Ethereum mining has become popular. How should ordinary people enter the market?

Thanks to the liquidity mining incentive mechanism of various DeFi projects, Ethereum's total network fee income in August reached 261,389.62 ETH (approximately US$108.9 million), and Ethereum's single-day fee income on September 2 reached 37,967 ETH .

Figure: Daily ETH network fee income, source: etherscan.io

Generous commission income, attractive static payback period, extremely low shutdown coin price, and high residual value of mining machines have made Ethereum mining a popular commodity in the eyes of many people. This can also be confirmed by the growth of Ethereum's total network computing power:

At the beginning of the year, the total computing power of the Ethereum network was 147,505 GH/s. On June 30, it was 189,228 GH/s. In half a year, the computing power increased by 41,723 GH/s, an increase of 28.3%.

On September 15, the total computing power of the Ethereum network was 246,299GH/s. Compared with the data on June 30, the computing power increased by 57,071GH/s. In other words, in less than three months, it exceeded the growth data of the first half of the year.

Figure: Growth of ETH network computing power, source: etherscan.io

The reason why the computing power of the entire Ethereum network has grown so fast in the past three months is largely because Compound pioneered liquidity mining in mid-June. Subsequently, more and more DeFi applications followed suit and launched liquidity mining, driving up ETH prices and rapid growth in transaction fee income, attracting miners to invest more computing power to mine.

Since Ethereum mining is a good business, how can ordinary users participate in it? Generally speaking, ordinary users can participate in Ethereum mining in the following three ways: 1. Purchase cloud computing power; 2. Joint mining; 3. Purchase mining machines and host them in mining farms.

01
Cloud computing power

Cloud computing mining refers to the mining of digital currencies by remotely calling the computing power of mining machines. Users only need to purchase or rent the required computing power from the relevant platform.

Among the three ways to participate, purchasing cloud computing power is the simplest one. Similar to shopping on Taobao, users only need to place an order for the required computing power on the cloud computing power platform. After payment, they can just sit back and collect coins. The validity period of cloud computing power varies from platform to platform. Some are valid for several years, and some are valid forever. However, if the mining income cannot cover the electricity bill and the duration exceeds 90 days, the cloud computing power will start liquidation.

Figure: Ethereum cloud computing product launched by a platform

Although cloud computing mining is simple, convenient, time-saving and labor-saving, it also has many disadvantages and risks.

First, there are risks from the platform. Cloud computing platforms vary greatly. Some platforms do not actually control the mining farms and mining machines themselves. In essence, they are middlemen. Many platforms are small in scale and have weak risk tolerance. Such platforms are at great risk of bankruptcy or running away, especially when the price of coins plummets or a "mining accident" occurs.

Secondly, the premium of cloud computing power is very high. Mining is an industry that pays great attention to cost control. The premium of cloud computing power is high, so compared with other mining products, the payback period of cloud computing power is relatively long.

Taking the ETH graphics card cloud computing power launched by a certain platform as an example, the price of each MH/s computing power is 66.8 yuan, the electricity fee is 0.385 yuan/kWh, and the power consumption is 3.5W. Let's compare the cost of joint mining. The Sapphire 5600XT 8-card machine launched by B.TOP under Litecoin last week has a computing power of 320MH/s and a price of 20,300 yuan, which is equivalent to a price of 63.4 yuan per MH/s computing power, an electricity fee of 0.38 yuan/kWh, and a power consumption of 3.44W per MH/s computing power. Obviously, the cost of cloud computing power products is higher than that of joint mining products.

Figure: Parameters of Ethereum cloud computing products launched by a certain platform

Finally, cloud computing users cannot enjoy the added value of mining machines. Generally speaking, when the price of coins rises, the price of mining machines will also rise, but cloud computing is essentially a contract product, and users do not have ownership of mining machines, so cloud computing users cannot enjoy the added value of mining machines.

In summary, cloud computing is simple, convenient, time-saving and labor-saving, but the premium is high, the payback period is long, and there is no ownership of the mining machine, so you cannot enjoy the added value of the mining machine. In addition, cloud computing has platform risks, so when purchasing, you must choose a platform with strong strength, good reputation and long operation time.

02
Merged Mining

Joint mining is also a one-stop service , from group purchase of mining machines, listing and delisting, hosting, operation and maintenance, repair, migration, access to mining pools to residual value sales, all mining-related services are completed by the joint mining service provider. Just like cloud computing power, users can receive coins after payment, which is very simple, convenient, time-saving and labor-saving.

Compared with cloud computing power, the advantages of joint mining are mainly:

1. Lower price. Generally speaking, the price of cloud computing power products is more than 30% higher than that of joint mining products of the same specifications. In the above, we compared the Ethereum graphics card cloud computing power product of a certain platform with the Ethereum joint mining product of B.TOP. In terms of price per unit computing power, electricity cost, and power consumption, the joint mining product has more advantages.

2. Ownership of the mining machine allows you to enjoy the bonus of the mining machine's value-added and the residual value of the mining machine. Benefiting from the rise in ETH prices and DeFi's liquidity mining, the price of Ethereum graphics card mining machines has generally increased by more than 2,000 yuan compared to the price in June. This part of the value-added of the mining machine can be enjoyed by users of joint mining, but it has nothing to do with users of cloud computing power, because in the joint mining model, the ownership of the mining machine belongs to the user, and the service provider only purchases the mining machine, hosts it, and operates it on behalf of the customer.

In addition, the residual value of the graphics card mining machine is also an important part of the income of Ethereum miners. The residual value rate of a graphics card that has been used for mining for two years is generally about 30% of the market price of the graphics card (mainly refers to ordinary assembled graphics card mining machines, not customized machines). The remaining parts (motherboard, CPU, power supply, hard disk, etc.) other than the graphics card also have a high residual value, which can generally be sold for 500 to 1,000 yuan. In the joint mining mode, these residual values ​​of the mining machine belong to the user.

3. The post-profit model ties the interests of service providers and users together, which is conducive to promoting the refined operation of service providers and accelerating the return on investment. Taking B.TOP, a subsidiary of Litecoin, as an example, no service fee is charged before the joint mining products purchased by users have recovered their investment, which minimizes the mining risk of users; after the investment is recovered, the profit is divided according to the proportion. This post-profit model encourages B.TOP to carry out refined operations and help users recover their investment as soon as possible. Ethereum mining machines are very "fragile" and test the ability of on-site operation and maintenance personnel. Refined operation and maintenance have a great impact on mining income.

Of course, there are risks in joint mining, and the biggest risk is still the platform risk. Therefore, when choosing joint mining, you must choose a platform with strong strength, good reputation, and long operation time.

To summarize, joint mining is also a one-stop service, which is very simple and convenient, saves time and effort, and has a lower price. By owning the mining machine, you can enjoy the added value bonus and residual value of the mining machine. The subsequent profit-sharing model greatly reduces the risk of mining and shortens the payback period.

03
Purchase mining machines and host them at the mining farm

The third way to participate in Ethereum mining is to buy an Ethereum mining machine yourself and then host it in a professional mining farm. This method is only suitable for experienced and relatively large miners for the following reasons:

1. There are many pitfalls when buying a mining machine. We have listed the pitfalls that you may encounter when buying a mining machine in our previous article "What are the pitfalls when buying a mining machine? A comprehensive inventory of pitfalls". The graphics card mining machine market is more niche and immature than the ASIC mining machine market, so there are more pitfalls. If you don't have rich experience, it's easy to fall into the pit.

2. There is a relatively high threshold for assembling a mining machine by yourself. The advantage of graphics card mining machines is that there is a lot of room for DIY. Many miners will buy accessories and assemble them by themselves, which is cheaper. However, there are also many tricks in purchasing accessories and assembling. It is not possible to mine Ethereum by connecting a bunch of hardware.

3. High requirements for managed mining farms. Compared with ASIC mining machines, Ethereum mining machines are larger in size and have lower power consumption. For mining farms that make profits from the price difference of electricity, Ethereum mining machines are not so popular. Not only that, Ethereum mining machines have higher requirements for the mining farm environment than ASIC mining machines. Mining farms must not only do the most basic temperature and humidity control, but also take dust and anti-static measures. Now the better graphics card mining machine rooms in the industry are basically designed and built according to IDC-like specifications.

In addition to the environment, there is also the power stability of the hosting mine. Ethereum graphics card mining machines have high software and hardware complexity. Frequent power outages will increase the damage rate of various parts of the mining machine. After the power supply is restored, the time required for the computing power debugging of the graphics card mining machine is also longer than that of the ASIC mining machine, so the power stability requirements of the mining farm are also very high.

To sum up, the advantage of purchasing a mining machine yourself and hosting it at a mining farm is that it has a high degree of freedom and lower costs, but this method is only suitable for experienced miners with larger scale.

04
Conclusion

Ethereum mining is a good business, and now is a good time to enter the market. Different mining participation methods have different thresholds and costs.

In terms of participation threshold and cost-effectiveness, the joint mining model is the most suitable way for ordinary users to participate ; for experienced and relatively large miners, purchasing their own mining machines and hosting them at a mining farm may be a better choice.

Risk warning : The content of this article is only the author’s personal opinion, does not represent the views or position of Zhikuang University, and does not constitute any investment opinion or recommendation.