A Brief History of the Evolution of Cryptocurrency Mining: Upgrading Mining Machines and Changes in Computing Power

Original Title: "The Evolution of Blockchain (V): A Brief History of Crypto Mining"

Written by: wesely, The Way of DeFi

In the crypto industry, miners are a unique group. They provide the underlying security for blockchain and represent the wealthiest and most influential segment of the crypto market, acting as a barometer for the crypto market; at the same time, to their opponents, the industry they are in is a voracious energy consumer, a backward capacity cloaked in the guise of data technology.

Helsinki, Finland, is the birthplace of crypto mining, where Satoshi Nakamoto mined the first block of Bitcoin in early 2009. Following the explosive rise in Bitcoin prices, the arms race for computing power began to heat up. In September 2010, code for GPU mining of Bitcoin emerged, breaking the norm of CPU mining, and soon after, various mining machines rapidly iterated.

In December 2010, Czech programmer Marek created the world's first mining pool, "slushpool." This large-scale collective mining model gradually became the main mode of industry development. Accompanied by a series of developments such as the specialization of mining machines, the listing of mining companies, and the financialization of computing power, mining gained sustained momentum, leading to the gradual emergence of a vast commercial landscape. By April 2022, the total market capitalization of 21 listed Bitcoin mining companies exceeded $15 billion, and before the Ethereum merge, the market value of Ethereum mining machines alone reached $5 billion.

However, the development of mining faced significant resistance. Under the global consensus on green and environmental protection, high-energy-consuming POW mining became a politically incorrect practice, becoming a target for criticism. Coupled with increasingly stringent policies and rising electricity costs, miners were forced to migrate, which also restricted the further development of the industry. The decline of the POW era led to a shrinking of miners' influence, but liquidity mining and ZK mining brought about by zero-knowledge proofs allowed the boundaries of mining to expand once again.

Looking back at the history of crypto mining, its development may not be described as magnificent, but it is equally fascinating within the ups and downs of the crypto industry over the past decade. It has traversed between utopia and hell, growing upward time and again amidst cracks and crises.

Elimination and Evolution

The evolution of the crypto industry is most directly exemplified by the iteration of different hardware mining machines.

From CPU to ASIC

In July 2010, the over-the-counter trading price of Bitcoin rose from $0.008 to $0.08 in just a few days, prompting the earliest batch of "miners" to sense an opportunity.

During this period, the total network computing power of Bitcoin was only 140MH/s, mostly mined using personal computers, making the barrier to entry quite low. Driven by favorable Bitcoin prices, the number of participants in Bitcoin mining began to grow rapidly, and some started to shift their focus from CPUs to more powerful GPUs. It is estimated that at that time, GPU computing power was three orders of magnitude higher than that of CPUs, reaching 9MH/S, while CPU computing power was only about 1KH/S. In the era of personal computer mining, the emergence of GPU mining can be seen as a dimensionality reduction attack. Therefore, just seven months later, the total network computing power surged to 500GH/s, an increase of 3,500 times, and a year later reached 15TH/s (an increase of about 100,000 times). Thus, personal computer mining became a thing of the past, and GPU computing power dominated the Bitcoin mining market.

Bitcoin network computing power growth from July 2010 to February 2011. Data source: btc.com

The advantages of GPU computing power made everyone see the additional profits that higher computing power could bring. Thus, in 2011, propelled by the Bitcoin bull market (during which Bitcoin rose from $0.08 to $30), the arms race for computing power officially began, and more powerful FPGA mining machines started to appear.

In June 2011, specialized mining equipment known as Field Programmable Gate Arrays (FPGA) was widely mentioned. This was the first professional chip design specifically for mining, representing a significant advancement for a community that primarily mined using amateur hardware, and it opened the door for the later development of more specialized ASIC mining chips. The computing power of FPGAs improved by about three orders of magnitude over the original GPUs, reaching the GH/S level. However, due to the high development difficulty and slow power improvement, it quickly faded from view after a brief period.

In 2013, after the halving, Bitcoin entered its second bull market, and computing power began to flood in again. The mining difficulty of Bitcoin soared, forcing everyone to seek more powerful equipment, leading to the emergence of ASIC chips specifically designed for mining. Due to their concentrated computing power and other characteristics, ASICs could achieve higher computing speeds with lower unit energy consumption, pushing mining machine computing power to new heights. In December 2013, the first generation of Antminer began shipping, and thereafter, ASIC chips rapidly evolved from 110nm to 3nm, continuously optimizing across multiple dimensions such as low power consumption and high performance.

In January 2013, the first commercial Bitcoin ASIC miner, Avalon, was delivered, marking the entry of Bitcoin into the ASIC computing power era. The developer of this miner, Canaan Creative, completed its listing on NASDAQ in November 2019, becoming a well-known leader in the upstream of the crypto industry. Interestingly, the first FPGA miner was developed and launched by Canaan's founder, Jihan Wu (Zhang Nan). Just six months after the FPGA miner, he dropped out of school and used ASIC miners to push FPGA miners off the stage. Also in 2013, Jihan Wu founded Bitmain, and the Antminer S1 was immediately snatched up by the market upon its release.

During this period, many mining machine brands emerged, such as Canaan, Bitmain, Antminer, ASICME, TMR, and others. However, many mining machine manufacturers were eliminated in the competition, and the unchanging fact is that the dominance of ASICs has continued to this day.

For the earliest group of people who came into contact with Bitcoin mining, with the development of crypto mining, some became developers of upstream mining machines, such as Canaan's Jihan Wu, while others chose to become professional miners, like Fish.

ASIC miners have continuously evolved on the path of low power consumption and high performance, and since 2013, Bitcoin has officially entered the high computing power era.

From Individuals to Mining Farms

In May 2013, the Bitcoin mining pool F2Pool officially opened and quickly became the leading Bitcoin mining pool. Even after China announced a ban on crypto mining in 2021, F2Pool still held a significant share of Bitcoin's computing power. As of January 11, 2023, F2Pool ranked third with a 16.53% share of computing power, only behind Antpool and Foundry.

The formation of mining pools reflects the transition from individual mining to professional collective mining, representing a natural evolution under the competition for computing power. The CPU mining era was characterized by typical individual mining, where everyone fought alone. However, as GPUs became the mainstream mining method, individual mining no longer had a competitive advantage. People began to pool their computing power to compete, and the resulting mining pools had a higher share of computing power, increasing the probability of mining blocks. After obtaining rewards, the mining income was distributed according to the computing power of the mining machines in the pool, providing stable mining income for machine owners, while individuals or small mining farms struggled to make ends meet. With the continuously rising mining difficulty, the probability of obtaining mining rewards decreased, and the competitive advantage of large mining farms attracted more machine owners to join, further strengthening their advantage. In this positive cycle, a few leading mining pools gradually occupied the vast majority of Bitcoin's computing power. Currently, the top five mining pools account for over 80% of Bitcoin's total network computing power, and this situation of computing power being monopolized by leading mining pools is also seen in Litecoin, Dogecoin, and Ethereum before the merge.

After experiencing the era of a hundred mining machines competing in 2013, some mining machine manufacturers began to directly engage in mining, such as Antpool and BTC.com (later acquired by 500 Lottery, now known as Bit Mining). In November 2014, Bitmain launched its mining platform Antpool, which currently holds a 19.87% share of Bitcoin's computing power, ranking second. In February 2018, Bitmain's mining pool computing power once accounted for 40% of the entire network.

Current distribution of mining pool computing power. Data source: explorer.btc.com

In July 2013, the GHash.IO mining pool was established, rapidly growing due to its strategy of not charging mining pool fees. In June 2014, its computing power share approached 51% of the entire network, raising concerns in the community about a 51% attack. However, after a large-scale DoS attack and the impact of a bear market, the operators shut down GHash.IO, and its share was subsequently taken over by mining pools like F2Pool, Antpool, and BTC.com.

The mining method shifted from past individual combat to a "team-up" mining pool model, reflecting that platformization and centralization are an inevitable evolutionary process. In the ASIC mining machine era, this trend was further reinforced, and competition among mining farms was equally fierce. Mining pools that were once famous, such as GHash.IO, BTCC Pool, and Eligius, gradually disappeared from history.

The boundaries of mining development are also constantly expanding. The emergence of IPFS has made storage a new form of "computing power," and the transition from physical computing power to cloud computing power has lowered the barriers to mining but also introduced greater risks. The financialization of computing power (computing power tokens) has elevated the application of computing power from basic mining to the secondary market, generating a new financial asset but also imposing higher investment requirements on investors.

The Changes in Computing Power

Looking back over the development of mining over the past decade, computing power, as its core element, has undergone tremendous changes, primarily reflected in two dimensions: time and space.

Time Dimension

We can observe the growth of Bitcoin's total network computing power in three-year cycles:

• 2009 - 2011: Bitcoin's total network computing power grew from 10GH/s to 10TH/s, an increase of about 1,000 times;
• 2012 - 2014: Computing power grew from 20TH/s to 300PH/s, an increase of 15,000 times;
• 2015 - 2017: Computing power grew from 1EH/s to 14EH/s, an increase of 14 times;
• 2018 - 2020: Computing power grew from 40EH/s to 160EH/s, an increase of about 4 times;
• 2021 - January 2023: Computing power grew from 200EH/s to 255EH/s, an increase of about 1.3 times;

First, comparing these figures, we can see that since the birth of Bitcoin, the network's computing power has been consistently increasing. Although there have been brief declines in computing power due to market shifts and regulatory policies, the long-term growth trend has remained.

Second, this growth momentum is gradually weakening. This is mainly because as mining machine computing power approaches physical limits, further upgrades become more challenging. Additionally, as the total network computing power rises to a certain height, the barriers to entry in the industry increase, hindering the influx of new computing power and thereby slowing the growth of Bitcoin's computing power.

Third, the 15,000-fold increase in Bitcoin's computing power during the 2012 - 2014 period was primarily due to the emergence of ASIC mining machines. During this time, Bitcoin's price rose over 600 times in just over a year, attracting a large influx of new computing power. To expand their competitive advantages, ASIC mining machines specifically designed for mining emerged and became the dominant product in the crypto mining industry, a trend that continues to this day.

Fourth, after 2019, the growth of computing power began to gradually slow down. It was also during this period that the importance of electricity prices began to surpass hardware efficiency, as both chip design and the pursuit of power efficiency began to reach current technological limits. Without new breakthrough technologies, Bitcoin miners will find it challenging to compete in terms of computing power as they did in the past, relying on hardware and equipment updates, making cost control increasingly important. Thus, during this period, the horizontal migration of Bitcoin's computing power became more pronounced.

Space Dimension

From a Chinese perspective, the horizontal migration of computing power primarily involves chasing cheaper electricity prices, such as the periodic migration of miners from the abundant water resources of Yunnan, Guizhou, and Sichuan to the coal-rich provinces of Inner Mongolia and Xinjiang; from a global perspective, under the influence of policies, computing power represented by Bitcoin has also undergone a collective migration from China to overseas.

In 2013, after experiencing a hundred mining machines competing, over 70% of Bitcoin's total network computing power remained firmly rooted in China. However, after October 2020, the share of computing power in China began to decline sharply. According to statistics from the Cambridge Centre for Alternative Finance, from October 2020 to May 2021, the share of computing power located in China dropped from over 70% to 44%. A few months later, it further fell to zero, while the share of Bitcoin's computing power in the United States surged from 17% in April 2021 to 35% in August, allowing the U.S. to surpass China as the world's largest source of Bitcoin computing power.

In July 2020, China's Bitcoin computing power share dropped to 0

The decline in China's computing power share from October 2020 to May 2021 was primarily due to the large-scale expansion of overseas mining companies, with U.S. companies Riot Blockchain, Inc. and Core Scientific ordering 30,000 and 17,000 S19 series mining machines from Bitmain, respectively. Additionally, many mining farms were built in various locations across the U.S. In September 2020, China clearly stated its dual carbon goals, and crypto mining had long been viewed as a backward capacity, facing varying degrees of regulatory pressure, prompting some astute miners to take action.

In February 2021, guided by the dual carbon goals, Inner Mongolia, as a coal-rich province, took the lead by announcing measures to ensure the completion of energy consumption dual control targets, mentioning the intention to clean up and shut down virtual currency mining projects by the end of April. Subsequently, it released an opinion draft for eight punitive measures against mining, with unprecedented intensity.

On May 21, 2021, the State Council held the 51st meeting of the Financial Stability Development Committee, which mentioned the need to crack down on Bitcoin mining and trading activities. In a short time, provinces rich in electricity, such as Xinjiang, Sichuan, Yunnan, and Guizhou, issued shutdown orders, causing the share of Bitcoin computing power in China to rapidly drop to 0. Notably, on June 16, the Xinjiang准东 Economic Development Zone cut off power to cryptocurrency mining farms, causing the average computing power of the entire Bitcoin network to plummet by 20%. This illustrates the significant impact that Chinese miners had on the Bitcoin network at that time, but this influence has since become a thing of the past.

By September 24, 2021, with the release of the "Notice on Rectifying Virtual Currency Mining Activities," the domestic crypto mining industry was effectively sentenced to death. This document, jointly issued by ten ministries including the National Development and Reform Commission, the Energy Administration, and the Ministry of Public Security, stipulated:

• A comprehensive review and investigation of virtual currency mining projects.
• Classifying virtual currency mining activities as an industry to be eliminated, strictly prohibiting new project investments and constructions.
• Prohibiting virtual currency mining activities under the guise of data centers and strengthening credit supervision of data center enterprises.
• Halting all financial and tax support for virtual currency mining projects.

Thus, mining transitioned from a gray area to an illegal activity, leading to a mass exodus of miners from China.

• On May 23, 2021, Mars Cloud Mining announced that some mining machines would be relocated to Kazakhstan, and Li Beichen, the founder of the Liebit mining pool, stated plans to deploy mining farms in North America.
• On May 24, 2021, Bit Mining announced a partnership with a Kazakhstan company to invest 60 million RMB in building and operating a new mining farm.
• On July 27, 2021, Bitmain announced the divestment of its mining pool brand Antpool, stating it would conduct this part of the business overseas, and partnered with Enegix to equip over 50,000 Antminer S19 Pro mining machines in Kazakhstan. Additionally, many medium and large mining companies, such as Huobi, Binance Mining Pool, and Canaan Technology, shifted their operations overseas.

By early 2022, this migration of miners was largely complete, with countries like the U.S., Russia, and Kazakhstan becoming the largest destinations for computing power migration. The once largest mining pool, Antpool, was also acquired by a U.S. mining company, Foundry. This massive migration of computing power caused Bitcoin's total network computing power to drop by over 43%. After the migration was completed, mining pools with Chinese backgrounds, such as AntPool, F2Pool, and ViaBTC, quickly regained their computing power and continued to dominate the power rankings. For these large mining pools, it may have just been a change of location for mining.

Interestingly, as regulatory scrutiny eased, Bitcoin's computing power in China began to recover. According to statistics from Chainbulletin, the current share of Bitcoin computing power located in China is approximately 21.1%, second only to the U.S. Industry insiders speculate that some miners may be using foreign proxy servers to evade domestic monitoring, secretly mining in remote areas, or even using off-grid power generation to avoid electricity monitoring.

Current global Bitcoin computing power map. Data source: chainbulletin

The Post-POW Era

In the current crypto industry, the narrative surrounding POW has lost its former luster. Instead, its high energy consumption and lack of environmental friendliness have become points of criticism. Coupled with the negative impacts of malicious mining in the past, this industry, which many outsiders find difficult to understand, has been cast in a gray shadow.

Malicious mining generally refers to the use of devices to mine cryptocurrency without the user's consent or knowledge, utilizing the computing resources of others' devices in a stealthy manner, also known as "cryptojacking." For example, on November 17, 2022, the FBI and the Cybersecurity and Infrastructure Security Agency (CISA) jointly released a report stating that a network organization supported by Iran had infiltrated federal civil administrative departments and deployed cryptocurrency mining malware. Before 2021, malicious mining was quite frequent, with organizations like TeamTNT, H2Mine, and 8220, as well as Trojan mining families like Crackonosh, Lemon Duck, and Sysrv-hello, causing significant network threats.

Environmental issues are another soft spot for Bitcoin or POW public chain mining. According to statistics from the Cambridge Centre for Alternative Finance, the total electricity consumption of the Bitcoin network in 2022 was approximately 107TWH, equivalent to the annual electricity consumption of the Netherlands, which has a population of 17 million. In terms of global rankings, it would place 33rd. The annual carbon footprint generated was about 43.28 million tons, comparable to the annual carbon footprint of Hong Kong. Furthermore, with the upgrade and iteration of mining machines, Bitcoin generated a staggering 43,000 tons of electronic waste in a year.

Statistics on Bitcoin network electricity consumption. Data source: ccaf

In the context of the overarching trend toward green and environmental protection, the shift of Bitcoin mining toward clean energy has become an inevitable choice. Consequently, more and more mining farms are opting for clean energy sources such as solar and wind power. According to a report released by the Bitcoin Mining Council (BMC) last year, by June 2022, the energy consumption of Bitcoin mining reached 66.8%. Whether this proportion is truly that high remains uncertain, but the narrative of Bitcoin using clean energy for mining is becoming widespread, helping to alleviate the policy and public opinion pressures faced by the mining industry.

Both malicious mining and the accusations of high energy consumption in Bitcoin mining are inherently related to the POW mechanism. As new public chains have emerged, POS consensus public chains have begun to dominate and circumvent the two issues faced by Bitcoin, bringing advantages in scalability and other areas. Ethereum's successful transition from POW to POS also aligns with this trend to some extent. Furthermore, the shift from POW to POS has introduced mining into new domains, whether it be liquidity mining or ZK mining under the trend of zero-knowledge proofs, expanding the boundaries of mining.

Like the entire crypto industry, the development of mining continues to evolve amidst these fluctuations, constantly moving forward, eliminating and evolving. With market factors at play and policy interventions, it is difficult to predict where crypto mining will evolve in the future. However, for mining companies currently experiencing this winter, survival is the top priority.