Bitcoin mining is the process of creating new bitcoin by solving complex computational math. Hardware mining is required to solve these problems. The harder the problem is, the more powerful the hardware mining is. The purpose of mining is to assure that the transactions are validated and stored trustworthy as blocks on the blockchain. That makes the bitcoin network secure and feasible.
To incentivize bitcoin miners who deploy the mining, they are rewarded by transaction fees and new bitcoin whenever a new block of transactions is added to the blockchain. The new amount of bitcoin mined or rewarded is halved every four years. As of today, 6.25 bitcoins are rewarded with a new block mined. An optimal time for a block to be mined is 10 minutes. Thus, there is a total of about 900 bitcoins are added to the circulation.
The hardness of bitcoin mining is presented by the hash rate. The current hash rate of the bitcoin network is around 130m TH/s, which means the hardware mining sends out 130 quintillion hashes per second to have only one change of one block is validated. This requires a huge amount of energy with powerful hardware mining. In addition, the bitcoin hash rate is recalibrated every two weeks. This characteristic encourages the miner to stay in the crash market situation. ASIC mining rig for sale
THE INNOVATION OF BITCOIN MINING
Back in 2009, the first generation of bitcoin mining hardware used Central Processing Unit (CPU). In late 2010, miners realized that using the Graphics Processing Unit (GPU) is more efficient. At that period, people could mine bitcoin on their PCs or even laptop. Over time, the difficulty of mining bitcoin has grown drastically. People could no longer mine bitcoin efficiently at home. In mid-2011, the third generation of mining hardware was released known as Field Programmable Gate Arrays (FPGAs) which consumed less energy with more power. That was not enough until early 2013, Application-Specific Integrated Circuits (ASICs) was introduced to the market by their most efficiency.
The history of bitcoin mining hardware innovation by its hash rate and energy efficiency Taken from Vranken’s research.
Furthermore, individual miners can come together forming a mining pool. The mining pool works to increase the power of mining hardware. The chance for an individual miner to mine a single block is zero at this current level of difficulty. Even if they use the most innovative hardware, they still need a mining pool to be profitable. Miners can join a mining pool regardless of geography, and their income is guaranteed. While the operator’s income is varied depending on the difficulty of the bitcoin network.
With the help of powerful mining hardware and mining pool, the bitcoin network becomes more and more secure and decentralized. The energy spent on the network becomes less and less. Thus, the cost and the environmental impact of mining bitcoin is decreasing.
PROOF-OF-WORK IS VALUABLE
The process of mining bitcoin using electricity is called proof-of-work (PoW). Since PoW requires a lot of energy for operating, people think it is wasteful. PoW is not wasteful until bitcoin intrinsic value is recognized. The way that the PoW mechanism consumes energy makes its value. Throughout history, the amount of energy people used for surviving has been increasing substantially. Energy is essential for improving quality of lives. For instance, gold mining consumes a huge amount of energy, the vehicle consumes gasoline, even sleeping also needs energy…etc. Every matter store energy or spend energy is valuable. The intrinsic value of bitcoin can be evaluated via energy consumption. Thus, PoW makes bitcoin valuable. The more energy spent, the more secured network is, the more value-added to bitcoin. The similarity of gold and bitcoin are they are scarce, and they all require a huge amount of energy to mine.
- Furthermore, PoW is valuable because of its borderless energy consumption. Miners can take advantage of abandoned energy resources from all over the world. They can use energy from a volcano eruption, the energy from sea waves, the abandoned energy from a rural town in China…etc. This is the beauty of PoW mechanism. There had been nothing store of value throughout human history until bitcoin was invented.
BITCOIN VS GOLD
Bitcoin and gold are similar in terms of scarcity and stores of value. People say bitcoin is out of thin air, gold at least has its physical value. The value of bitcoin is at its scarcity, there will be only 21 million bitcoins ever exists. The Bitcoin network is secured and unhackable. When it comes to transportability, bitcoin is much more transportable than gold. For example, one million dollars of bitcoin takes a second to transfer, but the same amount of gold may take weeks, months, or even impossible. There is huge friction of gold liquidity which makes it cannot replace bitcoin.
- Moreover, gold mining goes through multiple stages which is time-consuming and costly. In contrast, bitcoin mining only requires hardware and electricity. The risk of gold mining is also big compared to bitcoin mining. Gold miners may face a decreased life expectancy when they work in an intensive environment. While bitcoin miners may only experience a financial loss. With the current value of bitcoin, apparently, mining bitcoin is much safer and more profitable.
Assume mining hardware $750 with a hash rate of 16 TH/s. Running this single hardware would cost $700 to mine approximately 0.1 bitcoin. Thus, the total cost yearly to generate roughly 328500 bitcoins is $2.3 billion. Since 2013, miners have spent $17.6 billion to deploy and operate the bitcoin mining systems. Whereas gold mining cost is $105B yearly, which is much higher than the yearly cost of bitcoin mining. Therefore, the energy spent on the bitcoin network is not wasteful when its value and cost are considered.
Post time: Dec-15-2022
