Bitcoin (BTC) and other cryptocurrencies have now firmly established themselves in the business and financial sectors, and the demand to buy cryptocurrency influences the trading and investment decisions of institutional and individual investors. Mining is the process through which new cryptocurrency coins are created.
What is cryptocurrency mining?
The term “cryptocurrency mining” refers to the process of solving mathematical problems using computer programs.
Cryptocurrency mining such as Bitcoin mining is a competition to see who can solve an arithmetic problem with the most computing power. Whoever solves the computation adds it to a new block. The answer to each equation is represented by its “hash number.” Cryptocurrency miners earn coins for each successfully mined block. More processing power is required for faster problem solving.
The Bitcoin mining process seeks to maintain a consistent flow of new blocks every 10 minutes. “Hash rate” quantifies the “puzzle” complexity of the crypto, which automatically adapts to the processing power of the system. The “hash rate” metric indicates how tough it is to mine a specific cryptocurrency with a particular quantity of computing power.
According to Blockchain.com, the Bitcoin mining hashrate increased 100 million times between 2011 and 2018. Between 2018 and 2020, the number more than doubled. The hashrate for Bitcoin mining is 156 EH/s (i.e., 15.6 billion operations per second).
CPUs and GPUs for cryptocurrency mining
On January 3, 2009, Satoshi Nakamoto, the pseudonymous founder of Bitcoin, mined the first 50 bitcoins (aka, the “Genesis Block”), with his computer’s central processing unit (CPU).
Bitcoin mining, and crypto mining in general, was simpler when most miners utilized graphics cards. Personal computers (PCs) were profitable tools in the early days of Bitcoin mining (including electricity costs, machine depreciation, etc.). As more individuals entered the crypto mining industry, the level of processing power required by miners soared.
As the challenge and reward stakes of crypto mining increased, it became more and more expensive to mine. Regular CPUs could no longer cope with the complexities of the newer mining method. In 2010, the first graphics processing unit (GPU) mining program was published.
The GPU of a single graphics card can outperform dozens of CPUs running in parallel, which boosts mining efficiency. Therefore, many miners shifted to GPU mining and constructed their own rigs using powerful graphics cards.
Cryptocurrency mining for ICs (FPGAs and ASICs)
The crypto mining business is being inundated by new products. Field-programmable gate arrays (FPGAs) are a new form of mining technology that has significantly enhanced the computing capability of crypto mining.
Application-specific integrated circuits (ASICs) are another extremely powerful new method of crypto mining. In fact, crypto miners who use ASICs have access to 200 times the computational power of GPU miners. It also uses less electricity. The third generation of crypto miners are, essentially, ASIC miners. Several firms have produced and refined mining chips ranging in size from 110nm to 55nm and 28nm to 14nm.
AvalonMiner was introduced by Nangeng Zhang at the end of 2013. They then formed the chip-mining startup Canaan Creative. Bitmain was founded in the same year. Bitmain’s Antminer first appeared in 2014. The Antminer S9 from 2016 has 189 ASIC chips. For a decade, Bitmain’s Antminer and AvalonMiner have dominated the mining business through market highs and lows.
In 2011, Slush Pool was the first Bitcoin mining pool. Competition in bitcoin mining affects miners’ computing power and energy efficiency. The term “mining pools” refers to groups of miners that pool their resources. Mining pools have an edge over lone miners with a limited number of machines. Crypto winnings are distributed among pool members. If a mining pool creates a block, all miners who participated will be compensated in crypto, based on the amount of processing power they supplied.
The future of cryptocurrency mining
The number of computations per second is determined by computing power. More attempts enhance the likelihood of immediately identifying the proper “answer” (a random value). This results in the creation of new crypto blocks.
The most successful crypto miners have constructed enormous operations in low-power locales. Competition is rising as new mining facilities enter the market, resulting in a processing arms race. Since then, mining has grown to be extremely specialized, and dominated by just a few businesses.
The top five mining pools on Blockchain.com include AntPool, ViaBTC, Poolin (developed by BTC.com), F2pool, and Huobi Pool. Over 70% of Bitcoin’s hashing power is provided by Chinese miners and mining pools.
Data extraction using the cloud
Cloud mining has grown in popularity in recent years. Cloud mining enables consumers to mine using the service provider’s cloud computing capability. Users can rent processing power from the service provider rather than purchasing mining hardware or establishing their own mining farm.
GPUs are still used by retail miners. Despite using different mining algorithms than Bitcoin, several altcoins have GPU support. AMD and NVIDIA graphics cards are popular among miners, who are mining Litecoin as well as other cryptocurrencies. ASICs have been modified by miners to mine different coins, which expands their market share.
What are quantum computers?
For some time, computer scientists and researchers have speculated that powerful quantum computers could exploit a flaw in the Bitcoin blockchain’s defenses and dominate Bitcoin mining. Despite their potential, quantum computers have yet to gain traction. Quantum computers are difficult to build, expensive, and unsuitable for mining. Their mining efficiency is uncertain, because quantum computers may breach the Bitcoin network.