How does mining affect Ethereum price?

Vilnius, Lithuania, 13th Feb 2022, ZEXPRWIRE, When it comes to cryptocurrencies, Ethereum is the second-biggest name. After Bitcoin, what comes to mind is Ethereum because of its market capitalization and functionality. Ethereum, like every other cryptocurrency, is mined. But take note that the mining process can either make the Ethereum price go up or come down. 

This is because mining Ethereum requires complex computing power, energy, etc. And when you couple all this with the demand for Ethereum, all contribute to how its price fluctuates. In this article, we will be discussing some of the ways Ethereum prices are affected by mining.

Does Ethereum mining affect Ethereum price? 

Mining Ethereum affects Ethereum price in so many ways. But here are four of the most prevalent ways mining affects Ethereum price. 

Creating new coins 

The essence of mining Ethereum is to create new coins. By mining new Ethereum, there will be more of it in circulation. Unlike some other crypto, Ethereum has an infinite number of coins that can be mined. This means that if new Ether keeps getting mined, a time will come when its supply will surpass its demand. The law of supply and demand states that the commodity's price is highly influenced by the amount of the commodity in circulation. 

So, if the number of Ethers in the market keeps increasing, it will affect the price because for miners to do away with the excess Ethereum, the price will be dropped. A perfect example of this scenario is with Ripple (XRP) because the amount of XRP in circulation is in billions. This is why its all-time high has never crossed over $4. So, if Ethereum keeps getting pumped into the market, such that it overwhelms the demand, its price will eventually drop. 

Maintain a log of all transactions 

Another reason why Ethereum is being mined is to keep a log of all transactions. As a decentralized system, when miners create new Ether, they are also responsible for adding any new exchange made with Ether to the public ledger. And when a transaction is added to the Ethereum network, it cannot be changed or altered. As such, when a user sends Ether, they are sending a permanent and verifiable record, and it is the responsibility of miners to verify the transaction and keep a record of it. 

To maintain a record of all transactions made on the Ethereum network, miners will have to compete with hundreds of other miners. The fastest miner to verify the block of transactions wins the race and is awarded Ether and transaction fees. So, if the user wants the transaction to be confirmed faster, they will be asked to pay a higher transaction fee, thus making the user spend more. 

Cost of mining 

Mining Ether, as you already know, is a very complex process. For this reason, it is only logical to expect that mining new Ether will cost a lot of money, which is true. Firstly, let's consider the cost of getting the computing power needed to mine Ether. A basic rig with enough computing power to mine Ethereum that will be profitable can cost between $2000 and $6000. And this is even the most basic computing power you can get. 

Secondly, when we also consider the cost of electricity needed to mine Ethereum, the price of Ethereum can quickly go over the roof. Electricity is expensive, however, this is also dependent on your location. Electricity is cheaper in some countries than in others. Overall, when you combine the cost of acquiring the computing power and the cost of electricity needed to mine Ethereum, this all contributes to the high selling price of Ethereum. 

Difficulty to mine 

One last thing worth considering about mining Ethereum is the difficulty to mine it. As with most cryptocurrencies, they are mining it at the early stage is often easier than at its later stage. This is because the more of it exists, the harder it will be to create new ones. Currently, with the difficulty of mining Ethereum, it isn't easy to mine new ones. 

For example, if at a hashing power of 500 MH/S it will take about 7.5 days to mine 1 Ethereum. This is considerably slow and requires a lot of power and miners to mine enough Ethereum to meet the demand. Because of how difficult it is to mine, Ethereum’s price is somewhat steep. And it is expected to even go higher as more Ethereum keeps getting mined. This is one of the reasons why Ethereum makes such a great investment choice. 

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2022/02/13 13:31

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