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A Brief History
Bitcoin mining began in January 2009. Some 19 million bitcoins have been mined since then and are in existence; two million are yet to be mined. The last bitcoin will be mined around 120 years from now in the year 2140. In the network’s early days, when miners were few and bitcoin was not highly valued, miners and users of bitcoin were not as careful as they generally are today in handling and storing their bitcoin. Millions of bitcoin have been lost because of misplaced or forgotten private keys. Most place ten to twenty-five percent of all bitcoin into this category.
In addition, Satoshi Nakomoto mined many of the early blocks and accumulated more than 1 million bitcoin as a reward. Nakomoto then famously stopped mining and transacting, and essentially disappeared, leaving that bitcoin inaccessible and stranded. Nakomoto’s stranded bitcoin constitutes a significant percentage of all the bitcoin there will ever be.
Regardless of the precise number, it is indisputable that billions of dollars worth of bitcoin are inaccessible forever. So even after the last bitcoin is mined, the circulating supply will be far less than the 21 million that the protocol allows. Interestingly, this makes future bitcoin to be mined more valuable and that reality is reflected in the investment in the bitcoin mining industry we see today.
Evolution of CPU to GPU to ASICs
CPU Mining
On Jan. 3, 2009, Bitcoin’s pseudonymous creator Satoshi Nakamoto mined the first block, also known as “Genesis Block” using a computer’s central processing unit (CPU). The current mainstream cryptocurrencies are basically impossible to mine with a single person’s equipment. Mining has become increasingly demanding in terms of computing power. Mining has evolved from CPU mining, to GPU mining, and then to the era of ASIC mining.
In the early days of bitcoin mining, mining Bitcoin with a personal computer (PC) was feasible. However, a competitive market for hashpower and the pooling of computation resources together (into “pools”) quickly saw the era of economic viability for PC mining come to an end as users started looking to ASICs and mining pools Computers used to browse the internet, launch Microsoft Word and a number of other countless applications all contain what is called a central processing unit (CPU). These devices control how commands on a computer are processed and executed. Due to the lack of miner competition in bitcoin’s early days, the computational energy required to create new blocks and earn mining rewards could be easily processed on CPU devices.
As mining became more difficult, and with the design of halving the bitcoin rewards. Ordinary CPUs were no longer able to run at the speed needed to meet the increased difficulty of the mining algorithm. So in 2010, there was a release of the first software design specifically for mining with a computer graphics card.
The computing power of a GPU in one graphics card is equivalent to dozens of CPUs computing in parallel. So the mining efficiency will be greatly improved. Therefore, many people switched to GPU mining, and assembled one or more advanced graphics cards to build their own mining appliance.
Bitcoin mining difficulty vs. time and approximate introduction dates of new mining technology
Source: NYDIG Research
GPU and FPGA Mining
The first major innovation to bitcoin mining hardware came shortly after a market value for bitcoin was established. On May 22, 2010, computer programmer Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas. The pizzas were worth around $25. According to cryptocurrency data provider Coin Metrics, bitcoin market price then appreciated in July to around 8 cents. By the time the bitcoin price reached 10 cents in October 2010, the first mining device leveraging graphics processing units (GPUs) was developed.
Unlike CPUs, GPU devices are optimized to perform a narrow range of computational tasks. Originally built for gaming applications, GPUs excel at computing simple mathematical operations in parallel, rather than one at a time, in order to generate thousands of time-sensitive image pixels. These devices can also be re-programmed to compute other mathematical operations such as the ones required to mine new bitcoin.
The innovation of GPU mining, that is mining bitcoin on a GPU device, made producing bitcoin blocks and earning block rewards on average roughly six times more efficient according to analysis done by CEO of mining consultancy firm Navier, Josh Metnick. For these efficiency gains, an average GPU device costs only twice as much as the average CPU device.
As more and more people enter the mining industry. The overall computing power of the Bitcoin network continues to reach new highs, and yet more advanced mining equipment, Field Programmable GATE Arrays (FPGA), emerged. The first FPGA miner in China appeared in 2011. Manufactured by Nangeng Zhang, nicknamed “Pumpkin Zhang”, and the appliance is called the “Pumpkin Miner”. However, due to the high power consumption of FPGA mining. Ultimately, it took only six months for it to be phased out of the market.
According to Metnick’s calculations, FPGAs are able to compute the mathematical operations required to mine bitcoin twice as fast as the highest grade GPU. However, these devices are more labor-intensive to build. FPGAs require configuration on both a software and hardware level, meaning the devices must be programmed to run customized code, as well as architected to run that code efficiently. It is the ability to adjust hardware components on an FPGA that makes these types of devices better optimized for bitcoin mining than a GPU.
ASIC mining
In 2012, there was the first release of ASIC miner, Butterfly Miner. Initially, the computing power of ASIC miners was about 200 times that of graphics card mining. However, the power consumption rate was not much different, and it soon became popular in the market. ASIC miners have rapidly evolved to be the 3rd generation of bitcoin miners. Many have continued to innovate and evolve in terms of mining chip technology, from the initial 110nm, 55nm, 28nm, all the way up to 14nm.
In 2013, Nangeng Zhang launched a new ASIC miner named “AvalonMiner”. Later they founded Canaan Creative, a mining company focused on mining chips. In the same year, another mining company, Bitmain, was also established. Bitmain launched the first generation of Antminer in 2014. In 2016, Antminer S9 was launched with 189 ASIC chips built in, as its flagship product. Through the ups and downs of the market in the following decade, Bitmain’s Antminer, together with AvalonMiner, has been leading the mining industry.
The third major innovation to bitcoin mining likely required the largest amount of dedicated resources, time and development to achieve. Rather than repurposing the software and hardware parameters of existing machines, efforts to create an entirely new machine that would only mine bitcoin finally paid off. In 2013, a China-based computer hardware manufacturer called Canaan Creative released the first set of Application-Specific Integrated Circuits (ASICs) for bitcoin mining.
These devices, unlike CPUs, GPUs and FPGAs, are specifically designed to mine bitcoin. Meaning that all hardware and software components of these ASIC devices come pre-designed and optimized to most efficiently compute the calculations necessary to create new bitcoin blocks. The efficiency gains from ASICs cannot be matched by any of the preceding general purpose devices. While Canaan Creative was the first bitcoin ASIC manufacturer, others such as Bitmain and MicroBT also came up with new versions of ASIC bitcoin mining devices with increasingly advanced hardware. One of the most noticeable developments in ASIC mining technology since 2013 has been a steady reduction in chip size. The size of ASIC chips which started off at a size of 130nm in 2013 has shrunk considerably to be as small as 7nm in the latest hardware models.
Without a radical new ground-breaking technology, bitcoin miners will soon stop competing primarily on the basis of hardware and equipment as was the case for the past decade.
The significance of chip size comes back to mining efficiency. The wider the surface of an ASIC chip, the larger its communication channels and therefore the more electricity required to transmit data on its surface. According to Metnick’s calculations, an ASIC bitcoin mining device today is 100 billion times the speed of the average CPU back in 2009.
Rakesh Kumar, associate professor of Electrical and Computer Engineering at the University of Illinois, believes a strong motivating factor of mining hardware evolution over the years since bitcoin’s creation has been the rising dollar value of bitcoin, which made mining an increasingly lucrative activity. The higher the market value of block rewards, the higher the payoff for innovations in mining technology that boost miner profit margins while decreasing operating costs.
