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Energy Blockchain Research丨The Development Process of Bitcoin Mining

Bitcoin has yet to develop into a growth period, but the industry is expected to achieve significant growth as the pace of bitcoin mining begins to accelerate.

In October 2008, when Satoshi Nakamoto published a white paper detailing how to create the new monetary system, no one expected Bitcoin’s market cap to soar to $850 billion in less than 13 years afterwards. In addition, Bitcoin has spawned thousands of other types of cryptocurrencies, formed an entire financial services industry, and evolved into a new asset class that has revolutionized the type of currency we know.

But Bitcoin doesn’t just appear out of thin air, it needs to be mined. Right now, everyone is focused on the minute-by-minute price changes of Bitcoin, its expansive applications, and who will be tweeting about its price changes, so not much attention is paid to what Bitcoin mining means, what it does, and the impact it has in the world.

Our company has been engaged in bitcoin mining for seven years and has driven the growth and adaptation of the industry. Below we will describe some of the lesser known developments in bitcoin mining and some of the trends that have had a significant impact on the industry.

S19j Pro 104TH

Bitmain Antminer S19j Pro 104TH/s Bitcoin Mining Rig

The Creation of Bitcoin Mining

Bitcoin is a decentralized monetary system that acts similarly to gold, a limited commodity that has a means of storing value. This means that there is a limited supply of Bitcoin, with only 21 million Bitcoins currently in existence, which makes it less susceptible to inflation. People who want to use bitcoin are not subject to government oversight that has the power to change its value or determine user access.

So where do bitcoins themselves come from? Like gold, bitcoins must be mined to obtain them, but instead of using picks and shovels, they are mined using computers.

Bitcoin is based on blockchain technology. Miners around the world race to solve an algorithm in order to be able to add a block to the blockchain. The first person to solve the algorithm gets a transaction fee for that block and a fixed reward for issuing the new coin (currently 6.25 bitcoins per block), and this increases the amount of bitcoins in circulation.

When Bitcoin was first created, mining was easy, and miners could do it from their kitchens using laptops equipped with standard central processing units. But as more miners joined, the competition to solve the algorithm became more intense, which meant that miners needed more data processing power and newer hardware equipment. To run more powerful computers efficiently, the price of electricity began to be important. Soon, individual mining ceased to be profitable as the competition for mining became too intense.

The birth of a multi-billion dollar industry

To be profitable, mining operations had to be scaled up. New mining-specific hardware is now on the market, and miners are installing mining machines in trailers and warehouses so that large mining farms with thousands of machines can solve algorithmic problems 24/7. Driven by the operational demands of large-scale mining operations that include layout and design, energy, software management, and hardware updates, bitcoin mining has quickly grown into a multi-billion dollar industry.

The cost of hardware to support the ecosystem is approximately $7.2 billion, according to a report by Ark Invest, which furthermore states, “Since the introduction of bitcoin-specific hardware in 2013, we believe billions of dollars have been spent on design, production, and streaming, which has spawned an industry dedicated to manufacturing this powerful and specialized hardware.

Bitcoin mining is a complex but lucrative operation. Ark Investments expects miners to earn $15 billion in revenue from transaction fees and bitcoin fixed rewards.

S19j Pro 104TH

Bitmain Antminer S19j Pro 100TH/s Bitcoin Mining Rig

Competition spawns new hardware

Competition for bitcoin mining continues to increase, but because bitcoin is a finite commodity, competition for mining is also finite. This means that mining operations need to run as fast as possible at high performance in order to be rewarded for doing so.

As the increasing competition in bitcoin mining increased the demand for computing power, the mining competition became a competition for graphics cards, which is hardware that gamers typically use only in high-end games. Later, dedicated integrated circuits gradually replaced graphics cards, a type of hardware dedicated to mining cryptocurrencies, the fastest and most efficient hardware in bitcoin mining, and currently used only in mining.

However, the hardware relies on chips, and although chip technology is currently accelerating, chips are still in short supply. This means that mining operations require advance planning for upgrades, and the necessary hardware often sells out, as Bitmain is facing a shortage these days.

New technology most promising for profitability

Similarly, bitcoin mining needs to keep pace with technological developments that can make mining hardware bigger, better, and faster, as profitability can be impaired if efficiency lags. Today, technology continues to outpace innovation, so mining needs to keep pace not only with the purchase of new hardware, but also with the rapid installation of new hardware. This is because time is of the essence and even delays of just a few days can cause serious damage, so many mining operations (such as our company’s mining) rent Boeing 747s to reduce transit time.

Increase in the number of Western miners

For a long time, more than half of the world’s mining energy came from China, mainly because it was cheaper to set up factories there and faster to ship. But those advantages are fading as China steps up its crackdown on bitcoin mining. The geographic distribution of bitcoin mining may be changing,” according to Wired magazine, “with the business either shifting to North America, Europe and Latin America, among other places. Miners also plan to look for mining sites in places like the Nordic countries, Canada and the U.S., which have plenty of cheap, sustainable energy sources such as wind, solar and hydro power.

The Future of Bitcoin

Despite Bitcoin’s many recent fluctuations (which are nothing new), the future of Bitcoin is bright and its value will continue to rise and attract new investors. People will also find more value in bitcoin as more and more people begin to learn about it, its origins and how it is mined.