Bitcoin hasn’t even hit its teens yet. When Satoshi published his white paper in October 2008 detailing the creation of a new monetary system, no one knew that in less than 13 years bitcoin would reach a market cap of $ 850 billion. It would also lead to thousands of other cryptocurrencies, foster an entire financial services industry, and become a new asset class that is revolutionizing money as we know it.
But bitcoin isn’t appearing out of nowhere. You have to exploit it. And with all eyes on the minute-by-minute price of bitcoin, its increasing adoption, and who’s going to tweet what to change the price, not much attention is being paid to bitcoin mining: what it is, what it is, what it is. ‘it makes and the impact it has in the world.
We’ve been mining bitcoin for seven years and have helped the industry evolve and adapt. Here is the story of bitcoin mining that most people don’t know and the trends that have shaped the industry.
Bitcoin mining was born
Bitcoin is a decentralized currency system that acts like gold: it is a store of value and a finished commodity. This means that its supply is limited – only 21 million bitcoins can exist – which makes it resistant to inflation. Those who want to use bitcoin do not need to be subject to government oversight that could change its value or determine who can use it.
But where does bitcoin itself come from? Like gold, it must be mined – not with a pickaxe and a shovel, but with a computer.
The basis of Bitcoin is blockchain technology. Miners around the world compete against each other to solve an algorithm that allows them to add a block to the blockchain. Whoever solves the algorithm first wins that block’s transaction fee and a fixed bitcoin new issuance reward (6.25 bitcoins per block, currently), which adds more bitcoins in circulation.
When Bitcoin was first created, mining was pretty easy to do from a laptop in a kitchen with a standard processor. But as more and more miners joined us, the competition to be the first to solve the algorithm increased, which meant that the miners needed more processing power and newer hardware. . In order to run more powerful computers efficiently, the price of electricity began to rise. Soon mining became too competitive to be profitable as an individual.
A multi-billion dollar industry is born
To be profitable, mining operations had to evolve. New mining-specific equipment arrived on the market, and miners set up rigs in trailers and then warehouses, where large-scale mining farms with thousands of mining rigs could work on the ground. 24 hour algorithm resolution. Due to the operational needs of large-scale agriculture, including layout and design, power sources, management software, the need for upgraded hardware and more, bitcoin mining has quickly grown into a multi-billion dollar industry.
According to an ARK Invest report, the cost of the hardware in place to support the ecosystem is around $ 7.2 billion and they write that “since the inception of the dedicated Bitcoin hardware in 2013, we believe billions of dollars have been spent on design, production, and tapeout, spawning an industry dedicated exclusively to manufacturing this rugged and specialized equipment.
Bitcoin mining doesn’t just have big operations, it also has big returns. ARK Invest also estimates that miners could generate $ 15 billion in revenue from transaction fees and bitcoin rewards.
Competition breeds new material
Competition from bitcoin continues to increase, but since bitcoin is a finished product, there is not much to compete with. This means that mining operations have to stay as fast and powerful as possible to earn the reward.
As the growing competition in bitcoin mining increased the need for computing power, mining shifted to GPUs, using hardware that only gamers typically needed for high-end gaming. GPUs were then replaced with Application Specific Integrated Circuits (ASICs) – hardware specifically dedicated to mining cryptocurrency. ASICs are the fastest and most efficient hardware dedicated to bitcoin mining and are used exclusively today.
But hardware depends on chips, and while chip technology accelerates to blazingly fast speeds, chips are rare. This means frequent sales of necessary hardware – like Bitmain’s recent shortage – and the need for mining operations to plan their upgrades well in advance.
New technology is the most profitable
Likewise, bitcoin mining operations need to stay at the forefront of the ever-changing technology that makes mining hardware bigger, better, and faster, as any lag in efficiency jeopardizes profits. Technology today exceeds innovation, so mining operations must not only keep up with the purchase of new equipment, but must also install it quickly, as time is of the essence. Even a delay of a few days is expensive, and many mining operations (like ours) have rented 747s to reduce shipping time.
The rise of western miners
For a long time, more than half of the world’s mining energy came from operations in China, simply because it was cheaper to install and faster to ship from Chinese factories. But that dominance is dying as China clamps down on mining operations. According to Wired, “a shift in the geographic distribution of bitcoin mining could nevertheless be underway” with operations focused on North America, Europe or Latin America for more politically stable locations. Miners are also looking for places to build operations in the Nordic countries, Canada and the United States, where there is an abundance of cheap and sustainable energy, such as wind, solar and hydropower.
What’s in store for the future of Bitcoin
Despite a lot of recent volatility around bitcoin – which is nothing new – the future of bitcoin is bright and bullish. It will continue to increase in value and attract new investors, and as more people understand Bitcoin, where it came from and the industry around how it is mined, they will find it. even more value.
This is a guest article by Abdumalik Mirakhmedov. The opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.