The Profitability of Mining Ethereum in 2017

Ethereum is second only to Bitcoin in value. Mining Ethereum has driven the prices of GPUs sky high (see our guide on Ethereum mining GPUs).

With the value and popularity of Ethereum on the rise, it’s clear that mining Ethereum is a prominent topic.

Before you invest your money in a great Ethereum mining rig or an Ethereum mining GPU, you’ll need to know if it’s even profitable.

Should you Mine Ethereum?

While Ethereum mining is profitable, it may not be the best idea for those simply looking to acquire currency.

If you just want cryptocurrency, it is probably a better idea to buy it. Mining hardware is very expensive, and unless you are mining on a large scale, it’s hard to turn a profit.

For those looking to acquire cryptocurrency, buying Bitcoin is a better investment.

Buy Bitcoin from Coinbase

Is Ethereum Mining Profitable?

The answer is yes. Ethereum can be mined with power efficient GPUs. On top of this, the value of Ethereum is steadily on the rise.

Both of these factors are fantastic reasons to mine Ethereum.

Take a look at the graphic below:

Ethereum Mining Profitability

This is the projected mining profitability of the Radeon R9 295 X2. As you can see, you’ll make over $800 USD annually per card. This means you’ll break even in less than a year and generate passive income.

Since the price of Ethereum is steadily rising, your profit margin will increase even more.

Ethereum is similar to Bitcoin, yet it has two key differences that have been crucial for its success: Smart Contracts and the shift to proof of stake.

Smart Contracts

Unlike Bitcoin, the coding language used for Ethereum makes it much easier for programmers to develop ‘programmable money’, or Smart Contracts.

This is revolutionary in the world of cryptocurrencies and opens many doors for the future.

Proof of Work

Ethereum’s second key difference from Bitcoin is its shift from proof of work to proof of stake.

Before you can understand proof of stake, you must understand proof of work.

Blockchain technology was created in 2009 when Bitcoin was released.

In essence, a blockchain is a database. In the world of cryptocurrencies, the blockchain is a database of transactions.

If someone tries to initiate an invalid transaction, the blockchain’s code will determine that it’s invalid and it will reject the transaction.

If someone were to say they mine Bitcoin, Ethereum, Litecoin, etc. it means they are setting their computer to solve the cryptocurrency’s algorithm.

The computers adding the transactions to the blockchain are executing extremely difficult tasks.

It’s basically a guess and check system in which your computer is constantly checking the code until it finds the solution. This is all to prove a valid transaction on a blockchain.

Proof of Work’s Downfalls

Proof of work has many downfalls, including:

  • A large upfront investment in expensive computer components
  • Mining with this system uses lots of power
  • Electricity costs are extremely high and cut into the profits of miners

The last item on the list is extremely important. The total power cost to run all of the miners on the Ethereum network is actually greater than that of a small country.

This is especially problematic from a long term standpoint. In 5 to 10 years, more power may be needed to mine than we have.

What is Proof of Stake?

With proof of stake, your computer/wallet is staking the coins you already have.

For example, if the network has 1,000 total coins and you stake 100 of your coins, you’d have 10% of the total coins being staked.

This means you’ll receive 10% of the rewards from the network.

Rather than performing work for coins, you’re staking the coins. When you stake your coins, you’re essentially locking them away.

If you don’t verify the right transactions or forge any transactions, you’ll lose the coins you staked in the network.

Proof of Stake’s Benefits

Proof of stake does not use energy, as the GPUs are not solving any complex cryptographic hashes.

Instead, you’re locking your coins away. This makes it easy to see who gets what rewards.

No longer do you have to spend lots of money on expensive hardware or electricity.

If you want rewards, you have to own coins beforehand. With proof of work you’re basically turning electricity into coins. With proof of stake, you’re turning coins into more coins.

Is Ethereum Mining Worth It?

We say the answer is yes.

Regardless of the functionality or importance of smart contracts, lots of people like the idea. This in turn drives the prices of Ethereum higher and higher.

The long term benefits proof of stake has to offer are clear. It will save electricity and lower if not eliminate hardware costs.

However, mining still has its place in 2017. The shift to proof of stake is by no means mainstream, and we still largely depend on miners to validate the transactions in the blockchain.

Smart contracts and proof of stake will cause the value of Ethereum to increase further and further, rendering it an extremely profitable cryptocurrenct to mine.

If you haven’t already invested in great mining hardware we suggest you start now.