What is the difference between Ethereum mining and Bitcoin mining?

In recent times, the popularity of liquidity mining has directly caused network congestion on Ethereum, the underlying public chain that carries various DeFi applications. The average Gas price paid by users has reached as high as 480Gwei (now fallen back to 110Gwei).

Figure: Average ETH transfer fee

The Ethereum network is congested and the fees are high, and the people who benefit the most are Ethereum miners. In the previous article "Is Ethereum mining a good business?", we gave an example:

At the current price of the currency, a 5700XT 8-card machine has a net profit of 115.6 yuan per day, and the static payback period for Ethereum mining is about 240 days; for the Nvidia series 1660S, the static payback period is only 210 days.

(Note: The post was published on August 31st, when the ETH price was $ 480. Now that the ETH price has fallen, the fee income has also decreased, and the static payback period has changed significantly )

From the perspective of static payback period, Ethereum mining is extremely attractive.

However, compared to Bitcoin mining, Ethereum mining is more niche, and fewer people know about it and actually participate in it. In this article, we will help you better understand Ethereum mining by comparing it with Bitcoin mining.

01
Mining algorithms, equipment, and computing power scale

Bitcoin uses the SHA-256 encryption algorithm. When mining, the competition is about computing power. In order to improve computing power, Bitcoin has gone through four stages: CPU mining, GPU mining, FPGA mining, and now ASIC mining, with increasing specialization.

Ethereum uses the Ethash encryption algorithm. During the mining process, it is necessary to read the memory and store the DAG file. Since the bandwidth for each memory read is limited, and it is difficult for existing computer technology to make a qualitative breakthrough in this issue, no matter how the computer's computing efficiency is improved, the memory reading efficiency will not be greatly improved. Therefore, in a sense, Ethereum's Ethash encryption algorithm is "anti-ASIC".

The difference in encryption algorithms leads to huge differences in mining equipment and computing power between Bitcoin and Ethereum.

At present, Bitcoin mining equipment is mainly highly specialized ASIC mining machines. The computing power of a single mining machine can reach up to 110T/s (Ant S19 Pro mining machine), and the computing power of the entire network is above 120EH/s.

Ethereum's mining equipment is mainly graphics card mining machines, and there are very few professional ASIC mining machines. On the one hand, the "ASIC resistance" of Ethereum's mining algorithm has raised the threshold for the research and development of ASIC mining machines. On the other hand, after Ethereum is upgraded to 2.0, the consensus mechanism will be transformed into PoS, and the mining machines will no longer be able to mine.

Compared with ASIC mining machines, the computing power of graphics card mining machines is 2 orders of magnitude lower. At present, the computing power of mainstream graphics card mining machines (8 cards) is about 420MH/s, and the computing power of the entire Ethereum network is about 230TH/s.

From the perspective of the past two years, the computing power of the entire Bitcoin network has grown rapidly, while the computing power of the entire Ethereum network has grown relatively slowly.

Figure: Bitcoin network computing power VS Ethereum network computing power from 2018 to date

Bitcoin's ASIC mining machines are monopolized by several major mining machine manufacturers, and miners can only buy them from the market; Ethereum's graphics card mining machines, although they are also manufactured by specialized mining machine manufacturers, miners can also DIY according to their own needs, buy accessories from the market and assemble them themselves. Regarding the pitfalls of graphics card mining machines, especially assembling graphics card mining machines by yourself, you can read the previous tweet of Zhikuang University "What are the pitfalls of buying mining machines? Niche graphics card mining machines".

02
Electricity cost ratio of mining machines

ASIC mining machines have high computing power and high power consumption. For example, the latest Antminer S19 Pro mining machine has a rated power consumption of 3250W and consumes 78 kWh of electricity per day. According to the current coin price and the flood season electricity price of 0.23 yuan, the electricity cost accounts for 30.68%. Other older generation Bitcoin ASIC mining machines, such as the Antminer T17 series, generally account for more than 50% of electricity costs.

Therefore, ASIC mining machines are very sensitive to electricity costs. This is why every year when the flood season comes in Sichuan, many ASIC mining machines have to be moved from thermal power mines in Xinjiang, Inner Mongolia and other places to hydropower mines in Sichuan. When the mining output cannot support the electricity expenses, the mining machines have to be shut down.

In contrast, graphics card mining machines consume less power and their electricity costs account for a lower proportion. For example, a 5600XT 8-card graphics card mining machine, calculated at an electricity price of 0.36 yuan, would cost about 10.4 yuan per day, accounting for about 11.5% of the total electricity costs; another example is a 1660S 8-card graphics card mining machine, which would cost about 6.9 yuan per day, accounting for about 10.3% of the total electricity costs.

Because electricity costs account for a low proportion, graphics card mining machines are rarely migrated back and forth each year (another reason is that graphics card mining machines are very "fragile"), and are generally hosted in year-round electricity mining farms.

03
Hosting of mining machines

The main profit model of mining farms is to earn the difference in electricity charges. The more electricity they sell, the more money they make. Bitcoin ASIC mining machines consume a lot of electricity and are relatively easy to maintain, so they are very popular among mining farms. When hosting, there are many mining farms to choose from.

Ethereum’s graphics card mining machine not only consumes less power, but is also large in size. Compared with Bitcoin ASIC mining machines, ordinary graphics card machines occupy a space ratio of 1:3, which means that the space of three ASIC mining machines can only accommodate one graphics card mining machine.

In addition, the graphics card mining machine has high requirements for the environment of the mining farm. In addition to the most basic dust and moisture prevention, and controlling the temperature inside the mining farm, the mining farm also needs to do anti-static treatment.

When a graphics card mining machine is shut down and restarted, computing power will generally decrease, increasing the workload of on-site operation and maintenance. Therefore, when choosing a hosted mining farm, the stability of the mining farm's power supply and operation and maintenance capabilities are very important considerations.

Graphics card mining machines are not popular in many mining farms, and there are relatively few hosting mining farms to choose from. Generally speaking, when graphics card mining machines are hosted, the electricity price charged by the mining farm is generally higher than that of ASIC mining machines.

04
Mining machine residual value

The chips of ASIC mining machines are customized and can only mine currencies with fixed algorithms. For example, Bitcoin's SHA-256 mining machine can only mine BTC, BCH, and BSV. After the ASIC mining machine is scrapped, it can only be sold as hardware, and the precious metals in the mining machine will be refined and reused. A scrapped ASIC mining machine hardware can only be sold for about 30 yuan, so the residual value of the ASIC mining machine is very low.

In comparison, Ethereum’s graphics card mining machines have a high residual value.

First of all, if the graphics card mining machine can no longer mine Ethereum, you can switch to mining other small currencies. There are many options.

Secondly, even if you don’t mine, the graphics cards of the graphics card mining machine can be disassembled and sold to Internet cafes, gamers or companies that need to process a large number of graphics images. Generally speaking, the residual value of a graphics card that has been used for mining for two years is about 30% of the market price of a new graphics card.

In addition, the remaining parts of the graphics card mining machine except the graphics card (motherboard, CPU, power supply, hard disk, etc.) can also be reused and have a high residual value, generally selling for 500 to 1,000 yuan.

If you want to know more about the residual value of mining machines, you can read the previous tweet of Zhikuang University: "Zhikuang University Q&A: How to calculate the residual value of mining machines? Where do scrapped mining machines go?"

05
Block Rewards and Mining Deadline

The block reward of Bitcoin is deterministic and will be halved every 4 years on average until all Bitcoins are mined in 2140. After the halving in May this year, the Bitcoin block reward is 6.25 BTC, and the next halving is expected to occur in April 2024. As long as the mining output can cover the electricity expenses, miners can continue to mine until 2140.

Ethereum's block reward was originally 5ETH. In October 2017, Ethereum's Byzantium upgrade reduced the block reward from 5ETH to 3ETH; in March 2019, the Constantinople upgrade reduced the block reward from 3ETH to 2ETH.

The Ethereum 2.0 consensus mechanism will be upgraded to PoS, and all mining machines will no longer be able to mine. There is uncertainty about when the upgrade will take place, how long the mining machines can continue to mine, and whether the Ethereum block rewards will continue to decrease in a step-by-step manner during the upgrade. Currently, the mainstream view in the industry is that Ethereum can be mined for another 1 to 3 years.

06
Summarize

The difference in encryption algorithms has led to a big difference in mining equipment and computing power between Ethereum and Bitcoin. Ethereum's mining equipment is mainly graphics card mining machines, and there are very few professional ASIC mining machines.

Ethereum graphics card mining machines have a low electricity cost ratio, but are large in size and have high requirements for the mining farm environment and operation and maintenance capabilities. Therefore, there are relatively few mining farms to choose from when hosting.

Graphics card mining machines have a high residual value, but Ethereum 2.0 is a potential risk in Ethereum mining, and this must be taken into account before participating in mining.

What else do you want to know about Ethereum mining? Feel free to leave a message in the comment section.