Here are some good reasons to mine Ethereum:

  • Mining can be a great way to subsidize the purchase of a new, high end GPU (or two or three…).
  • As Ethereum is easily traded for bitcoins (BTC), it’s a cheap way to slowly build up a hodling position in Bitcoin. Many influential people are very bullish on Bitcoin’s prospects for 2016 and later.
  • BTC can be easily sold for cash so, indirectly, mining ETH can be a good way to fill up your bank account or earn cash. ETH can also be sold directly on several major exchanges, such as Bitfinex, BTC-e, Kraken, Gemini and Coinbase.
  • Mining can be a cheap entry ticket to the Ethereum markets, loved by traders for their high volatility. If you’re a good and / or lucky trader, you can maximize your profits.
  • Building a large ETH position now, in the Proof of Work mining phase, will enable you to earn interest on your holdings if / when Ethereum switches to a Proof of Stake
  • If you believe in the Ethereum concept (despite the failure of the DAO and doubts regarding the viability of Ethereum’s approach), you can support and gain voice in the Ethereum network through mining.

Some of the above terms in bold probably require further clarification for cryptocurrency newcomers. Let’s start with the Ethereum blockchain; the distributed digital ledger which you actually mine.

Ethereum Blockchain Basics

All transactions in Ethereum (and other cryptocurrencies) are encapsulated within discrete blocks. These blocks are comparable to the batches of transactions which banks send to each other, except in Ethereum they occur every 15 seconds (on average). Blocks are identified by their “height,” starting from 0 and incrementing sequentially until the current block.

Here’s how the mining process serves to create, verify and record blocks:

  1. Miners listen for transactions over the network and amass all they consider valid (in terms of fees, code and the accounting history of who controls which coins) into blocks.
  2. Miners expend electricity hashing that block with the processing power of their GPU(s). A successful hash result produces produce a unique Proof of Work (PoW) proving that the miner worked on that block.
  3. If the rest of the network accepts the hashed block as valid, the block becomes part of the permanent consensus on valid transactions, known as the blockchain.
  4. The miner receives 5 ETH plus all transaction and code-processing fees (aka gas) contained in their block, plus a possible bonus for any uncles they include.

How Ethereum’s Blockchain Differs from Bitcoin’s

Ethereum uses a different hashing algorithm to Bitcoin, which makes it incompatible with the special hashing hardware (ASICs) developed for Bitcoin mining. Ethereum’s algorithm is known as Ethash. It’s a memory-hard algorithm; meaning it’s designed to resist the development of Ethereum-mining ASICs. Instead, Ethash is deliberately best-suited to GPU-mining.

 

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