’s peak price, is roughly $3,522.
Mining rigs require quite a bit of power, so electricity cost is a big factor when computing whether mining can be a profitable venture. Location matters, since there are stark differences in electricity prices from state to state.
Alaska, Hawaii, California and Connecticut have the steepest electricity costs in the country. New York is also one of the priciest states for electricity bills.
In contrast, Washington state has some of the cheapest power sources in the U.S. And outside the U.S., the prices drop even lower.