Learn about Bitcoin mining’s fascinating history, including important milestones, and its progress from GPUs to ASICs
Bitcoin is the world's largest cryptocurrency in terms of market cap, wallet owners, number of transactions and global recognition. Yet contrary to popular belief, many Bitcoiners are surprisingly still unaware of the history of Bitcoin's core cryptographic foundation—mining.
This is a highly important topic. Since Bitcoin mining first came onto the scene on January 3, 2009, the network has been operational 99.99% of the time (approximately).This has allowed Bitcoin to flourish, but hasn't come without some changes along the way.
The Bitcoin mining process has seen multiple evolutions, going from a hobbyist CPU setup to an industrial-level ASIC operation, and this has had a major impact on Bitcoin’s economic value-proposition. Given the evolution in mining, it is possible that more upgrades will follow as time goes by.
For this reason, this article will delve into Bitcoin mining's fascinating history, and the various updates that have shaped today's mining environment.
Let’s dive in!
Bitcoin's mining journey was initially driven by a global community of cypherpunks and hobbyists, who at the time were using their CPUs to mine BTC.
Although there were some differing motivations amongst the community early on, Satoshi Nakamoto's vision of a decentralized and secure financial system was still a driving force.
When Satoshi Nakamoto mined the Genesis Block on January 3, 2009, using just a CPU, mining difficulty was minimal. Any individual had the ability to download the Bitcoin code, solve cryptographic problems, and earn a 50 BTC mining reward in return for their efforts.
But rather than profit, mining in the early days was more an intellectual pursuit (or experiment) instead of a commercial operation. Because of this, a strong and loyal community of programmers developed. These individuals collaborated through online forums like Bitcointalk.org and exchanged ideas to refine and promote this nascent cryptocurrency.
At first, the value of Bitcoin was minimal. Because of this, mining Bitcoin for profit made little sense.
In 2010, the legendary pizza purchase by Laszlo Hanyecz became the first known real-world purchase made with Bitcoin. Laszlo paid 10,000 BTC for two pizzas, and this commercial use of Bitcoin was monumental because it proved that someone was willing to trade their time and effort in exchange for bitcoin.
But rather than just using Bitcoin to purchase things, more and more people realized they could buy and sell the cryptocurrency as well, and the value of Bitcoin (and thus the profitability of mining) began to rise as a result.
As more users joined the network and Bitcoin's user base expanded, so did the competition amongst miners. CPUs consequently began to find it difficult to solve mining puzzles. Unable to keep pace, miners began to gravitate towards GPUs as the processing unit of choice.
This shift dramatically altered the mining landscape.
GPUs, initially designed to render graphics and processing visuals for gaming, proved effective at the computations needed to mine Bitcoin. Unlike CPUs, GPUs could execute the SHA-256 hashing algorithm much more quickly.
By late 2010, many miners had switched to GPUs because they delivered superior hash rates and improved cost efficiency. With this increased competition came an advancement of mining toward a more commercial endeavor.
Seemingly overnight, the best AMD or NVIDIA GPUs became highly sought after items amongst the Bitcoin mining community, and this wasn't just because of the inefficiencies found with CPUs.
Miners found that by linking multiple GPUs on a motherboard, returns could be multiplied. Demand naturally skyrocketed as a result, but this also led to major hardware shortages, and an increase in electricity consumption. Still, because of the modest upfront mining costs, combined with higher hash rates, the use of GPUs for mining was still highly appealing.
This excitement was further amplified by the price of Bitcoin steadily increasing.
Alongside this boom in GPU usage, miners also found a way to find blocks in a more consistent manner by pooling their computational power together. This was because single GPU setups, no matter how powerful, were still not enough to secure regular mining rewards.
By joining a mining pool, stakeholders could earn more regular, albeit smaller, payouts. This operational structure still continues today, and has arguably become more enticing given the increase in competition.
Shortly after GPUs became the go-to mining processing unit, there was a short period where some miners began to explore Field Programmable Gate Arrays (FPGAs) as a way to optimize Bitcoin mining.
While only a brief period, it was still another example of the rapid evolution in Bitcoin mining.
FPGAs are customizable circuits that can be programmed at a hardware level to optimize specific computing tasks. Miners were able to achieve good hash rates at a moderate power consumption by configuring FPGAs for Bitcoin’s hashing algorithm. Under certain conditions, these customizations were able to temporarily outperform GPU setups.
While FPGAs were able to improve efficiency, the greater demand for technical expertise limited their mainstream adoption. Within a year, ASIC miners surfaced, making FPGAs obsolete. Even so, FPGAs highlighted the industry’s willingness to experiment with new technologies, and it was this mindset which paved the way for the next industry upgrade.
The biggest turning point in Bitcoin mining's evolution came with the adoption of ASIC (Application-Specific Integrated Circuits) miners, which were specifically designed to mine BTC as efficiently as possible.
Around 2013, mining rig manufacturers like Canaan Creative, followed shortly after by Bitmain, created ASIC chips that were hard-coded to run the Bitcoin algorithm.
By getting rid of all the unnecessary features found in GPUs (such as graphic rendering), ASICs were able to obtain unmatched hash rates with less power. Overnight, Bitcoin mining via GPUs became outdated.
As ASICs entered the market, competition amongst manufacturers immediately escalated.
First to launch was Canaan's Avalon rig, but it was Bitmain's more efficient Antminer rig that captured most of the market share.In addition, other manufacturers got involved, such as MicroBT with its WhatsMiner.
What this competition ultimately created was a mining industry that focused on efficiency. An example of this was chip size, as seen with the 28nm vs. 14nm vs. 7nm variations. Smaller chip sizes meant enhanced efficiency, resulting in lower energy costs.
Due to ASICs becoming omnipresent within the Bitcoin mining space, network difficulty increased substantially. This rise in difficulty made it significantly harder for miners to successfully secure block rewards, which sent one clear message to Bitcoin miners— upgrade or be left behind.
This competition mimicked an arms race, which still persists today, where new ASIC developments seek to outdo the hashing power and efficiency of previous models.
To best illustrate how much Bitcoin mining has evolved from the Genesis block, below is a concise timeline of how each development has built on the previous one:
It is important to note that as Bitcoin mining hardware has evolved, so too has the discourse regarding decentralization, sustainability and regulation.
One of Bitcoin mining's biggest criticisms is the amount of energy it uses.
As a result of hash rates going up, so too has the demand for electricity. One of the most common criticisms is that a sizable percentage of Bitcoin's C02 footprint comes from electricity generated by fossil fuels.
However, as of today, there are mining proponents who would argue that there is a growing share of Bitcoin mining that uses renewable energy, or that some miners actually help to stabilize power grids by using surplus (or stranded) energy resources.
This was highlighted in the Bitcoin Mining Council’s survey in early 2023, where Chief Mining Officer of Bitfarms, Ben Gagnon, said that 815 GWh of energy was released back to local grids during times of peak demand; demonstrating Bitcoin mining as a critical grid stabilization tool.
Another ongoing debate revolves around whether Bitcoin mining is still decentralized.
Bitcoin mining was originally designed to be democratic through the use of CPUs, as anyone with a computer at the time could theoretically mine. But today, acquiring specialized hardware like ASICS costs a lot more capital, and this has led to big companies buying up land in regions with cheap electricity. This includes the US, Northern Europe, and previously China.
For this reason, some Bitcoiners are now concerned that mining power is being dominated by a select few, and believe this goes against Bitcoin’s original goal of a decentralized financial system.
It is important to note that different jurisdictions have responded to Bitcoin mining in varied ways, resulting in certain implications and opportunities.
For example in 2021, China’s Bitcoin mining ban led to a mass exodus of mining equipment. This meant that a significant portion of the mining industry were looking for new locations to set up shop (or for willing buyers).
This resulted in other countries seeing an opportunity to boost local economies by welcoming Bitcoin miners, including the likes of the United States, Canada, Kazakhstan and Russia. This has resulted in a slightly more distributed mining ecosystem, with miners constantly seeking affordable electricity and supportive policies.
Above is a historical chart that depicts Bitcoin mining's profitability (daily block rewards in BTC) from 2011 up until today.
To provide some important context, it can be useful to be mindful of the following information:
When looking at a Bitcoin mining profitability chart, it helps to be aware of block rewards and halving events throughout the years.
Bitcoin's block reward first started at 50 BTC, and as a result of the halving every 4 years (roughly), by 2020 the block reward had lowered substantially to 6.25 BTC. This is because each halving event lowers the amount of newly created Bitcoin, maintaining scarcity and also putting a squeeze on miner profit margins. In other words, Bitcoin’s halving means that if any miner fails to get the best hardware in order to maintain efficiency, then they will struggle to remain profitable.
The chart above clearly depicts lower profitability throughout the years.
The profitability chart also shows that early on, it was very profitable to mine solo using GPUs. Now, due to the increase in difficulty, higher energy costs and lower profitability margins, only wealthy companies can afford the upfront costs needed to create massive server farms.
Nonetheless, Bitcoin mining is still a significant global industry that is worth billions, and will continue to be so as long as Bitcoin continues to challenge the existing financial system.
Even for large mining firms, lower margins are forcing them to innovate. For this reason, there are certain Bitcoin mining companies who are also looking to offer up a percentage of their energy infrastructure to other industries, notably AI companies who are looking to train up their datasets.
Bitcoin mining has had an eventful journey that has seen it undergo multiple innovations and adaptations. Starting as a hobbyist pursuit that only required a CPU, Bitcoin mining has since turned into a mature industry that is worth billions of dollars centered on the most advanced technology available: ASICs.
While mining is still fundamentally about securing the Bitcoin blockchain, efficiency and profitability also matter. Although the profitability dynamic has changed, the importance of mining has not, and this process will continue to be fundamental for the growth of Bitcoin.
Bitcoin mining will also most likely continue to evolve, and understanding its history has the potential to help provide a valuable insight into the future. The introduction of new technologies like AI is already driving some Bitcoin mining firms to innovate, and this will only continue to increase so long as new opportunities arise.
Whether you are a Bitcoin miner, investor, or neutral watching from the sidelines, learning about the history of Bitcoin mining has tremendous value.