Since its outset, Bitcoin has seen widespread adoption and success, particularly in financial markets. Institutional and retail investors are increasingly interested in the flagship cryptocurrency in the hopes of making market-beating returns, as has been the case for a long time.
Bitcoin Mining Plant. Source: Bitcoin.com
Bitcoin is frequently referred to as “digital gold” by proponents as a hedge against inflation. Bitcoin has scarcity and resilience power due to factors such as limited supply and decentralization, making it an effective inflation hedge.
Its efficacy as an inflation hedge has attracted investors and intellectuals such as Michael Saylor, Elon Musk, and Novogratz, who have all invested billions because they see it as an unique asset class.
In this article, we’ll look at the bitcoin mining transformation, the technology in use, and how much energy they require as Bitcoin moves toward environmentally friendly energy use.
- Bitcoin supply generation
- High-end computing technologies used to power the quest for the treasure
- Energy sources and consumption
- The future of mining
How are new Bitcoins generated?
Traders and investors make decisions based on the supply and demand of everything that has value. The number of unique addresses active on the network as a sender or receiver has surpassed 750,000 each day, indicating that demand for Bitcoin is sky-high. However, how is new Bitcoin (supply) created?
New bitcoins are created as a result of a competitive and decentralized record-keeping process known as “mining.” Unlike the traditional method of outdoor gold mining, which requires heavy machinery and equipment such as an excavator, a suction-cutter/portable gold dredge, a crusher, and so on, Bitcoin mining requires the usage of hardware to mine through computer programs.
Bitcoin leverages a Proof-of-Work (PoW) blockchain consensus mechanism to verify transactions and add them to the blockchain digital ledger, which necessitates a lot of computational power to solve complicated mathematical equations.
The Bitcoin network’s entire computing power is used to perform cryptographic challenges, resulting in the proof of work. This mechanism is responsible for the creation of all bitcoins in existence.
Each miner node aggregates new transactions into a block and works on finding a proof-of-work code for its block, which is broadcast to all nodes.
When a node discovers a proof-of-work, it broadcasts the block to all nodes, with recipient nodes validating and accepting transactions only if they are all valid.
Nodes show their approval by starting work on the following block, which includes the hash of the previously accepted block.
Blockchain diagram by Matthäus Wander
The reward for contributing a block is cut by half every 210,000 blocks (approximately every four years) according to the bitcoin protocol whitepaper. The incentive will eventually be rounded down to zero, and there will be a limit of 21 million bitcoins, of which more than 19 million have already been mined.
Hashing technologies used to mine Bitcoin (CPUs, GPUs, FPGAs and ASICs)
Bitcoin mining is a competitive industry that necessitates miners to spend in both resources and energy consumption. The various hashing technologies that have been used to mine bitcoin have resulted in an “arms race.”
On 3 January 2009, Satoshi Nakamoto launched the bitcoin network by mining the genesis block, the first block of the chain, with his personal computer’s Central Processing Unit (CPU).
Typical Central Processing Unit
However, the CPU’s limited processing speed and high power consumption resulted in limited output as technology advanced to keep up with the burgeoning demand, making CPU-based mining inefficient.
Mining with graphics processing units (GPUs) has a number of advantages over mining with CPUs. A basic GPU, such as the Radeon HD 5970, could process 3,200 32-bit instructions per clock, which was 800 times faster than a CPU that could only process 4 32-bit instructions per cycle.
Radeon HD 5970 GPU
As more people enter the Bitcoin mining sector, energy usage rises as a result of the increased competition. GPUs, too, have been rendered useless in crypto mining by highly efficient field programmable gate arrays (FPGA) and application-specific integrated circuits (ASICs).
The challenge in the mining process comes from the need to self-adjust to the network’s cumulative mining capacity as each piece of hardware reduces the profitability of less-specialized technology.
Bitcoin-specific ASICs have overtaken GPU speed by up to 300-fold, making them the primary way of bitcoin mining. Computer hardware manufacturers have noticed a rise in sales of high-end ASIC rigs as bitcoin mining has grown more challenging.
ASIC(Application-Specific Integrated Circuit) miner. Source: Freepik
The Antminer S19 Pro-ASIC is one of the best Bitcoin mining rigs available right now, and it can also mine other SHA-256 cryptocurrencies. The hardware features the fastest hash rate, maximum efficiency, and lowest power consumption. The mining hardware is said to make a daily profit of $12 with an electricity cost of $0.1/kilowatt.
Energy sources and consumption
One of Miner’s major hurdles as they aim to compete for market share has been maximizing their hardware efficiency and power usage. Miners not only invest in the best hardware, but they also look for the most cost-effective energy sources to power their quest for this treasure.
As of 2022, the Cambridge Centre for Alternative Finance (CCAF) estimates that bitcoin consumes 131 TWh annually, representing 0.29% of the world’s energy production and ranking bitcoin mining between Ukraine and Egypt in terms of electricity consumption.
Some bitcoin miners have set up massive mining plants in countries and regions with low-cost electricity, such as Iceland, where geothermal energy is cheap and cooling Arctic air is free, in order to reduce electricity expenses. Some are looking to use renewable energy to power their farms, while oil companies like ExxonMobil are using excess methane gas to power mobile generators that keep bitcoin mining servers operational.
Aerial view of a power plant with cooling towers releasing steam. Source: Unsplash
The global hashrate of Bitcoin fell after China’s crackdown on miners in May 2021, citing environmental concerns since at least one-third of Bitcoin mining in China’s Xinjiang province was fueled by coal.
Bitcoin Mining Difficulty. Source: Glassnode
The Bitcoin hashrate is currently back at all-time highs and the crackdown is now proving to be a blessing in disguise as miners are being pushed to use renewable and more sustainable energy, with greater shares of the total mining power initially coming from the United States, Russia, and Kazakhstan.
Kazakhstan was formerly a mining-friendly country and the second-largest base for the creation of Bitcoin, but circumstances have changed. Bitcoin miners on the run from China are currently being forced to leave Kazakhstan once more due to unrest and power outages. According to findings from the rest of world tech, the government has curtailed the power supply of the miners it previously warmly welcomed.
China’s throttling of the industry saw its portion of the world’s Bitcoin hashrate drop from 75% in September 2019 to 0%. The country had a recovery between September 2021 and January, according to the most recent Cambridge Centre for Alternative Finance (CCAF) report; it now stands at 21.1 percent, second only to the United States’ 37.8 percent.
Bitcoin Mining Map by Countries. Source: Cambridge
The hashrate is a major indicator of a cryptocurrency’s proof of work network’s decentralization and security against hackers. This is due to the fact that the higher the hashrate, the more difficult and costly it is to attack the network.
The mining sector’s future
Mining is the cornerstone of all proof-of-work blockchains, and it’s not going away anytime soon, despite the fact that some blockchain networks use other consensus mechanisms, such as Proof-of-Stake(PoS).
Proof-of-Work, on the other hand, is the most secure due to its decentralized growth. Since its inception in 2009, about 19 million bitcoins have been mined, accounting for nearly 90% of the total. Despite this, current estimates suggest that the final bitcoin will not be mined until around 2140.
The creation of new Bitcoin units will be stopped due to a supply cap of 21 million units, which is set by bitcoin’s source code, which was programmed by its creator(s), Satoshi Nakamoto, and cannot be amended, but it is not the end of the road for miners. Transaction fees will then be used to reward the Bitcoin network’s record-keeping service.
Editor’s note: This article was originally published on GreenBitcoin by the same author. It has been republished here on TodayinCrypto following the closure of GreenBitcoin.