Mining is probably one of the most contentious aspects of bitcoin due to the reported global energy use miners commit to this open network. Mining provides hash power that is used to secure transactions on the bitcoin network and keeps your precious satoshis safe. In the simplest of terms, computers around the world provide computational resources and compete with one another to secure transactions on the network.
While this is fundamental to the growth and strength of the network, most of the attention is focused on the block subsidy, the process of mining by which new bitcoins are created and rewarded to miners. The idea of monetising your electricity and computational power has attracted many, from private citizens to private and public companies.
As more resources are deployed to compete for bitcoin, we’ve seen bitcoin mining go through several evolutions over the past decade, as the value locked in the network encourages rapid technological development.
How is bitcoin mined?
If you wish to compete for new bitcoin along with fees generated confirming transactions, you will need to partake in a process known as proof of work (PoW). Computers running the bitcoin mining software will use a special cryptographic encoding called Sha-256 to compete with all other miners to solve an arbitrary but difficult puzzle.
The first to solve the puzzle through trial-and-error effort will have the opportunity to add a new block to the network and secure a block reward which comprises fees from transactions in that block, along with a block subsidy, are sent as a reward to that miner, and the process begins again.
To improve your odds of securing a block, miners are encouraged to provide as much hash rate as possible. This can come from connecting cheaper energy that would allow you to run more computing power or having advanced chipsets that can generate more hash power per unit of electricity.
The evolution of bitcoin mining
If you’re entering the bitcoin mining space today, you might not have an appreciation for where it all began. Believe it or not, there was a time when you could click a .exe file on your computer and melt down your computer’s CPU slowly to secure yourself a healthy amount of bitcoin that would likely be worth millions in today’s prices.
That time has long passed, but why did bitcoin go from being a low-cost money printer to something few can afford to mine?
The answer lies with one of bitcoin’s basic principles and incentive structure, which centres around difficulty adjustment. As more hash rate comes online to compete for new bitcoin, the protocol adjusts accordingly to make the bitcoin harder to mine as the network grows. That way, having a bunch of people mine bitcoin won’t undermine its value or centralise the issuance of the new supply.
Now that you understand how bitcoin mining works, let’s go through how it has progressed throughout the years.
CPU mining era
When bitcoin launched in 2009, the first mining was done by CPUs. Satoshi’s idea centred around “one CPU – one vote”, which was realistic at the time as there were only CPU miners (software) available at the time. On Jan. 3, 2009, Satoshi Nakamoto mined the first bitcoin block. As the only miner on the bitcoin network then, Nakamoto didn’t have any competition, so he didn’t need specialised equipment to launch the bitcoin blockchain.
He was able to create bitcoin blocks using an average personal computer.
Due to the lack of miner competition in bitcoin’s early days, the computational energy required to create new blocks and earn mining rewards could be quickly processed on CPU devices, like your average desktop or laptop computer. As the bitcoin network expanded and more interested parties came in to support the network and compete for new coins, the hardware needed to mine new coins went through its second stage.
GPU mining era
The first major innovation to bitcoin mining hardware came shortly after a market value for bitcoin was established. Bitcoin established a market price in late 2010 at around $0.08, and believe it or not, this price was enough to encourage miners to look for new ways to compete for bitcoin and generate more hash rate for less resources. By the time the bitcoin price reached 10 cents in October 2010, the first mining device leveraging graphics processing units (GPUs) was developed.Â
Unlike CPUs, GPU devices provide more focused computation power; they are optimised to perform a narrow range of computational tasks. GPUs are originally built for gaming applications and high-resolution rendering, but GPUs also excel at computing simple mathematical operations in parallel, rather than one at a time, in order to generate thousands of time-sensitive image pixels. These devices can also be re-programmed to compute other mathematical operations, such as the ones required to mine new bitcoin.Â
The innovation of GPU mining, that is, mining bitcoin on a GPU device, made producing bitcoin blocks and earning block rewards on average roughly six times more efficient.Â
The FPGA era
The GPU discovery and efficiency gains were short-lived, and the following year, in 2011, when field programmable gate arrays (FPGAs) were also re-modelled to mine bitcoin. Compared with GPUs, FPGAs can deliver superior performance in deep learning applications where low latency is critical.
FPGAs can compute the mathematical operations required to mine bitcoin twice as fast as the highest-grade GPU.
However, these devices are more labour-intensive to build. FPGAs required configuration on both a software and hardware level, meaning the devices must be programmed to run customised code, as well as architected to run that code efficiently.
It is the ability to adjust hardware components on an FPGA that makes these types of devices better optimised for bitcoin mining than a GPU and laid the foundation of what would become the modern mining device.
ASIC mining era
The fourth major innovation to bitcoin mining was the biggest step up that required the most significant amount of dedicated resources, time and development to achieve. Rather than repurposing the software and hardware parameters of existing machines, efforts to create an entirely new application-specific machine that would only mine bitcoin hit the market.
In 2013, a China-based computer hardware manufacturer called Canaan Creative released the first set of application-specific integrated circuits (ASICs) for bitcoin mining.Â
These ASIC devices, unlike CPUs, GPUs and FPGAs, were designed at their outset to mine bitcoin. This meant that no expenses were spared, and all hardware and software components of these ASIC devices came pre-designed and optimised to crank out as much hash rate as possible, which would be necessary to create new bitcoin blocks.
The efficiency gains from ASICs could not be matched by any of the more general-purpose devices that preceded it. Thus, ASICS retired all previous iterations of mining, and the ability to CPU, GPU, or FPGA mine was over.
While Canaan Creative was the first bitcoin ASIC manufacturer, other manufacturers have come to market, coming up with new versions of ASIC bitcoin mining devices with increasingly advanced hardware.
Weighing the costs of a mining
As the bitcoin network grows to hold billions in value and clear millions in transactions per day, it requires more computational power to ensure the chain’s integrity and deter attacks. The increasing competition makes it harder for general hardware, like an off-the-shelf CPU or GPU, to compete effectively and mine bitcoin.
The days of being able to mine Bitcoin while your system would otherwise be idle are over. If you wish to partake in this economy, you will have to think seriously about how much money you’re willing to sink into a rig and what your competitive edge is in securing cheap and reliable electricity.
Each mining rig results from a basic cost-benefit analysis, and not every operation will pay off.
Nothing but a novelty now.
To summarise, you can still partake in the process of bitcoin mining with inferior equipment such as a CPU or GPU, but you won’t generate enough hash rate for it to be worth your time and effort. You are more likely to waste electricity and overclock your device to the point of failure only to net a small fraction of bitcoin.
To illustrate how you could repurpose a device to mine bitcoin, here is a prime example of using an old Gameboy, and while this is a novel idea, it is not a practical one by any stretch of the imagination.
Note: If you’re interested in seeing the full tutorial on the Gameboy bitcoin miner, check it out on YouTube on the stacksmashing channel.
Mining on anything but an ASIC is a complete waste of time, a fact that is even true for certain older model ASICS that cannot compete with the modern incarnations currently competing on the network. To put it into perspective, CPU and GPU mining would be like mining for gold with a teaspoon while all your competition is right next to you with bulldozers and excavation equipment.
Short of ASIC miners being banned and destroyed the world over, we will not see bitcoin regress back to GPU or CPU mining, so it best you save your computer for your tried and trusted fiat mining operations instead.
Are you investing in the bitcoin ecosystem?
Do you invest in bitcoin mining? Are you considering bitcoin mining? Have you been mining for some time? What breakdowns have you had, and how did you deal with them?
Let us know in the comments down below.
