Bitcoin For Dummies
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