A short history of bitcoin mining

Bitcoin For Dummies

Over the  years, bitcoin mining has seen a tremendous evolution in terms of the  required hardware to mine  bitcoins. Very little  hardware was required when bitcoin launched in 2009, as  there was little  to no interest in the  project. But  as  more and  more people caught wind of bitcoin and  joined the  network, the  computational power increased exponentially. The mining difficulty  parameter (which determines how much computation power is required to solve the  mathematical equations associated with generating bitcoins) adjusted accordingly, in order to make  sure new  blocks on the  bitcoin network were  still ten minutes apart. The reason for keeping bitcoin blocks ten minutes apart is to collect as  many broadcasted bitcoin transactions into  one  block and  validate these transactions at the  same time.

In 2009, the  first versions of the  bitcoin client had  a built‐in process that  would let anyone running the  software mine  bitcoin with their computer’s central processing unit  (CPU) — the  main proces- sor in a computer. Because every computer has a CPU,  and  only a handful of people were  mining bitcoins at that  time,  there was very little  competition. In fact,  most of the  coins in the  first few months were  mined by  Satoshi Nakamoto, who also gave  away some coins to other people in order to allow testing of the  bitcoin network.

It didn’t take  long  for one  of the  miners to figure  out  that  the mining feature could be adapted to use  a graphics processing unit  (GPU), rather than just a CPU.  Because a GPU — also called a video card — is specifically designed to solve complex mathematical  tasks, it is able  to mine  bitcoin more efficiently than a CPU. However, that  performance is offset  by  a large  increase in electric- ity  use, as  GPUs  draw a lot more power from  the  wall  compared to CPUs. This change was the  first chapter in a long  and  storied bitcoin mining arms race.                                          

Developers and  engineers started tinkering around with the  idea of creating a new  piece  of hardware that  mined much faster and more efficiently than GPUs  and  CPUs. Field  Programmable  Gate Arrays (FPGAs) saw the  light  of day  a few years ago, and  they out- performed CPU mining by  quite a margin. Furthermore, any FPGA could mine  nearly as  fast  as  a GPU available at that  time  — while using far less electricity to complete the  task of mining bitcoins.

When  reading up on bitcoin mining these days, one  term  people often  come across is ASIC, which stands for application‐specific integrated  circuit.  This is a microchip designed specifically to mine bitcoin. The first bitcoin ASICs started hitting the  street in early 2013, and  they outperformed GPU and  FPGA  mining by  such a margin that  miners scrambled to get their hands on one  of these shiny machines. But  ASICs have a major downside as  well:  They are  very power hungry, they make  a lot of noise, and  they generate a ton  of heat.  On the  flipside, a bitcoin ASIC  miner is vastly superior to any other type  of hardware in existence today and  remains quite costly in some cases.

As  these new  devices started popping up,  the  need  for electricity increased exponentially. As  a result, mining bitcoins is extremely unprofitable in most parts of the  world, unless you  have access to cheap or free electricity. In most cases, the  investment cost of bitcoin hardware, combined with the  electricity costs, make  it impossible to make  a profit by  mining at home. But  there is a solution  to that  problem: Bitcoin cloud  mining lets  you  mine  bitcoin by purchasing mining power from  a machine hosted in a different part of the  world.

Cloud mining has become somewhat popular in recent years. It allows you  to mine  without needing to buy and/or host the  hard- ware yourself. Most  bitcoin cloud mining providers charge a daily or monthly fee to cover electricity costs. Cloud mining allows a user to start earning money directly, rather than waiting on the delivery of some fancy machine. Chapter 11 talks more about cloud mining.

In the  future, as  with all computer advancements, microchips will be made  smaller without sacrificing computational power. And  with smaller chips, more of them can  be fitted  onto  a board, increasing the  machine’s overall mining power. Engineers are trying to reduce the  energy use  of these microchips too.  Making mining more energy efficient could lead  to more profitability in additional parts of the  world.

Source: Bitcoin For Dummies