The Rise of Specialized Mining Equipment on Bitcoin

Over the past decade, the machines that maintain the Bitcoin network have undergone rapid technological development.

Mining equipment is a fundamental feature of the success of the Bitcoin network because these machines determine whether or not it is profitable for miners to do what they do – that is, process the calculations needed to embed blocks of transactions on the blockchain. 

While somewhat overlooked, the history of Bitcoin mining equipment is also a key explanation for why the activity of mining has evolved over the years into a multi-billion dollar industry. The mining industry continues to evolve today, though there are signs to suggest its development is slowing down. 

Read more: Bitcoin Halving 2020: The ‘Arms Race’ for Miner Efficiency Intensifies

Below we take a look at the complete history of Bitcoin mining technology, and where innovations could be heading next. 

CPU Mining

On Jan. 3, 2009, pseudonymous creator Satoshi Nakamoto mined the first Bitcoin block. As the only miner on the Bitcoin network at the time, Nakamoto didn’t need specialized equipment to launch the Bitcoin blockchain. He was able to create Bitcoin blocks using an average personal computer. 

Read more: China’s Rainy Season Is Coming. This Time Bitcoin Miners Aren’t Investing

Computers used to browse the internet, launch Microsoft Word and a number of other countless applications all contain what is called a central processing unit (CPU). These devices control how commands on a computer are processed and executed. Due to the lack of miner competition in Bitcoin’s early days, the computational energy required to create new blocks and earn mining rewards could be easily processed on CPU devices. 

Hardware needed to mine new coins evolved over time as new miners joined the Bitcoin network and started to compete for block rewards. 

Bitcoin mining difficulty vs. time and approximate introduction dates of new mining technology
Source: “The Evolution of Bitcoin Hardware” by Michael Bedford Taylor (University of Washington), CoinDesk Research

GPU and FPGA Mining

The first major innovation to Bitcoin mining hardware came shortly after a market value for Bitcoin was established. 

On May 22, 2010, computer programmer Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas. The pizzas were worth around $25. According to cryptocurrency data provider Coin Metrics, Bitcoin market price then appreciated in July to around 8 cents. By the time the Bitcoin price reached 10 cents in October 2010, the first mining device leveraging graphics processing units (GPUs) was developed. 

Unlike CPUs, GPU devices are optimized to perform a narrow range of computational tasks. Originally built for gaming applications, GPUs excel at computing simple mathematical operations in parallel, rather than one at a time, in order to generate thousands of time-sensitive image pixels. These devices can also be re-programmed to compute other mathematical operations such as the ones required to mine new Bitcoin

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Enclosure containing GPU cryptocurrency mining machines.
Source: DMG Blockchain

The innovation of GPU mining, that is mining Bitcoin on a GPU device, made producing Bitcoin blocks and earning block rewards on average roughly six times more efficient according to analysis done by CEO of mining consultancy firm Navier, Josh Metnick. For these efficiency gains, an average GPU device costs only twice as much as the average CPU device. 

These efficiency gains were quickly overshadowed the following year, in 2011, when field programmable gate arrays (FPGAs) were also re-modeled to mine Bitcoin

According to Metnick’s calculations, FPGAs are able to compute the mathematical operations required to mine Bitcoin twice as fast as the highest grade GPU. However, these devices are more labor-intensive to build. FPGAs require configuration on both a software and hardware level, meaning the devices must be programmed to run customized code, as well as architected to run that code efficiently. It is the ability to adjust hardware components on an FPGA that makes these types of devices better optimized for Bitcoin mining than a GPU. 

ASIC mining

The third major innovation to Bitcoin mining likely required the largest amount of dedicated resources, time and development to achieve. Rather than repurposing the software and hardware parameters of existing machines, efforts to create an entirely new machine that would only mine Bitcoin finally paid off. In 2013, a China-based computer hardware manufacturer called Canaan Creative released the first set of application-specific integrated circuits (ASICs) for Bitcoin mining. 

These devices, unlike CPUs, GPUs and FPGAs, were designed at their outset to mine Bitcoin. This meant that all hardware and software components of these ASIC devices came pre-designed and optimized to compute strictly those calculations necessary to create new Bitcoin blocks. The efficiency gains from ASICs could not be matched by any of…

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