A short, comprehensive story of bitcoin mining’s history.
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In the Bitcoin white paper, Satoshi Nakamoto wrote that “Proof-of-work is essentially one-CPU-one-vote”— referring to the fact that most people who joined the fledgling network would use their CPU’s processing power to mine on the network.
Fast-forward 10 years and the cryptocurrency mining landscape has changed unrecognizably. Last year, the Chinese mining giant Bitmain announced that it was initiating IPO proceedings at a valuation as high as $18 billion. Today’s miners no longer rely on the CPUs in their laptops, but mining farms with racks of ASIC chips, located near cheap electricity sources.
How did we get here? In this article, we’ll walk you through a decade of cryptocurrency mining history.
Genesis Block — CPU Mining
On January 3, 2009, the first block—or genesis block—on Bitcoin’s blockchain was mined by Satoshi Nakamoto. For the first few months following Bitcoin’s launch, Satoshi Nakamoto and Hal Finney were the only people actively mining bitcoin on the network.
In the early days of Bitcoin there wasn’t any sophisticated mining hardware around, which meant that anyone could join the network with their laptops and mine, earning a 50 BTC reward per block—or roughly $250,000 at today’s prices.
For nearly the first year after Bitcoin launched, the difficulty level of mining remained static at 1. That meant that you needed to perform around four gigahashes to mine a block. At the time, a Pentium 4 Intel CPU was capable of producing around 1.29 megahash a second, which meant it would take you roughly 50 minutes with a single CPU to mine a block of Bitcoin.While the idea for mining Bitcoin via GPUs had been circulating in the Bitcoin community, Satoshi put the brakes on this idea, arguing that in the short term, it would be more beneficial to the new and vulnerable network to not allow GPU mining.
In December 2009, Satoshi posted to the Bitcoin Talk forum:
We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easier to get new users up to speed if they don’t have to worry about GPU drivers and compatibility. It’s nice how anyone with just a CPU can compete fairly equally right now.
In 2010, increasing publicity around Bitcoin drew new users—and miners—to the Bitcoin network. That year, version 0.3 of the Bitcoin client was announced on Slashdot, a popular social news website. At the time that the Slashdot announcement was posted, the difficulty of mining Bitcoin was 23.5. A week later, on July 17, difficulty skyrocketed 7x, to 185, as new users and miners joined the network.
The early days of Bitcoin mining, when anyone could earn a block reward with their laptop, was coming to a close.
In September 2010, a Bitcointalk user named Puddinpop open-sourced the code to a Bitcoin client that enabled mining with GPU cards, ushering in a new era of Bitcoin mining. GPU graphics cards were capable of mining an order of magnitude more efficiently than CPUs, ushering in an arms race for mining hardware.
A CPU, or central processing unit, is designed to execute instructions specified by a computer program. A CPU is designed to perform general purpose computing tasks, and it’s optimized to be able to quickly switch between these tasks. Unlike CPUs, GPUs are designed to perform the type of repetitive calculations necessary to render video graphics on your computer—making them much better suited to perform the type of bulk calculations necessary to mine cryptocurrency.
Before Puddinpop open-sourced his code, it was already becoming increasingly clear that individuals on the Bitcoin network were breaking Satoshi’s “gentleman’s agreement” and using GPUs to gain an edge in mining. One early Bitcoin user, known by his Bitcointalk forum handle ArtForz, at one point purported to control 20% of the hash rate on the network, with a home-built mining farm made up of two Radeon 5970 GPUs and another four Radeon 5770s, hauling in an estimated 2,191 BTC per day.
The open-sourcing of GPU mining software opened the floodgates to GPU mining. Pretty soon, a new standard for mining evolved by repurposing consumer hardware, rigging together up to six GPUs to a motherboard specifically for the purpose of mining. As more GPUs entered the network, mining grew a lot more competitive. At the beginning of 2010, mining difficulty was at 1.183, having barely risen since the network launched. By the end of that year, difficulty had risen meteorically to 14,480.
With the rise of GPU mining, it suddenly became a lot harder for individual miners on their home computers to eke out a profit. This led to the creation of pooled mining, which allowed miners to pool together their hardware and earn block rewards in proportion to the hash rate they contributed.The first Bitcoin mining pool was proposed by Bitcointalk user Slush on November 10, 2010, on the Bitcoin Talk forum:
Once people started to use GPU enabled computers for mining, mining became very hard for other people. I’m on bitcoin for few weeks and didn’t find block yet (I’m mining on three CPUs). When many people have slow CPUs and they mining separately, each of them compete among themselves AND against rich GPU bastards ;-), because everybody counts sha256 hashes from the same range. Two separate CPUs with 1000khash/s isn’t the same as one 2000khash/s machine!. But new feature of the official bitcoin client called ‘getwork’ now enables work of many computers together, so they don’t compete. Because there is now standalone CPU miner (thanks to jgarzik!) and ‘getwork’ patch is in official client now, I have an idea:
Join poor CPU miners to one cluster and increase their chance to find a block!
With a hash rate of 1000 KH/s in December 2010, it might have taken you two years to earn a single 50 BTC block reward. Mining pools allowed miners within a pool to spread the distribution of block rewards among themselves more evenly over time. Today, pooled mining dominates Bitcoin, with the top four pools controlling over 51% of the hash rate, which is typical across proof-of-work cryptocurrencies.
Between 2011 and 2012, a new type of chip was about to enter the mining hardware race: the FPGA, or field-programmable gate array.
FPGAs are chips that are designed to be reconfigured by users after purchase from the manufacturer. They’re typically used to perform specific vertical applications with low production volumes, such as within aerospace or high-performance computing.
In theory, an FPGA’s customizability gave miners better performance and lower electricity costs. In practice, things were different. It was hard to optimize FPGAs around Bitcoin’s SHA-256 hashing algorithm, and they suffered frequent malfunctions. FPGA’s also offered only minor performance gains over GPUs while being harder to acquire and set up. This made them a short-lived phenomenon in mining history.
The customizability of FPGAs, however, heralded the arrival of a new type of mining chip that would be specifically designed for the purpose of mining.
On January 30, 2013, Bitcoin developer Jeff Garzik received the first Bitcoin ASIC miner developed for consumers. At the time, most GPUs offered a hash rate of under 1 GH/s, and FPGAs could achieve a hash rate of between 1-2 GH/s.
Application-specific integrated chips, or ASICs, are chips that are optimized to perform one specific function rather than a variety of general-purpose functions, like a CPU is. While they lose a lot in flexibility—a Bitcoin ASIC miner won’t be able to do much besides hash SHA-256—they gain in efficiency and performance.
The Avalon A3256 ASIC that Garzik purchased offered a hash rate of a staggering 60 GH/s, for a sticker price of $1,299. By February 9, 2013, Garzik reported that the miner had already paid for itself.
While it’s virtually certain that mining companies had been deploying their own ASICs throughout 2012, the rise of consumer ASICs permanently altered the mining landscape. ASICs heralded a shift in mining away from hobbyist GPU rigs to professional mining farms with racks of ASICs. GPUs rigs remain valuable for mining coins that ASICs haven’t been designed for, the arrival of ASICs on a network will quickly outcompete other forms of mining.
This was something that Satoshi had predicted before Bitcoin launched:
“At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware.”
Over the years, ASICs only improved in terms of performance and efficiency. Bitmain’s S9 miner is capable of performing 13 TH/s, or 216x more hashes per second than the first Avalon ASIC miner.
Ten Years of Mining
Over the last decade, cryptocurrency mining hardware has evolve rapidly from the early days of CPU mining, to hobbyist GPU rigs and FPGAS, to today’s ASICs. While the rise of ASIC mining in established coins like Bitcoin is unfriendly to smaller miners, there’s opportunity for individual miners to speculatively mine smaller altcoins that ASICs haven’t been developed for. Innovation in the overall mining sector moves at a rapid pace, but the important thing to keep in mind is that it all goes to helping better secure decentralized, peer-to-peer networks.
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