The pits and misunderstandings of Ethereum mining

What is mining? As we all know, Ethereum is a distributed smart contract platform, which is completely open. The nodes are anonymous and can join and exit freely.

This introduces a question, who can generate blocks? In order to finally converge to a main chain among all nodes in the entire network, there must be some kind of rule to determine who generates the block. This kind of competition is carried out through mining. You need to complete a certain calculation (Ehash) and consume a certain resource (electricity) to express your sincerity in generating blocks to the entire blockchain system. This successfully binds the generation of blocks to an insurmountable objective law (calculation consumes electricity).

Because this objective law is insurmountable, the block will not be generated arbitrarily. Every node that tries to generate a block will inevitably take this matter very seriously. After all, no one will be idle. Children waste a lot of electricity to play pranks, thus ensuring the order and safety of the network.

Story time, why do newspapers sell for 50 cents? When I was young, I used to buy newspapers for adults, because newspapers are 50 cents, and adults usually give me one. After buying the newspaper, I can get 50 cents of pocket money and can buy a lollipop, so I am especially willing to do this. child. After growing up, I went back to my hometown one time and found that everything had gone up in the past 20 years, except that the price of newspapers had not increased, and it was still 50 cents. What shocked me even more is that the printing cost of newspapers is actually far more than 50 cents. Newspapers make money from advertising.

So, why not distribute newspapers for free? Free newspapers should be read by more people, and then more advertising will be earned. After a while, I would like to understand. If you don’t use fifty cents as a restriction, you will find that newspapers will not flow into the hands of readers, but into the hands of old aunts who have collected tatters. Those who want to read newspapers can’t see it, who will come. What about advertising? Fifty cents is just more expensive than selling scraps for a newspaper. It is obviously not economical to buy newspapers and sell scraps. Readers care about the content. A small fifty cents is very easy to afford. This ensures that everyone who wants to read it will be able to fancy it. Money has nothing to do with it.

These five cents are similar to mining, and they both use a certain way to increase the cost of doing evil, thereby maintaining the stability of the entire system. Where does Ether come from? Compared with Bitcoin, there are two differences between Ether on Ethereum: There is no upper limit on the total amount of Ether, and not all Ether is generated by mining.

Bitcoin is positioned as a cryptocurrency, so it regards inflation as the number one enemy, and the total amount is set to be limited in design. Ethereum is positioned as a smart contract platform. Ether is not designed to be used as a currency, but to pay for the resources consumed by smart contracts. Therefore, no upper limit on the total amount is more conducive to the development of the platform.

The composition of mining revenue has been mentioned earlier. The purpose of mining is to show the sincerity of generating blocks and to maintain the security of the network. So, why do miners use real money to buy electricity to buy mining machines to generate blocks? It is necessary to give the miners some rewards in order to fully mobilize their enthusiasm.

Ethereum mining rewards are divided into four parts: Block reward uncle block reward uncle block includes reward transaction fee. The so-called block reward refers to the reward you get when the block you dig becomes part of the Ethereum main chain. It is currently 2 ETH per block.

The so-called uncle block reward means that you have dug a block, but the block you dug is not included in the main chain. Considering that you also consume electricity, you have expressed your sincerity, and you are also rewarded. This reward is not as large as the block reward, usually 1.5 ETH to 1.75 ETH. The so-called uncle block contains rewards, refers to the rewards you get when you include the uncle block into the block you dug up. Because uncle blocks are not included in the main chain, miners are required to include them in the main chain in subsequent blocks. If this inclusion behavior is not rewarded, the reward for uncle blocks will not be issued. However, including an uncle block is just a matter of effort. After all, the uncle block is not dug out by you, and naturally it will not give you a lot of rewards. The meaning is good, and you can only include two at most. At present, including an uncle block will give you 0.0625 ETH.

The so-called transaction fee refers to the fees paid by users of Ethereum to occupy the resources of this platform. According to the complexity of your smart contract, Ethereum will calculate the gas value you want to consume, and calculate the final transaction fee based on the gas price you are willing to pay. Users can pay more or less transaction fees by adjusting the gas price, and the miners will give priority to transactions with high gas prices. In other words, if you want your transaction to take effect as soon as possible, such as when grabbing DeFi, you need to pay more transaction fees in exchange for priority processing. If you just routinely aggregate scattered assets, you can queue up slowly, anyway. Not in a hurry.

Transaction fees: 18354.158 ETH Total: 31860.5955 ETH (approximately worth 300 million yuan) It can be seen that transaction fees account for the largest proportion of Ethereum mining revenue, indicating that a large number of people are using this platform. It reflects that Ethereum is a success as a smart contract platform.

If the previous content is mainly to give friends who have never been in contact with mining a basic understanding, then the following is the dry goods in the dry goods, which is directly related to whether you can get the expected benefits.

Mysterious return time mining is not for charity, but for profit. Many people who plan to invest in mining, the first topic of concern is when will the money I buy the mining machine be recovered?

Calculating the return time itself is correct. Any investment is to calculate the income, otherwise it is not an investment, but a gambling. It's just that because many people don't understand the characteristics of the mining industry, they apply the wrong model, resulting in losses.

Below, we will analyze a typical misunderstanding together, which I call a linear model. From the past to the present, let us set the time back to the last mining wave of 2018. This is a case of one of my consulting clients, and his authorization has been obtained. In January 2018, a certain A found that the Ether had risen sharply, so he decided to participate in mining. On January 22, 2018, a certain A officially paid for the purchase of a mining machine, and officially excavated on January 25, 2018.

The basic situation of the mining machine purchased by a certain A is as follows: 570 4G 8 card computing power 240M wall power consumption 1280w price 24000 yuan electricity price 0.4 yuan On January 25, 2018, the price of Ethereum was 1046.37 US dollars. After deducting 1% of the mining software devFee and 3% of the mining pool fee, the ETH income for the day is 0.000100995744 ETH/M.

So a certain A calculates this way, and can mine 0.000100995744 * 240 = 0.02423897856 ETH every day. The value of these ETHs is 0.02423897856 x 1046.37 = 25.36 US dollars, combined with the US dollar exchange rate of 6.3458 on the day, which is 161 yuan. The electricity cost is 1.28 x 24 x 0.4 = 12.288. Net income 161-12.288 = 149 yuan. Make a simple division, 24000/149 = 161 days, less than half a year to pay back, and then net profit!

After calculating the accounts, a certain A seems to feel that he is only one step away from wealth and freedom, and there is a mine at home, but that's it!

However, a certain A soon discovered that something was wrong. A certain A uses a machine gun strategy, that is, every day he sells the Ether that he digs immediately. In his words, this is called safekeeping. Because it is constantly selling small amounts of coins, the frequency is very high, similar to the continuous firing of machine guns, which constantly fire bullets, hence the name machine gun strategy.

A certain A bought 20 mining machines. Although the investment was not large, the capital-guaranteed wealth management income that could be obtained after deducting the management costs of the mining machines and the funds for the purchase of the mining machines was still overall a loss. Recalling this investment, A sighed. Some A is very puzzled, why does he lose when he sees other people making huge profits?

The first crime of the four deadly sins of a certain A: The machine gun produces the currency Ether is not currency, so in real life, it cannot be used directly, and it must be traded into RMB. Due to the huge price fluctuations of Ether, in fact, the timing of your currency is different, and the income of legal currency can have a difference of one or even two orders of magnitude.

The second crime: The linear income estimate is still looking at this picture. An optimistic estimate of A ignores currency price fluctuations, fluctuations in the whole network computing power, changes in block rewards, changes in handling fees caused by changes in gas prices, changes in USDT exchange rates, etc. And so on, the model is too simple and looks like a straight line, so it is called a linear model. The actual blue curve in the figure corresponds to the actual situation.

In the real world, it is almost impossible for a linear model to appear. Now I know why physics problems must be described under ideal conditions.

The actual blue curve is sometimes steep, indicating that the price of the currency is high, and the number of people who dig slowly increases. Then the competition intensifies, the income drops, and the curve becomes flat. As the income drops, more people stop mining, the competition among miners decreases, the profits of those who stay behind start to increase, and the curve starts to become steep again. Steep, gentle, steep, gentle, and so on.

The third sin: Mining machines as heirlooms are different from ASIC mining machines. Graphics card mining machines are not only capable of mining Ethereum, but various cryptocurrencies. Therefore, the depreciation of the graphics card mining machine is slow, and there may even be an appreciation. After digging for a period of time, seizing a wave of market conditions and decisively selling the mining machine may get more profits. A certain A bought a 4G graphics card. At the end of 2020, it is no longer possible to mine ether effectively, and this can be calculated in advance.

Because he didn't understand the characteristics of the equipment, he always had this idea: It would be a shame not to dig a machine that was so expensive. Who would take over such an expensive machine? The price of such an expensive machine must be lowered for second-hand use, but it's a pity. He has always refused to understand the market of the mining machine, he did not listen to other people's advice, and missed the best time to sell the mining machine. Now 4G graphics cards can no longer mine the most profitable Ether, making it difficult to sell and huge losses.