Upon Bitcoin’s inception, many people had passed it off as a fad. Created by the mysterious Satoshi Nakamato (a pseudonym), Bitcoin’s value has exceeded over $8,000 and thousands of cryptocurrencies have tried to emulate its formula. Most cryptocurrencies, such as bitcoin and ethereum, were and still are supported by a group of dedicated miners excited about the applications of a new decentralized currency.
In the early days of bitcoin, miners made no money spending thousands of dollars in utility bills to mine useless coins worth a quarter of a US cent, but cryptocurrency promised great potential for miners and business offering complete ownership of a currency without regulation, low transaction fees to conduct business, and a public ledger, which promoted transparency and prevented fraud.
As we all dive head first into the cryptocurrency fad or future, let’s take a look back at the history of cryptocurrency mining and the people and saw an opportunity to make millions.
What is Cryptocurrency Mining?
First, let’s explain what cryptocurrency mining is. Using bitcoin as an example, it’s essentially a proof-of-work for completing a complex computation task. These tasks provide a record-keeping service, which creates public records of transactions in the form of blocks, which is linked to previous blocks over the blockchain.
Cryptocurrency blockchains are entirely supported by miners. Every new block they create is used to consistently record and verify new and past transactions to keep the public ledger available. For a network like ethereum, it’s the equivalent to a P2P data sharing ecosystem.
Bitcoin mining is accomplished using a computer’s processing power to find a specific algorithmic number called a nonce. The proof-of-work of finding the nonce is completed when the block being hashed along the nonce is lower than the difficulty target set up by the network. Miners must compute through hundreds of different nonce values before finding the correct nonce, which is then verified. This consumes a massive amount of power and time, but miners are rewarded with cryptocurrency.
In the case of bitcoin, the number of nonces is tied to the computing power of the network, which attempts to keep the time between new blocks to ten minutes. Under bitcoin’s algorithm, the number of awarded bitcoin for every 12.5 new blocks will be halved every four years. This creates artificial scarcity and a set monetary supply, thus reducing inflation.
For bitcoin and early ethereum miners, the reward for their time and power bill would not result in immediate returns on investment. The cost of mining is contingent upon the processing capacity and power expenses over time to mine new cryptocurrency blocks. Over time, mining has and will become more difficult, incentivizing new, innovative technologies that increase mining efficiency.
The Beginning of Bitcoin Mining and Mining Farms
When bitcoin mining first began in 2009, people were using simple I7 Intel processors and their stock graphics card to mine for new coins. As we know now, this was vastly inefficient. Processors could only be powered at about 1 to 10 watts per megahash per second. To put this in perspective, the total computational power of all miners combined today is over 1.5 billion GH/S.
Miners were also isolated and only conducted bitcoin mining for the sake of the concept itself. It wasn’t until people started to realize that high-end GPU’s could process cryptocurrency hashes at a much faster rate did the industry practice start to develop. AMD’s top assembly GPU’s could process cryptocurrency hashes at about 650 MH/S.
This led to the creation of mining farms. Essentially, mining farms were supported by a single CPU and motherboard that would run the 6 high-end GPU processors at once. Of course, this approach ran up a hefty utility bill, which resulted in a new technology that would revolutionize the efficiency of cryptocurrency mining.
With the new field-programmable gate array (FPGA), miners could reduce power load and still get the same computational power that a mining farm provided. Yet, this device only lasted on the market for less than a year thanks to a new disruptive supercomputer.
Created by Butterfly Labs, the ASIC (application-specific integrated circuit) miners SC Mini Rig became the most powerful cryptocurrency device on the market.. Released in June 2012, this device had a power efficiency nearly 100 times higher than the highest rated GPU. With an efficiency of 1,500 GH/S, the device was created solely for cryptographic mining and finally made the practice profitable. ASICs miners had a power capacity of 6 watts per gigahash per second and consumed .1 MW/H. This innovation led to companies across the country begin their own mining farms in the form of massive server rooms.
Modern Day Mining
Today’s miners still use this technology and have even begun experimenting with cloud mining. Created by CEX.IO, individuals could purchase mining power over the cloud and enjoy a share of the profit. This eliminated the need for internet connectivity or driving up your own utility bill and made mining more available for the technological layman.
The industry continues to evolve and many more advances in processing and GPU power promise a bright future for cryptocurrency mining.