The cryptocurrency market is down, here’s what happened to mining profits.
Mining Ethereum has been a great way for individuals with graphics cards (GPUs) to make some money while they aren’t using their PC. With Ethereum’s value up considerably and congestion on the Ethereum network driving up gas fees, mining profitability has been fantastic for months. But with the entire crypto market dipping and major changes coming to the Ethereum blockchain, will mining remain profitable in the future?
In this post, I will discuss the current profitability of Ethereum mining and then break down the timeline and impacts of the upcoming updates to the blockchain that will have major impacts on mining. By the end of this post, you will have a solid understanding of how profitable mining is and how much longer it will likely stay that way.
Is Mining Profitable Right Now?
While mining may not be as lucrative as a month ago, it is likely still profitable to be mining if you already own a GPU. However, the return on investment (ROI) for a brand new GPU, especially after the U.S. tariffs, isn’t great anymore.
I just had my name come up in the EVGA queue for an RTX 3080 that I applied to purchase last year. With the price increase, this GPU came out to $940 after a coupon. Compared to the $1,500-2,000 price tag they carry on the resale market this price is great for someone already looking for an RTX 3080. However, if someone was looking to spend that $940 and use the card just to make a profit mining Ethereum they may find themselves disappointed.
Currently, a single Nvidia RTX 3080 can generate roughly $6.10 worth of Ethereum per day. If you own a high-end GPU already then that is enough revenue to offset electricity in most areas. My electricity cost is $0.077/KwH, so if I were to run a 3080 all the time my electricity costs would be under $0.50 per day using an estimated power draw of 250W, which is high for my undervolted rig. So we end up with a profit of roughly $5.64 per day, which isn’t anything like the $25-$30 per day I was making last month! Mining only at night when my house is cold has been yielding about $3 per day for around $50 profit so far in June.
$5.64 is not bad for me since my GPU is used every day for work, but it is not a great return if you spent almost a thousand dollars on the GPU to make money. At the current rate, it would take almost half a year to pay off the card, and as I will discuss below there is a finite amount of time left to mine Ethereum. At this point, I think it is too late to buy a GPU just to mine. You could likely pay off an RTX 3080 that you buy today and sell it when mining dies off, but that’s a lot of headache and time for a modest profit. Unless you want to use the GPU for work/gaming in addition to mining I wouldn’t be trying to buy one anymore.
How to Determine Your Profitability
I have written a couple of in-depth posts on mining and using pools to increase profits that I will link at the end; here we will discuss how to find your estimated income. The best tool I have found is whattomine.com, which lets you input the number of each GPU you have, your electricity costs, and the coins you want to consider mining. It then calculates the profitability of various coins and shows you the potential profits of each option along with how the profitability has been changing recently. In general, mining Ethereum is still profitable as long as your electricity cost is somewhere around $0.15 and your GPU has a decent hash rate, think GTX 1070 or better.
Here are the top three results for an RTX 3080:
I like the way this tool lays out the options. We can see that mining Ethereum with NiceHash or with a pool yields pretty similar payouts currently. It is interesting to see how close the profitability of mining Ravencoin is to Ethereum currently; this has to do with something called difficulty, which we will cover in the next section. I will later discuss why we can’t just switch to other coins when Ethereum mining stops, but currently, there are viable alternatives.
We can see that Ethereum revenue still scales somewhat with hash rate. A GTX 1080 can generate a profit of roughly $1.91 worth of ETH per day, which is starting to get pretty low.
Impacts on Mining Profits
Many people are wondering if mining will stay profitable this year. Several key factors impact mining profitability. Before we discuss major changes coming to the Ethereum network let’s discuss why mining payouts fluctuate.
One of the primary impacts on mining profitability is the value of Ethereum. Cryptocurrencies have been on quite the ride this year. Ethereum started the year at $730 and peaked at over $4,000 in May. As I write this, Ethereum has been bouncing between $2,000-$3,000 for a couple of weeks. When you mine Ethereum with a pool you get paid out in Ether. Naturally, if the value of one ETH is $4,000 then your payout of 0.02 ETH will be worth much more than when the value is lower.
I will discuss in the final section why many people are still bullish on Ethereum despite the recent market crash. Ethereum could still have a solid year considering it is on track to address major concerns like electricity usage and transaction fees along with Ether burning coming with EIP-1559. However, if past market trends are followed, the value of cryptocurrencies will likely continue to fall this year.
Difficulty is a measure of how hard it is for miners to find the next block. Blocks are supposed to be created at a fixed rate, so the network frequently checks how fast blocks are being created and adjusts the difficulty to compensate for any deviation. This means that as more and more people add mining power to the network, mining difficulty will generally rise. Difficulty can drop though; mining difficulty is down 5% in the past 30 days, however, it is up 32% in the last 90 days. This is because a month ago the network was extremely congested during the peak of the 2021 crypto boom. Everyone who could mine Ethereum was to earn up to $30 per RTX 3080 per day! But as profitability has fallen so has the number of miners, number of transactions, and thus the mining difficulty.
In January ETH was worth $1,400 yet a single RTX 3080 could earn more ETH per day than it can now, which is largely due to increased difficulty. Higher difficulty will reduce your overall income, but difficulty can decrease if mining profits don’t stay high and the number of people mining reduces.
For a GPU to run at its full potential it can’t be too hot. Just like any electronic, once it reaches a certain temperature threshold it will slow down to prevent damage to its components. GPUs also produce a lot of heat; in the winter a mining rig with multiple GPUs can easily allow you to turn off the heat in a small home, offsetting the electricity costs of mining. However, in the summer, many regions may find themselves running an AC unit to cool an already hot home. If you are spending money to cool your home while you mine, then you are spending money and electricity to cool and heat your home at the same time. This can result in surprise costs to people since it can be subtle how much heat one or two GPUs add to a room and many AC units run until the desired temperature is reached.
I have seen people mine only at night or in their garage where it is naturally cooler and the increased heat won't make it into the house. I personally only mine at night now that it is very hot during the day. In many places, electricity is also cheaper at night when demand is low. Whatever solutions you pursue to solve heat issues, it is important to remember that electricity is a miner’s primary expense, and cooling down hot homes uses a lot of electricity.
Miners are responsible for adding transactions to blocks. Currently, miners receive a gas fee for adding your transaction to their block. The amount of Ether that must be paid for the transaction fee depends on how congested the network is. Ethereum uses a system called first-price auctions to set the rate for gas fees. To get your transaction added to a block you must bid a competitive price for a spot. If you need your transaction to happen quickly you need to bid over other people so that miners prioritize you.
This system is why mining is more profitable when the Ethereum network is really busy. The demand for the miner’s time goes up significantly, which in turn raises the cost for a miner to add your transaction to a block. This is also a big reason mining revenue is low right now. Despite Ethereum maintaining high value relative to several months ago, current gas fees are low since the network has slowed down since the peak in May while maintaining a much higher amount of mining power.
Revenue from fees is the first loss miners will experience this year. EIP-1559, which we will cover in the next section, will restructure the fee system and fees will no longer go to miners. This means optional tips will drive a priority system and block rewards will become the primary income for miners. Let’s discuss the impacts of EIP-1559 in more detail next.
EIP-1559 is one of this year’s several scheduled updates. It aims to restructure the way transaction fees work and will reduce mining profits as a result. EIP-1559 will be a part of the London Hard Fork, which is scheduled for July. You can find a detailed write-up on EIP-1559 at the end. In this post, I will cover the impacts EIP-1559 will have on mining and won’t go into too much depth on the entirety of the update.
After EIP-1559, fees will be split into an algorithmically determined base fee that fluctuates based on how full the most recent block was and a tip that is determined by the market. Block size becomes flexible and the network will aim to keep blocks 50% full. If the network is busy and blocks are above 50% capacity, the base fee rises. One key reason for flexible block sizes to shift volatility from fee price to block size; since the network will have some built capacity to compensate for fluctuating demand there should be less need to incentivize miners to squeeze your transaction into the next block. Because the base fee is algorithmically determined there should be a more predictable, and reasonable, rise in fee prices during congestion.
The base fee is burned by the network, which has a nice deflationary effect but has many miners unhappy. Miner compensation for adding transactions to blocks instead will come from tips, which will still allow miners to prioritize certain transactions. This is the part that makes it very difficult to estimate how EIP-1559 will affect mining revenue. Conventional wisdom would suggest that people like to avoid spending money when they don’t have to; tips also have never been extremely successful in an online environment where there is less social pressure than in person like tipping your waiter.
However, users won’t be tipping miners to say thank you. Tips will function as the way to prioritize your transaction over the rest, and during times of congestion, priority can be critical. The Ethereum network is a platform that supports many markets like exchanges, lending protocols, etc. In these various markets, there are many reasons someone may want to be prioritized; due to the complexity of use cases on the network, it is difficult to know the value of tips until we see how the network performs with flexible block sizes. If congestion remains an issue tipping may remain enough to maintain mining profits, however, flexible block sizes aim to shift volatility from fee price to block size; since the network will have some built capacity to compensate for fluctuating demand there should be less need to incentivize miners to squeeze your transaction into the next block.
I should mention that this update has been extremely controversial among the mining community with some even discussing the possibility of a 51% attack to prevent the update. However, with ETH 2.0 on the horizon, I don’t see any productive reason to oppose EIP-1559. Mining is already on the way out and lowering transaction fees is critical to Ethereum succeeding.
Ethereum 2.0 — The Merge
Ethereum 2.0 is the largest set of updates to happen to Ethereum since its conception. The primary goals of Ethereum 2.0 are to improve the scalability, security, and sustainability of the network. The entire transition consists of three major updates: The Beacon Chain, The Merge, and Shard Chains. I will focus only on the merge here because once it occurs the network will use 99.95% less electricity since it will no longer rely on the Proof of Work consensus protocol.
This means that when the merge occurs towards the end of 2021 there will no longer be Ethereum mining with GPUs. Instead, the network will use a consensus protocol called Proof of Stake, which leverages a miner’s held coins to validate blocks. A miner uses electricity to solve complex problems in a Proof of Work system and is rewarded crypto coins for solving them. Miners then convert some of their coins into fiat currency to pay their electricity bills, which harms the price of the cryptocurrency. Proof of Stake tackles this problem by associating “mining power” with the number of coins you are holding. Theoretically, this would limit a person who owns a small percentage of Ethereum to only mining a small percentage of the available blocks; this stops the endless conversion of energy into Ethereum all while promoting the value of Ethereum by rewarding those who hold onto it.
The merge is expected to take place before the end of the year; while I was initially expecting to see it in early 2022, the core dev team has recently expressed confidence in completing it this year. Despite these updates leading to the end of Ethereum mining, they are exciting and a good sign for the network's future success.
Note: This is a simplified explanation of Proof of Stake. Also, if you are unfamiliar with consensus protocols, read my Crypto 101 article.
We have covered a lot of information about mining profitability and what factors impact it, but where do we go from here? With EIP-1559 and ETH 2.0 on the horizon, I think it is best to look at the coming months in two phases: before and after the ETH 2.0 merge.
Before the merge, mining will likely remain profitable; EIP-1559 adds a lot of uncertainty to mining revenues, however, unless the market continues to dip it seems there is a chance that tips and the deflationary effect of Ether burning will help maintain mining revenue. Due to the effects of EIP-1559, many people remain bullish on Ethereum’s value, which we’ll talk about next. But, after the merge, mining Ethereum will simply no longer be possible on the main network. Once this occurs, miners will either need to switch coins or sell their extra GPUs.
Bullish on Ethereum
Only looking at past bull/bear market trends for crypto would push me to expect the market to continue to dip downwards for some time. However, I am not confident that this market will follow in the footsteps of the past bull runs. I think the current dip will continue, however, I don't think 2021 was the final boom for Ethereum.
Ethereum has become significantly more established in the past year with some major updates improving its speed and efficiency. It also has more coins and DeFi organizations operating on the network than ever before. Having established developers and users coming to the network for more than simply exchanging Ethereum makes the value of Ethereum more robust.
On top of a successful year, the core dev team is working on some huge updates for the network that will solve some major pain points. Transaction fees should be reduced and more predictable, which will make operating on the network much easier for those who use it frequently. Transaction fees will instead be burned having a potentially deflationary effect. After the Ethereum 2.0 upgrade, the network should get considerably faster and use hardly any electricity. Addressing the electricity issue is exciting to me because it will have a major impact on public perception. I can’t talk about crypto to anyone without them asking about electricity usage; being able to say Ethereum uses nearly zero energy will be fantastic and improving public perception is huge for new technology.
Mining Alternative Coins
The last topic to discuss is all of the other coins that can be mined with your GPU when Ethereum moves to Proof of Stake. Remember at the beginning of the post when we were determining our potential mining profits? You’ll recall that other coins like Ravencoin and Firo came up as potential options earning only slightly less than mining Ethereum. Surely you can just switch to Ravencoin and call it a day right? Well, unfortunately, no.
Even though the current profitability of mining some small coins is decent, the amount of hash power mining on the Ethereum network is astronomically higher than other coins that can be mined with consumer GPUs. If everyone switches to a small coin when Ethereum switches to Proof of Stake, the mining difficulty will skyrocket to make up for the extreme increase of hash rate.
Mining tends to be profitable in these booms — see 2017 and 2021 — because network congestion and rising coin value make the demand for mining very high. Ethereum has been an excellent candidate due to its explosive growth and increasing use by developers creating new coins and decentralized financial exchanges that stress the network. Unfortunately, I am not confident there will be a new coin to switch to mine at the end of this year.
The short version of everything we just covered is that mining Ethereum continues to be profitable today. Barring any major market changes, it will likely remain profitable after next month when EIP-1559 is implemented. However, mining Ethereum will likely end this year when the merge of the Ethereum 2.0 network occurs.
I hope that this post helped to answer some of your questions about how much longer you will be able to mine Ethereum with your GPU. We likely have a few months of mining left before the merge occurs, so you are not out of luck yet! However, it is time to start to consider whether acquiring new GPUs is worth it and what you plan to do with any extra GPUs when the merge does finally happen. Keep in mind that resale prices on RTX 3080’s are dropping slightly and a big sell-off of mining cards will likely drop their value.
Stay tuned for a more in-depth explanation of EIP-1559, Proof of Stake, and the ETH 2.0 transition. It’s an exciting year for blockchain and Ethereum transitioning to Proof of Stake is a major step for such an active blockchain network.
Disclaimer: I am not a financial consultant. All of the information presented here is the result of my own personal research, opinions, and experiences. Nothing written here is financial advice.