The history of crypto mining: A retrospective on the evolution of the industry
Cryptocurrency mining is vital to the crypto ecosystem, whereby it facilitates transactions and maintains the integrity of various blockchain networks. The mining history spans over a decade and has been met with several regulatory challenges, technological advancements, and volatility. This article will dive into the evolution of crypto mining and explore the significant trends, events, and how far the industry has gone and developed.
The early days: Where it all started
Mining equipment is crucial to the bitcoin network’s success since they determine the mining profitability. Hence, mining equipment is crucial in the history of crypto mining to explain its evolution over the years.
Satoshi Nakamoto, the pseudonymous bitcoin creator, mined the first bitcoin block on Jan. 3, 2009. The creator was the only miner then and did not need specialized equipment but could mine using an average personal computer.
By then, computers could browse the internet and launch applications and Microsoft Word through a central processing unit (CPU). CPUs control commands on a computer and how they are executed and processed. Since there was no miner competition in the early bitcoin days, the computation power that could allow new blocks and mining rewards could easily be done on CPU devices.
However, as new miners joined, the competition grew, and so did the tussle for block rewards.
GPU and FPGA mining
The next phase of crypto mining came after establishing the bitcoin market value. Laszlo Hanyecz, a computer programmer, paid 100,000 BTC on May 22, 2010, for two Papa John’s pizzas worth about $25.
GPU devices, unlike CPUs, were optimized for a narrow range of computational tasks. While originally built for gaming, GPUs could be re-programmed to compute other mathematical operations like mining new bitcoin blocks.
GPU mining made mining bitcoin blocks and receiving rewards about six times more efficient than CPUs. However, the devices cost twice as much as the CPUs.
Nonetheless, these gains were overtaken the next year, 2011, by field programmable gate arrays (FPGAs). These were re-programmed to perform mining operations. Notably, FPGAs could mine bitcoin blocks twice as fast. But they were more labor-intensive to build and required configuration on both the software and hardware level. Hence, the devices have to be run on customized code. Meanwhile, the ability to adjust FPGA hardware components makes it more optimized for bitcoin mining than FPGA.
The rise of ASICs
As bitcoin’s popularity grew, miners spent more resources, development, and time mining. Enthusiasts diverted efforts to repurposing the software and hardware of existing machines but to creating new machines tailored for bitcoin mining.
In 2013, Canaan Creative, a China-based computer hardware manufacturer, launched the first application-specific integrated circuits (ASICs) for bitcoin mining. These devices are pre-designed specifically for mining cryptocurrency; hence their gains are optimized.
Canaan Creative was the first, but more companies, such as MicroBT and Bitmain, came with new versions of ASIC bitcoin mining devices with advanced hardware. One of the most noticeable changes has been the chip size drop, which dropped from 130nm in 2013 to almost 7nm in the latest model. The chip size matters because the larger its surface, the larger its communication channels hence more electricity to transmit data on its surface.
Notably, the mining hardware evolution could also directly contribute to the rising bitcoin value, which made mining lucrative. The higher the bitcoin value, the more the innovation payoff in mining technology, increasing mining profits and decreasing operating costs.
The crypto mining industry, just like the mining industry, has severely impacted the environment due to the mining process. The competitive nature of blockchain mining means that, for example, if 100 miners compete and only one wins, the 99 miners’ resources are wasted. In addition, crypto mining consumes a lot of electricity.
A Cambridge University report shows that Bitcoin mining alone consumes more electricity than countries such as the Netherlands and Argentina. Meanwhile, the high electricity consumption strains local power grids and increases electricity prices. In some regions, crypto miners have caused power outages and blackouts. As a solution, some crypto-mining operations have switched to alternative renewable energy sources such as wind, solar, and hydropower.
Countries like China cracked down on crypto mining and trading in May 2021. Hence, miners fled to the United States and Kazakhstan. The ban was caused by environmental concerns in mining and the fact that people were using digital currencies for money laundering and fraud.
The future of crypto mining
Chip size reduction in ASIC bitcoin mining devices since 2015 has been slower than in 2013 and 2014. Furthermore, since the first ASIC, there has yet to be new technology to increase mining efficiency.
As there is no new ground-breaking technology, bitcoin miners will no longer compete based on equipment and hardware, as in the last couple of years. Suppose bitcoin mining hardware becomes commoditized such that the efficiency gains of a model differ from a new model. In that case, miners will have to look for new ways to have a competitive advantage.
The evolution of bitcoin mining hardware has been a source of miner efficiency gains since hardware technological innovations have become further. However, bitcoin mining rewards competition will call for more technological evolution.
The history of mining incorporates creativity, innovation, and entrepreneurship. Bitcoin mining has evolved from personal computers to specialized hardware and massive data centers. In the future, crypto mining will still play an important role in the blockchain ecosystem. As the cryptocurrency industry grows, there is more transition to renewable energy sources and new mining technology.
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