Last week, bitcoin finally surpassed its all-time high, more than $ 23,000 for the first time with a profit of more than 180 percent since the beginning of the year.
This was largely attributed to growing institutional interest established names such as Square, Galaxy Digital and Grayscale Investments all help push bitcoin scarcity to new heights. Meanwhile, renowned market index providers have made promising announcements, with S&P Dow Jones Indices announcing the launch of crypto indices in the coming year, indicating increased interest within the traditional financial world. When supported by prominent consumer-facing players such as PayPal This recognition – in the form of financial legitimacy and commercial promise – is fueling renewed interest in cryptocurrencies and is extremely valuable in charting the long-term path to bitcoin’s future.
But if we pull back the curtain – look behind the scenes at the mechanics that Bitcoin has entrenched over the years – the success rests on an ever-growing ecosystem of miners and their trusted hardware. Over the years, Bitcoin mining has rapidly cemented its position as a lucrative industry, with the global mining industry generating $ 5.4 billion in 2019 alone. In a space where success is determined by the delicate balance of cost, performance and efficiency, mining hardware companies have certainly felt the effects of the “innovation crisis” in developing infrastructures that can meet the computing needs of the future.
Let’s go back to 2009 where the first innovation spike happened, let’s take a look at what has changed and where the industry is headed as the year draws to a close.
In favor of specificity
When Satoshi Nakamoto mined Bitcoin’s genesis block in 2009, mining was arguably a more accessible task. Far from the computationally intensive image with which Bitcoin is associated today, the earliest days of mining required only the use of a computer’s central processing unit (CPU).
This changed in October 2010, when 1 bitcoin was incredibly valued at $ 0.10 and the very first mining hardware made with graphics processing units (GPUs) was developed. GPU devices are distinguished by their comparative specificity – GPUs are often associated with the gaming industry and are optimized to compute individual math operations in parallel, leading to a six-fold increase in efficiency compared to CPUs.
Despite their speed, however, GPUs were later eclipsed by field programmable gate arrays (FPGAs). While it is much more laborious to develop due to their specificity at the software and hardware level, requiring the ability to run custom code, this specificity has led to the success in the adoption of FGPAs for bitcoin mining.
In 2013, innovation struck again with the invention of the world’s first application-specific, integrated circuit (ASIC) miner. After years of research and development, the industry now had its first form of specialized hardware, specially developed for the sole purpose of bitcoin mining. These ASIC-based miners were no longer limited to general-purpose software and infrastructure, but offered unparalleled advantages in terms of power and efficiency.
Meanwhile, as competition intensified to get a significant portion of the network, profit-sharing schemes emerged. Individuals gathered to form mining pools, share the costs and resources to exploit miners, as well as reap block rewards as a collective team. On the other hand, larger players began to enter the Bitcoin mining space as full-fledged mining companies, triggering additional considerations such as access to capital, location and regulation for the current generation of miners.
Years later, in a space dominated by different players, mining hardware companies now compete in chip size and thus efficiency. As chips get smaller, mining rigs can handle soaring hash rates in line with the growth of the Bitcoin network without sacrificing cost and energy efficiency.
The Age of ASICs
Amidst the 2019 bear market and the earlier pandemic battle of the year, past examples have shown that the mining sector is resilient in turbulent times – and this cannot be overstated.
However, since 2013, the developments in mining technology are still based only on ASIC hardware. Miners will soon be able to choose to compete on terms other than hardware, be it energy efficiency and sustainability or geographic dominance. Smaller chip sizes certainly represent significant technological milestones in the grand scheme of things, but in terms of competitive advantages, is this enough?
First, amidst bitcoin’s steady rise in price, mining profitability has grown in recent months. Miners still have the incentives to keep investing profitably in ASIC-based mining hardware – be it new models or even older variants in the second-hand market that can be reused and reused. In November alone, miners saw daily earnings return to pre-halving levels, seeing highlights of $ 21.7 million in one day.
At the same time, while there are other mining machines on the market that target specific altcoins, ASIC-based miners continue to dominate. With the anticipated optimism for bitcoin continuing into the new year, the future of the mining industry is secure. Reflecting the credibility of proof of work (PoW) as the most proven consensus model in the past decade, ASIC mining machines remain best positioned to meet this ever-increasing demand for computing power.
A quantum dilemma
Yet during the peaks and troughs of innovation, something entirely new is often needed – as we’ve learned with ASICs – to accelerate further progress. In addition to chips, bitcoin mining players keep an eye on emerging fields in supercomputing. These technologies have the potential to challenge existing hardware in terms of speed, as well as security – and pose a threat to the cryptography that currently underpins bitcoin and most crypto assets.
In the case of Bitcoin, the security of asymmetric cryptography is as intrinsic to its overall security features as one of its main value propositions. The publication of Shor’s quantum algorithm posed an existential threat to any system using asymmetric encryption because of its ability to breach the latter’s security assumptions. With a quantum computer, Shor’s algorithm could be used to extract a private key from the corresponding public key, forging a digital signature and compromising the integrity of a system.
Research by Deloitte even showed this 25 percent of all bitcoin in circulation are potentially vulnerable to an attack using a quantum algorithm – provided that quantum computers can reach the Bitcoin network’s current transaction throughput of about 10 minutes. Fortunately, current ASICs currently maintain a 10-year speed advantage over quantum computers. That said, if quantum computing were to play a role in writing the next phase of crypto mining, benefits are likely to emerge in the event of a long-term reduction in operational costs.
As the bitcoin mining industry ponders its future, threats are undoubtedly on the horizon: from the growing appeal of less compute-intensive consensus models like proof of stake (PoS) to sophisticated cases of crypto jacking, where someone’s computing power is illegally obtained for the purposes of mining cryptocurrencies, namely quick seeing favor compared to traditional ransomware schemes. While there are many risks, recent years have shown that a strict commitment to research and development across the board has allowed the technology to mature, ushering in a new wave of institutional and commercial interest – and this growing demand will enter a new phase of growth in bitcoin mining.
If there’s one thing we’re sure about, it’s a long way from the end of the road.
This is a guest post from Nangeng Zhang. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.