Mining Ethers on the Ethereum Network – Part 1

Just like with the bitcoin, one of the main ideas behind ether currency is that there should be a limited number of coins. You can obtain Ethereum network currency, called Ether, by buying it, earning it or mining it.


Limited Number of Cryptocurrency Coins

The Ethereum network went live in 2015, 6 years after the initialization of the bitcoin network. The bitcoin network came into existence in 2009, right after the peak of the Great Recession and 2007/2008 world financial crisis.

One of the consequences of the crisis was governments of various countries engaging in quantitative easing, which is simple terms means printing more money. Central banks were printing money to stimulate the economies of their countries. The main idea behind quantitative easing is that more money in circulation makes products and services in a country cheaper and, therefore, more competitive compared to the products and services created in other countries. When products and services become cheaper, people and organizations are buying more of them and the activity in the markets keeps the economy going. The problem with quantitative easing is that it can become a race to the bottom. Governments and central banks can keep printing money, devaluing their currencies and making their citizens poorer and poorer. Even when quantitative easing works, a government adds to the debt of the country, fundamentally passing the responsibility and financial obligations to the next generations.

This is the reason why Satoshi Nakamoto, the creator of bitcoin, wanted to limit the number of coins that could ever exist. Ethereum uses a similar approach to the number of coins on the Ethereum network.


The Number of Ethers in Circulation

As of December of 2016, there are about $100 million ethers in existence. Vitalik Buterin and several other original developers of the Ethereum network brought the network to life with a crowd sale campaign. They have created 60 million Ether coins that went to presale contributors. 20% of that number, or about 12 million additional coins, went to the development fund for the network, with most of the coins going to early developers, contributors, and the Ethereum foundation.

Ethereum network has a goal of creating a new block of the Ethereum blockchain every 15-20 seconds, which is much faster than the block creation speed on the bitcoin network. The creator of the block gets a reward of 5 ethers. Occasionally, 2 or 3 ethers are given to other miners who were able to solve a mathematical problem but whose block did not become a winning block.

During the presale, creators of the network decided that the cap of the Ether coins would be 25% of the initial supply or about 18 million coins per year.   


Ways to Mine Ether Coins

You can mine ether by either buying the hardware equipment you need to mine the coin or by joining a mining pool and renting equipment. One option of joining a pool is a cloud mining agreement. Before you enter into a contract, make sure to do your research and find the best deal available. When you become a part of a pool, your profits are typically smaller than if you mine the coin yourself, but they are also more predictable and the chances of success are higher.


What is Mining on the Ethereum Network?

Mining on the Ethereum network is very similar to mining on the bitcoin network. It is an act of validating transactions and coming up with a hash that satisfies the required conditions of the Ether blockchain.

The biggest challenge in Ethereum mining is the same as it is in bitcoin mining: you need to make sure that coins that you get as a reward have more value than what you will pay for the electricity needed to generate blockchain blocks. If you have never mined cryptocurrency coins before, it may be a good idea to join a mining pool before you invest in your own hardware.

The hardware you will need to mine ethers is different from the hardware you need to mine bitcoins because Ethereum network and bitcoin network use different ways to implement the proof-of-work concept that mining is all about. This means that you will not be able to use Bitcoins ASICS hardware to mine ether currency. The most important part of your mining hardware is the graphics card, which is why you should buy the best graphics card you can afford and not try to save any money on this part of your mining equipment.

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