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Just like how a stock investor should know everything about a business before buying stock, an investor or user of Bitcoin should understand the fundamentals of bitcoin mining make the best decisions.
Bitcoin mining is one of the most important processes in the infrastructure. However, it can be quite technical and many investors have not understood it well enough when they decided to invest. This is how many of our commodities such as gold, copper, diamonds and crude oil are produced.
By design, bitcoin was intended to simulate a scarce commodity like gold. Unlike commodities, which are physical, virtual and online resources tend to be easily copied, such as a CD full of music or a doc file.
Bitcoin has proposed a solution which is able to make virtual properties finite. This is done by using cryptographic proofs, which are hard to duplicate.
This makes it difficult to create new bitcoin and it involves a lot of work, just like in commodities mining. In metals and natural resources mining, this work involves blasting rocks, digging up the ore, milling and extracting the resources. Production of commodities is finite, because all this work required labor, was time consuming and often difficult and dangerous. By analogy, mining bitcoin is the process of doing work to create more new bitcoins.
In bitcoin, this work is to confirm and record transactions that are made on the Bitcoin network which involves solving a computationally difficult problem that uses a lot of time and energy. The aim is to trial-and-error with different nonce values until, you get a hash that is below the target value when plugged into the hashing algorithm.
The mining process ensures that the ledger of transactions cannot be easily changed by anyone, and can be checked by anyone. This ensures the security of bitcoin transactions. Mining bitcoin is difficult, and just like mining in the real world, the difficulty of mining a resource is not constant across time. The aim of the difficulty setting is to make the rate of production of each block roughly 10 minutes apart. Computers repeatedly calculate the hash using trial-and-error to find a valid hash.
Due to competition, difficulty increased tremendously, and miners are constantly expanding on their hashing capabilities. Processors used for mining have become faster, more energy efficient and more specialized for mining. In commodities mining, as you mine more, there is less left in the ground, and miners have to use more advanced technologies to mine the same amount.
Whereas you can still do so today, most of the gold comes from big gold mining companies which use heavy machinery and buy huge gold mines, and dig deep into the ground to find ore. Similarly, the mining of bitcoin started with small-scale hobbyists running the mining software from their computers, and has evolved into the industrial scale mining operations operated by big mining pools that we see today.
The adjustable difficulty of bitcoin mining coupled with the scarcity of new blocks and hence block rewards to miners drove an arms race by miners to increase their hashing power. This has resulted in a rapid advancement in the technologies used to mine bitcoins. A CPU, or central processing unit, is the main executive center in a computer. It is the part of a computer which acts according to the software executed. CPU mining is the earliest form of bitcoin mining, because CPUs are widely available on personal computers.
The first CPU mining software was released by Satoshi Nakamoto, the original creator of Bitcoin, and allowed the pioneers of bitcoin to maintain the network.
Due to the widespread availability of CPUs, many people started running nodes and mined bitcoins on their computers. The intense competition meant that CPUs quickly became outdated, and this led miners to look for faster ways to mine bitcoin. They looked into GPUs. Also known as the graphics processing unit, these chips were made for rendering video effects. They were ubiquitous on computers as they were needed to display 3D graphics and visual effects.
A GPU was more effective at mining bitcoins because GPUs are designed for repetitive work required for graphics processing, instead of executive decision making. As compared to CPUs, GPUs are faster at taking huge batches of data and performing the same operation repeatedly quickly. The first open-source program to enable GPU mining, was released in October This opened the doors to home miners using their GPUs to mine bitcoins. As the competition for bitcoins heated up, so did the arms race.
GPUs were insufficient to keep up with the competition. It became increasingly difficult for home miners to profit from hashing using their personal computers. To optimize bitcoin mining, specialized hardware was developed specifically to mine bitcoins faster than ever before. The introduction of FPGAs into bitcoin mining marks a transition from hardware that can be used for everyday consumer applications to specialized hardware made just to mine bitcoins faster.
FPGA stands for field-programmable gate array. It is an integrated circuit chip that can be configured by the user after manufacturing. Its functionality can be updated after delivery and the ability to reconfigure gives it versatility to be used for another purpose. Other than application in Bitcoin mining, FPGAs have been used in applications as diverse as signal processing, medical imaging etc.
However, FPGA mining did not take off. However, the cost of each additional unit add up quickly, and they are expensive and inefficient for large-scale mining operations. They may be more versatile, but at large quantities required by bitcoin mining, costs and energy consumption made mining unprofitable. These are the source of hashing power today. ASIC refers to types of chips specifically designed for a purpose. They are designed and used in various industries for machines that have specialized functions.
As of , Antminer S9 by BitMain is the most power efficient miner that a Bitcoin enthusiast can buy on the market to mine bitcoins at home.
If you are a large miner in the Bitfury pool, you might be able to get their containerized datacenter, which is a 3 TEU container sized bitcoin mining unit. The size of this unit means that it is only practical for professional bitcoin miners to purchase and use. What really matters for many miners is not just speed, but also energy efficiency.
For miners who do not have free electricity, electrical bills are the marginal cost of continuing to mine bitcoins. Moore that chip performance would double every 18 months.
This is a trend that has been observed in the chip manufacturing industry for more than 40 years. However, we see a much faster rate of growth in energy efficiency. Energy efficiency of the Antminer series doubles every 8 months according to past trend with every new model so far.
Bitcoin miners become obsolete fast. Furthermore, next-generation 10nm chips are expected to be produced by end to ASICs have been catching up rapidly with mainstream chip manufacturing technologies, so this development will be a boost to bitcoin ASIC performance. The rate of difficulty increases even faster, suggesting that miners are increasing capacity by increasing the number of miners they have in addition to switching to faster miners.
Given the large number of coins traded on the markets today, there are also many different variations on the PoW algorithm proposed in Bitcoin. The most notable mining algorithm is called Scrypt, which can be found in Litecoin. Proof of stake tries to solve the problem of gradual concentration of mining power. In proof of stake, the amount of new coins you can produce depends on the amount of coins you own, and not how much you have invested in mining equipment.
This concept is demonstrated first in Peercoin. Mining will continue to be the way bitcoin transactions will be validated in the foreseeable future.
It has proved to be a resilient way to create bitcoins and verify transactions, even as the businesses that were built around it came and went. However, the hardware arms race due to the mining algorithm have led innovators away from mining as the validating process in blockchain applications beyond virtual currency. They are looking for alternatives to PoW, or even doing away with it completely, and only focusing on distributed ledger system proposed by Bitcoin.
Most notably, Ethereum, the cryptocurrency with the 2 nd largest market capitalization, has also decided to move away from proof of work to proof of stake, which does away with the need for computational muscle power to validate. This will end the hardware arms race in Ethereum mining. Banks and business have been interested in using blockchain and distributed ledgers to record information. However, their needs differ from those who use bitcoin, because they prefer privacy, and they have trusted parties.
This means they need a distributed ledger that differs from those of cryptocurrencies today. Hence, these distributed ledgers will not come with mining algorithms to verify information. Instead, they would rely on transactional validators, trusted 3 rd parties to validate transactions. An example comes from R3CEV, an international consortium of banks, which includes some of the biggest names, to come up with blockchain solutions that will revolutionize the business.
They developed Corda, a distributed ledger platform to record and manage financial agreements. This system does away with mining completely. It does not have an embedded cryptocurrency native to the system, and does not have hundreds of miners competing to solve a computing problem.
Bitcoin mining has come a long way from an early adopter mining in his room, to a multinational operation that involves specialized equipment. Whereas bitcoin enthusiasts would be able to mine to learn about bitcoin, it is very difficult for an individual miner joining a mining pool to profit from mining bitcoin at current prices.
If you are interested in mining, you must do their own calculations, taking into account electricity prices and cryptocurrency prices. These are generally pyramid schemes and investors will do well to stay away from them. The best way for an individual to get bitcoin today is through a reliable exchange, like CoinHako.
Your email address will not be published. You may use these HTML tags and attributes: Mining gold profitably today is a capital intensive operation.
CPUs were the first type of hardware used to mine Bitcoins. A GPU mining setup. FPGA allowed for more scalable Bitcoin mining. At larger quantities, ASICs were cheaper.