Viewpoint | Can you make money by investing in Ethereum mining now?

Recently, DeFi applications in the Ethereum ecosystem have been heating up, and related tokens have become popular investment targets. The prices of many tokens have hit new highs. The price of Compound tokens, a popular project recently, has exceeded that of Ethereum.

This wave of DeFi craze has brought the attention of many friends in the circle to Ethereum. I also emphasized in the article that our focus in the future should be on Ethereum. As the attention of Ethereum increases, not only DeFi, but other things related to Ethereum have also begun to attract attention - mining is one of them.

When it comes to mining, people in the industry, especially many well-known seniors, talk most about Bitcoin mining. There are fewer articles on the market introducing Ethereum mining than Bitcoin mining.

Ethereum mining uses mining machines just like Bitcoin mining, and its consensus mechanism is also POW, so Ethereum mining is also a competition of computing power. However, unlike Bitcoin, in order to prevent Ethereum mining from being monopolized by ASIC mining machines like Bitcoin mining, the Ethereum team added some special processing to the mining algorithm to prevent mining from becoming a simple competition of computing power. It is precisely this detail change that has led to Ethereum mining being completely different from Bitcoin mining, and using completely different equipment.

Bitcoin mining requires the use of dedicated ASIC mining machines, which are currently almost monopolized by the four major mining machine companies (Bitmain, Shenma Mining, Canaan Creative and Ebang International). Ethereum mining does not require the use of dedicated ASIC mining machines, and can be mined with graphics cards.

So why do Ethereum miners use graphics cards to mine? The reason is that a special process is added to the Ethereum mining algorithm, which requires miners to maintain a directed acyclic graph (DAG) data structure in the system when mining, and the calculation and storage of this data structure must rely on graphics cards .

Unfortunately, as Ethereum mining progresses this year, the data structure of this directed acyclic graph has become larger and larger, so the graphics card storage space it occupies is also increasing, and will reach 4G space in the second half of this year. This means that a considerable number of 4G graphics cards configured in old mining machines will soon be unable to be used for mining and will be eliminated. Therefore, Ethereum mining will usher in a huge wave of mining machine upgrades in the second half of this year .

According to the information I have, all major graphics card mining machine companies are now upgrading their Ethereum mining machines, replacing the graphics cards with at least 8G configurations.

This is what friends who are preparing to participate in Ethereum mining need to pay special attention to when purchasing mining machines.

In addition to paying attention to the above issues in hardware, the more important consideration for mining is cost-benefit. The equipment configuration of mining is now very transparent, so in terms of hardware costs, all information is basically public and relatively fixed. Therefore, the fundamental factors that determine whether mining is profitable are electricity costs and maintenance costs .

When ordinary retail investors participate in mining, they buy mining machines and then directly host the equipment to the mining farm. The mining farm will charge electricity fees and monthly maintenance fees. In addition, if the equipment is damaged, the mining farm will also need to pay for repairs. All of these are things that retail investors who want to mine should carefully consider before participating.

In 2018, I bought an Ethereum graphics card mining machine for 20,000 RMB. At that time, it was hosted at a mining farm. The electricity bill was 0.3 RMB per kilowatt-hour, and there was a fixed equipment maintenance fee every month.

I remember that when I bought the mining machine, the price of Ethereum was over $500, and I could mine 0.5 Ethereum every month. However, after a few months, when the price of Ethereum fell below $500, I calculated that the Ethereum I mined was just enough to cover the electricity and maintenance fees. When I wanted to sell the mining machine back to the merchant, the merchant offered a recycling price of almost only one-tenth of the original purchase price.

In addition to the above risks and potential pitfalls, there is one more thing to note when participating in Ethereum mining: With the advancement of Ethereum 2.0, Ethereum will completely switch to Ethereum 2.0 in the next 3 to 4 years, and its consensus mechanism will be changed from the current POW to POS. Since POS mining does not require too high hardware configuration, the cost of mining with current graphics card mining machines will be too high at that time, so graphics card mining is likely to be eliminated in Ethereum 2.0.

By this calculation, the time left for Ethereum graphics card mining is estimated to be only about 2 years, so friends who are currently participating in Ethereum mining must consider how much yield they can get from mining in these 2 years. If the yield is too low, it would be better to just buy and hoard coins.