Bitcoin Mining

The History and Future of Bitcoin Mining

In recent years, cryptocurrency, led by Bitcoin (BTC), has entered the mainstream business world, as well as the financial market. For both institutional and retail investors, the supply and demand of cryptocurrencies has a significant impact on their trading and investment decisions. For Bitcoin, they produce new tokens by its mining mechanism. 

Below we take a look at the complete history of bitcoin mining technology. As well as where innovations in the crypto field could be heading next.

 

Bitcoin, which uses Proof-of-Work (PoW) as its consensus mechanism, is not issued by any central organization or institution. Instead it’s generated through a distributed computing process called “mining”. However, instead of mining outdoors using large equipment like gold mining and oil extraction. “Bitcoin Mining” happens by computing through computer programs.

 

Simply put, bitcoin mining is a race to solve a particular math problem using computing power. The fastest to complete the calculation for the correct answer can record the transaction in a new block. The answer to each equation is the Block’s “Hash Number”. When the equation is solved. Then they receive rewards in Bitcoin, which produces continuously through this mechanism each and every block. The higher the computing power, the higher the chance of completing the calculation the fastest.

 

It’s worth noting that the design of Bitcoin’s mining mechanism is to maintain a consistent block production time (about 10 minutes). Furthermore, the difficulty of the Bitcoin mining “puzzle” known as “Hash Rate”. Automatically adjusts according to the amount of computing power on the network. The more computing power, the higher the “Hash Rate” which means a higher difficulty for mining.

 

On Jan. 3, 2009, Bitcoin’s pseudonymous creator Satoshi Nakamoto mined the first block, also known as “Genesis Block” using a computer’s central processing unit (CPU). The current mainstream cryptocurrencies are basically impossible to mine with a single person’s equipment. Mining has become increasingly demanding in terms of computing power. Mining has evolved from CPU mining, to GPU mining, and then to the era of ASIC mining. 

CPU Mining

On January 3, 2009, Satoshi Nakamoto mined the first batch of 50 bitcoins (with the “Genesis Block”) using the CPU chip of his personal computer. In the early days of Bitcoin, mining was less difficult, and most mine on graphics cards on their PCs.

 

In the US TV series The Big Bang Theory, the male character, Sheldon, used Howard’s old notebook computer to mine bitcoins in the early days. 

 

During this beginning stage of bitcoin mining, the benefits of mining on PCs outweighed the costs (including electricity costs, machine depreciation, etc.). According to previous reports, hundreds of bitcoins could be mined within a week using a PC.

GPU Mining

As mining became more difficult, and with the design of halving the bitcoin rewards. Ordinary CPUs were no longer able to run at the speed needed to meet the increased difficulty of the mining algorithm. So in 2010, there was a release of the first software design specifically for mining with a computer graphics card.

 

The computing power of GPU in one graphics card is equivalent to dozens of CPUs in parallel computing. So the mining efficiency will be greatly improved. Therefore, many people switched to GPU mining, and assembled one or more advanced graphics cards to build their own mining appliance. 

FPGA and ASIC Mining

As more and more people enter the mining industry. The overall computing power of the Bitcoin network continues to reach new highs, and advanced mining equipment, field programmable gate arrays (FPGA), emerged. The first FPGA miner in China appeared in 2011. Manufactured by Nangeng Zhang, nicknamed “Pumpkin Zhang”, and the appliance is called the “Pumpkin Miner”. However, due to the high power consumption of FPGA mining. Ultimately, it took only six months for it to be phased out of the market.

 

In 2012, there was the first release of ASIC miner, Butterfly Miner. Initially, the computing power of ASIC miners was about 200 times that of graphics card mining. However, the power consumption rate was not much different, and it soon became popular in the market. ASIC miners have rapidly evolved to be the 3rd generation of bitcoin miners. Many have continued to innovate and evolve in terms of mining chip technology, from the initial 110nm, 55nm, 28nm, all the way up to 14nm.

 

In 2013, Nangeng Zhang launched a new ASIC miner named “AvalonMiner”. Later they founded Canaan Creative, a mining company focused on mining chips. In the same year, another mining company, Bitmain, was also established. Bitmain launched the first generation of Antminer in 2014. In 2016, Antminer S9 was launched with 189 ASIC chips built in, as its flagship product. Through the ups and downs of the market in the following decade, Bitmain’s Antminer, together with AvalonMiner, has been leading the mining industry.

Mining Pool

In 2010, the first Bitcoin mining pool, Slush Pool, emerged. In the Bitcoin mining market, the mining advantage of individual miners, in terms of computing power and energy efficiency, is getting low. “Mining pools”, which consolidates a large amount of computing power resources. Have emerged rapidly in the market in the following years. Compared to individual miners with little computing power, mining pools have a significantly higher chance of success. They enable the pool participants to share bitcoin rewards. When a pool succeeds in mining a block, all miners in the pool will receive rewards in bitcoin, in proportion to their contribution of computing power. On the other hand, the pool takes a fee in the process.

 

According to Blockchain.com, the amount of computing power used in mining in the entire Bitcoin network (i.e. mining hashrate) increased by a factor of 100 million between 2011 and 2018. The figure has grown tenfold from 2018 to 2020. To date, the mining hashrate, a measure of total computing power in the Bitcoin network, has reached 156 EH per second (i.e., 15.6 billion operations per second).

In the early days of bitcoin mining, everyone mined with their own personal computers (PCs). However, as more and more people participated in the mining process and the computing power continued to rise. This approach was too inefficient. As a result, professional pools of computing power quickly emerged. Ultimately allowing miners to connect their computing power devices to the pool, joining computing power to mine.

Future of Bitcoin Mining

Mining Pools

The higher the computing power used for mining, the more calculations per second you can perform. The more you can try to find the right “answer” (a random value), and the higher the chance of finding the right answer first. This produces new blocks and receives bitcoin rewards.

 

In recent years, large crypto mining companies have been building large mining plants in countries and regions with low-cost electricity. As more and more plants emerge, the competition in the mining industry is becoming more intense, triggering an “arms race” in computing power. Since then, mining has become an industry requiring technical expertise and large-scale operations, with large oligopolies in the market. Now, even with a few ASIC miners, it is almost impossible to mine bitcoin.

 

According to Blockchain.com, the top five mining pools in the world are AntPool, ViaBTC, Poolin (originally by the BTC.com team), F2pool, and Huobi Pool. Since 2017, about 70% of the mining power of the entire Bitcoin network comes from miners (or pools) located in China.

Cloud Mining

Cloud mining is an innovative model that has emerged in the market in recent years in order to enable individuals to participate in mining. So cloud mining is to allow users to purchase and deploy the service provider’s cloud computing power for mining. Users only need to pay the service provider to rent the required computing power resources to mine, without having to purchase the mining machine or set up the mining farm.

GPU Mining

The use of graphics cards by retail miners has not completely over. Due to the difference in mining algorithms, many cryptocurrencies other than Bitcoin still have a design  that allows miners to use GPUs to mine. As a result, there are still many miners in the market who use graphics cards from chip makers such as AMD and NVIDIA for mining. And they mainly switch to mine altcoins such as Litecoin (LTC). Of course, miners using ASIC miners have also adjusted their ASIC design for other cryptocurrencies. They do this in an attempt to capture the market share.

Quantum Computers?

In recent years, computer scientists and academics have suggested that Quantum Computers will monopolize the Bitcoin mining market and break its blockchain security with their mighty computing power. However, quantum computers have not yet reached the level of large-scale applications and mass adoption. In addition, quantum computers are expensive to set up and the design is not for mining. So the cost-effectiveness of mining is questionable – it is not known whether quantum computers can break the Bitcoin network.

Bitcoin Mining: Who are the players and why the dump?

Interested in learning more? Checkout the video below with SJ Oh founder of Pow.re and John Keh CMO of Genesis Block for a discussion on the past, present, and future of Bitcoin Mining:

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