When answer questions online, I almost always avoid questions related to mining. These include:
- What is the Most Cost Effective Graphics Card for Ethereum Mining as of June 2017?
- What should a Java developer know to start mining his own bitcoin in GPU?
- How do you choose a GPU for mining?
There’s nothing wrong with wanting to understand how hardware mining works. The problem is that when people want to get deeper into cryptocurrency, the common advice is to ‘start mining’. Whether it’s the belief that you’ll get ‘free’ cryptocurrency, or that mining is the next logical step to being an expert, most beginners are steered towards this sub-discipline.
I believe this is a mistake. Mining as a discipline has a lot of drawbacks and not a ton of upside. Especially for beginners, it’s more frustration than it’s worth and should be avoided in most cases. In this post, I’m going to discuss the issues with mining as the ‘next step’ for aspiring blockchain apprentices.
Issue #1: Mining Cryptocurrency Is Hyper Competitive
“The World Is Flat”. It’s the idea that because of the lowering cost of transportation and communication, competition is increasingly becoming global from the early stages of an industry. No where is this more prevalent than in cryptocurrency.
In 2010, there wasn’t a lot of competition for cryptocurrency mining because it was unknown and kind of weird. Only a handful of Bitcoin mining nodes existed globally (altcoins didn’t exist) and the cryptocurrency didn’t have any verifiable value. So anyone who could find the Bitcoin software and install it had a good chance of getting ‘free’ BTC.
This changed the day that the first Bitcoin exchange, Mt Gox, went live. Overnight, BTC had a value and the profitability of mining could be judged (and it turns out, it was quite profitable). This sparked interest in mining and, rapidly, made earning BTC more difficult.
This started the race for the best hardware mining rigs. GPUs soon outpaced CPU mining, which was then succeeded by hardware boards specifically made for Bitcoin. Today, the only way to be profitable mining BTC is to not only have the latest hardware, but also have cheap electricity. People will go to insane lengths to gain an edge here, as this Tibeting mining facility shows.
If you’re a newcomer in the Bitcoin world, trying to earn the next block has as much chance of success as a Pee Wee Football player walking onto the New England Patriots. The time and effort necessary to be successful is grueling, and only profitable for a small few, even with mining pools and other ways of getting a more even profit distribution. You’re not going to walk away with a few ‘free’ BTC.
Other cryptocurrencies (such as Ethereum) aren’t as competitive as Bitcoin, but are still subject to the same global forces listed above. A relatively unknown cryptocurrency that is profitable today will soon attract miners from other blockchains looking to make a better return. And as the price keeps rising, the incentive for more users to enter will continue to increase. It’s a race to the bottom that will never end and requires serious dedication to come on top.
Issue #2: The World Is Moving To Proof Of Stake
Let’s talk about Ethereum’s roadmap. Since the creation of the Ethereum blockchain, there has been a plan to move to another consensus model called Proof of Stake.
For the uninitiated, Proof of Stake is a consensus model that relies on randomly selecting certain special nodes called ‘forgers’ to create the next block on the blockchain. Forgers do not operate like miners. They don’t get mining rewards, instead getting a certain amount of cryptocurrency on a monthly or annual basis. There are no hash calculations necessary to make this system work.
Vitalik Buterin, the founder of the Ethereum blockchain, has already released code of how Ethereum POS is expected to operate. This transition is expected to be implemented sometime later this year, almost completely removing the need for mining.
Proof of Stake is just a more economical and environmentally friendly decision in the long-run. Even new blockchains that utilize Proof of Work, such as IOTA, only use their POW algorithms on a smaller scale, as they can be run on IOT devices. This is a far cry from the Bitcoin mining rigs that exist today.
Mining as a skill will likely be obsolete in the next five years. There may be extenuating circumstances that makes this worth the risk, but for the majority of beginners, it is not.
Issue #3: Learning Mining Doesn’t Help You Learn Blockchain
But, there still might be some merit in mining just to learn more about the technology, you might think. Just like work for a business helps you understand how it operates, perhaps mining gives you better insight into how your favorite cryptocurrency functions.
To an extent, this may be is true. Beyond the basics, though, mining doesn’t tell you much about the blockchain, algorithm or anything important about how the system works.
To illustrate this, let me show you a sampling of the top posts from r/Ethereum over the last week:
- Goldman-Backed Startup Circle Launches No-Fee Foreign Payments Service. Built on Ethereum.
- Vitalik about Bitcoin implementation on Ethereum : “Does someone want to take on this project?”
- Why we need Proof of Stake: Bitcoin Could Consume as Much Electricity as Denmark by 2020
- Ever wonder how people are using ETH right now? see top contracts by gas used today: ENS, Etherdelta, gambling, exchanges, tokens – Good times!
Most of the articles are focused on new Ethereum projects, explanations of how Ethereum is being used and arguments for Ethereum or certain implementations.
Now here’s a sampling of tops posts from r/EtherMining:
- New to cryptocurrency and just finished building my first mining rig! 5x + 2x(gaming rig) 1070’s for a total of 210 mh/s ETH and 3,500 mh/s SC.
- Understand power use – be safe and don’t burn your house down!
- GTX970 Mining FAQ
- Six 1070’s on Ubuntu 16.04 – 181 mH/s Success
If these two sets of posts seem unrelated, that’s because they are. Posts about mining have little to do with the larger Ethereum community and everything to do with how to get the fastest mining set-up possible. It’s a specialization that branches into hardware specific areas, rarely reaching back to the blockchain as a whole.
For beginners, this is a time sink that doesn’t help create a better understanding of the ecosystem as a whole. 10 hours spent understanding the Ethereum codebase will lead to better opportunities than 10 hours spent understanding how to build a faster Ethereum mining node.
There’s nothing wrong with being interested in mining. It’s an important area of blockchain technology and is largely responsible for the blockchains we see today. However, global competition has made it a very un-friendly area for new people to come in an start experimenting. Mining is just too competitive and too specific to be useful in a wide-variety of blockchain subjects.
Better to spend the time learning about an area that will be useful long-term.
If you do want to learn more about blockchain with reading that will teach you about the community, why not sign up for our newsletter? In addition to a list of the three best books to get up to speed on blockchain fast, I will send you a weekly list of the most important articles from the blockchain space this week. If you want to avoid hunting through the FUD and the Hype to find the good information, look no further.
Related Quora Posts
- Do you want to learn cryptocurrency mining?
- Should I start mining Ethereum or should I buy them?
- How does Ethereum Mining Work?
- What are some potential risks of starting an ethereum mining operation?
- NiceHash.com allows you to sell the GPU power of a GTX 970 for Bitcoin mining and earn roughly $2.73 a day for this. Why isn’t everyone doing this?