Home Technology The Evolution Of Ethereum Mining – Friendly Ghost Edition

The Evolution Of Ethereum Mining – Friendly Ghost Edition

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Mining has always been a business where the enormous effort required is often overlooked by the dogged human belief that quick riches are mere minutes away. This is as true of cryptocurrency mining as it is of precious metal and stones, and in both worlds, it is often some middleman who escapes with the profits, not the grizzled miner. The landslide of Ethereum miners’ hopes and dreams happened recently as the currency continued to tumble from its all-time high of $380 reached on June 13, 2017. Even though it tumbled to a still respectable and more realistic low $200’s, it took with it a great deal of investment in electricity, programming skill and hardware. Especially hardware. Ethereum mining was the hit business of the past few months.


Ethereum Mining technical details

The mining hit was in large measure because it was still possible for individuals to mine Ether so long as they had a sufficiently powerful graphics processing unit (GPU) like the AMD RX 500 or the GTX 1070 from Nvidia. As more individual miners joined the flock, the demand for GPUs grew sharply. They started flying off the shelves often at starkly inflated prices, as computer parts resellers latched on to this new hunger.

Market analysts estimate that the Ethereum crash was more of a market correction, coming down from a general frenzy over alt-coin paired with an enthusiasm for ICO’s (Initial Coin Offerings), which operated like IPOs for developers of new alt-coin technologies, but with investors obtaining their shares in Ethereum. This new approach to funding drove the price of Ethereum sky high in comparison to the first couple of years of its life, where it had flatlined below $10. With the increase in value came a surge of interest from miners who saw a relatively straightforward way to get a piece of the action, simply by downloading some zipped files and joining the Ethereum matrix through command line prompts. And that led to the third downward force: the increase in the difficulty of obtaining a proof-of-work.

Fundamental to the cryptocurrency mining business is the proof-of-work (PoW), which is in essence, an algorithm or mathematical challenge that a miner must solve before finding a new block in the blockchain, obtaining consensus of that block, and getting rewarded financially for doing so. Ethereum has been built in such a way that the difficulty factor (DAG) of the the PoW increases as more miners join, or once blocks are solved in under ten seconds.

As more prospectors join the party, the more difficult things become, and this is done, in large measure to keep things honest. Over the past few weeks the DAG has ratcheted up to unprecedented heights, requiring far more efforts and resources from each individual miner.

The price tumble and the DAG spike together have left miners exposed, having paid large amounts of money for their hardware, as well as significant electricity bills. They had naturally expected to recoup their investment and start generating profits through a continued climb in Ethereum valuation, but that has not happened. In fact, it might never happen, at least in the way they expect, because in addition to these diametrically opposed challenges (price and difficulty), the Ethereum mountain is now shifting under their feet.

Ethereum Mining – From Proof-of-Work to Proof-of-Stake

Computer hardware manufacturers are responding to the glut of GPUs by developing and releasing mining-specific hardware, which promises to handle the demand for high efficiency processing while using a lower energy footprint. This will be good news to miners, as well as to gamers, who have also suffered from the drought.

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But while this hardware evolution takes place, it may be a case of too little too late, at least for Ethereum mining. It has been announced by the Ethereum Foundation that by the end of 2017, the proof-of-work requirement will be replaced by a new finish line called Proof of Stake.  This new technique, code-named Casper, seeks to replace the PoW concept of miners being rewarded after solving complex mathematical riddles, with a system that seeks distributed consensus without the use of excess electricity, processing power, and puzzle solving. Under Casper, virtual miners are known as validators. They commit money to the system and they act with the knowledge that their money will be forfeited if they make wrong decisions.

Casper/proof-of-stake is a controversial advancement in the evolution of cryptocurrency and Ethereum mining in particular. Its main goal seems to be an improved system of security and accuracy in the building of blocks, primarily because the profit motive of the earlier proof-of-work – direct payment in Bitcoin – has been replaced by proof of ownership, or direct stake, in the Ethereum Mining process.

As described best at boxmining.com: “Instead of proving how fast you can calculate with hashrate, you need to prove how much Ethereum you own. You do this with something called a master node. When you create a master node, you have to lock up a certain amount of Ethereum to prove that you have it, and rewards are distributed according to how much proof of stake you have. One can create multiple master nodes with a lot of Ethereum inside and you’ll earn more through this method.”

The immediate benefit of proof-of-stake is the reduction in processing energy required. One source described the pooled effort of mining bitcoin using proof-of-work (PoW) to use the kWh equivalent of 16 gallons of gasoline. But in addition, by gaining a stake in Ethereum itself, miners help drive the price of the currency upwards.

Casper will be released as a hybrid to start, with one out of every 100 transactions using it, while the rest are processed with traditional Ethereum Mining techniques. The evolution continues.

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