Bitcoin mining takes us to the moon

Bitcoin hasn’t even reached its teenage years. When Satoshi published his whitepaper on creating a new monetary system in October 2008, nobody knew that Bitcoin would reach a market cap of $ 850 billion in less than 13 years. It would lead to thousands of other cryptocurrencies as well, fuel an entire financial services industry, and become a new asset class that is revolutionizing money as we know it.

But Bitcoin doesn’t just appear out of nowhere. You have to take it down. And with all eyes on the minute-by-minute price of Bitcoin, its increasing adoption, and who’s going to tweet what the price change will do, little attention is being paid to Bitcoin mining: what it is, what it does, and the impact it is having around the world .

We’ve been mining Bitcoin for seven years and have helped the industry evolve and adapt. Here is the history of bitcoin mining that most people are unfamiliar with and the trends that have shaped the industry.

Bitcoin mining is born

Bitcoin is a decentralized currency system that behaves like gold: it is a store of value and a finite commodity. This means that supply is limited – only 21 million bitcoin can ever exist – which makes it inflation-proof. Those who wish to use Bitcoin do not need to be subject to any government oversight that could change their value or determine who can use it.

But where does Bitcoin itself come from? Like gold, it has to be mined – not with a pick and shovel, but with a computer.

Bitcoin is based on blockchain technology. Miners around the world are competing to solve an algorithm that will allow them to add a block to the blockchain. Whoever solves the algorithm first takes home the transaction fees of this block and a fixed reward for issuing new Bitcoins (currently 6.25 Bitcoin per block), which brings more Bitcoin into circulation.

When Bitcoin was first developed, mining a laptop in a kitchen with a standard CPU was easy enough. But as more and more miners joined in, the competition grew to be the first to solve the algorithm, which meant the miners needed more processing power and newer hardware. In order to be able to operate more powerful computers efficiently, the price of electricity gained in importance. Soon mining became too competitive to be profitable as an individual.

A billion dollar industry was born

To be profitable, the mining operation had to scale. New mining-specific hardware hit the market and miners set up rigs in trailers and then warehouses where large mining farms with thousands of mining rigs could work around the clock to solve the algorithm. Because of the operational requirements for large scale farming, including layout and design, energy sources, management software, the need for updated hardware, and more, Bitcoin mining quickly became a multi-billion dollar industry.

According to a report by ARK Invest, the cost of existing hardware to support the ecosystem is around $ 7.2 billion, and they write that “Since we introduced dedicated Bitcoin hardware in 2013, we think we have billions of US dollars. Dollars were spent on design and production ”. , and tapeout, which spawn an industry dedicated exclusively to the manufacture of this rugged and specialized hardware. “

Bitcoin mining not only has great operations, it also has great returns. ARK Invest also estimates that miners could generate $ 15 billion in revenue from transaction fees and Bitcoin rewards.

Competition creates new hardware

Bitcoin competition continues to increase, but since Bitcoin is a finite commodity, there is only so much left to compete. That means the mining operations must stay as fast and powerful as possible in order to win the reward.

As the growing competition in Bitcoin mining increased the demands on computing power, mining shifted to GPUs and used the hardware that normally only gamers needed for high-end games. GPUs were then replaced by application-specific integrated circuits (ASICs) – hardware specifically designed for mining cryptocurrencies. ASICs are the fastest and most efficient hardware for Bitcoin mining and are used exclusively today.

But hardware depends on chips, and while chip technology is advancing incredibly quickly, chips are in short supply. This means frequent sell-offs of necessary hardware – like Bitmain’s recent shortage – and the need for miners to plan their upgrades well in advance.

New technology is most profitable

Similarly, Bitcoin mining operations must keep pace with the ever-evolving technology that is making the mining hardware bigger, better, and faster, as any delay in efficiency means a loss of profit. Nowadays, technology outperforms innovation, so mining operations not only need to keep pace with purchasing new hardware, but they also need to install it quickly because time is short. Even a few days delay is costly and many mining companies (like ours) have rented 747s to cut shipping time.

The rise of the western miners

For a long time, more than half of the world’s mining energy came from operating in China simply because it was cheaper to set up and faster to ship from Chinese factories. But that dominance is dying as China cracks down on mining. According to Wired, “a shift in the geographic distribution of bitcoin mining may still be underway,” with operations in North America, Europe or Latin America looking for locations that are more politically stable. Miners are also looking for locations to start operations in the Nordic countries, Canada and the US, where there is an abundance of cheap and sustainable energy such as wind, solar and hydropower.

What can you expect for the future of Bitcoin

Despite the recent volatility surrounding Bitcoin – which isn’t new – the future of Bitcoin is bright and optimistic. It will continue to appreciate in value and attract new investors, and as more people understand Bitcoin where it comes from and the industry how it is mined, they will find even greater value in it.

This is a guest post by Abdumalik Mirakhmedov. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

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