The Bitcoin mining industry

The evolution of mining machines

Introduction to Bitcoin mining

The evolution of mining machines

Getting started: mining with a CPU
Switching to GPUs
The arrival of ASIC
Mining farms

In the early days of Bitcoin, mining was not an industrial activity. It was part of the Bitcoin software, launched on a personal computer, often out of curiosity, sometimes to support the network, and secondarily to obtain bitcoins which then had virtually no market value.

Over the years, this activity has undergone a transformation: the machines have changed, the difficulty has exploded, and mining has become an industry in its own right. Let's take a look at the operational aspects of Bitcoin mining.

Getting started: mining with a CPU

In 2009 and in the early years, mining was mainly carried out using the CPU of a conventional computer. Bitcoin was then just a simple piece of software, serving as a wallet, a node, and a miner. Simply launching the Satoshi Nakamoto's software on your personal computer was enough to participate in the mining process and, in many cases, to find blocks.

A CPU can do everything, but it's not optimized for anything. It executes very general instructions, with complex logic. For a task like repetitive hashing of block headers, it's not the ideal tool, but at network start-up, the difficulty is so low that it's more than enough to find blocks.

This period is important, because it reminds us of an important point: proof of work does not depend on a particular category of equipment. What counts is the ability to calculate hashes faster than others, at a given cost. As soon as a technical advantage appears, it is automatically transformed into an economic advantage. But in absolute terms, it's still possible today to attempt to find Bitcoin blocks using a conventional CPU. This is the approach adopted by the NerdMiner project, for example. The chances of finding a block are virtually nil, but there is still an infinitesimal probability.

NerdminerStart mining bitcoin with a chance of winning close to 0

Switching to GPUs

Soon enough, miners realized that the bottleneck was not power, but the ability to perform a huge number of similar operations in parallel. This was exactly what graphics processing units (GPUs) could do. Originally, a GPU had been designed to perform the same operations on large quantities of data. This architecture was perfectly suited for a task like repeated hashing: instead of having a few highly versatile cores, you have hundreds, then thousands of units capable of executing the same instructions simultaneously.

With comparable power consumption, a GPU can produce far more hashes per second than a CPU. At the same time, bitcoin had an exchange rate against the dollar, its value was increasing, and exchange platforms were appearing. From then on, the nature of mining began to change. It was no longer just about participating, but about making money. Dedicated configurations appeared: machines built around several graphics cards, sometimes without screens, with a minimal system and specialized software, whose sole purpose was to mine.

It was at this point that the difficulty of mining began to explode. Between mid-2010 and mid-2011, it even increased by a factor of 1,000. Mechanically, specialization begins, just like the early forms of industrialization, and ordinary users—who are content to run the Bitcoin software on their personal computers—now have only a very small chance of finding a valid block.

Source: CoinWarz.com

Between the GPU era and the modern ASIC era, there was an intermediate phase: the use of FPGAs. An FPGA is a reprogrammable component: it can be configured to directly implement a logic circuit dedicated to a particular calculation, in this case SHA256d. The idea was to move even further away from general-purpose hardware (CPU/GPU) to gain in energy efficiency. But soon, the improvements made virtually on FPGAs would be applied physically to the chips themselves: that's the arrival of ASIC.

The arrival of ASIC

The final stage in the specialization of mining hardware was the appearance of ASICs (Application-Specific Integrated Circuits). An ASIC is a chip designed for a single task. In the case of Bitcoin mining, this task is precisely the execution of SHA256d at maximum speed and with optimum energy efficiency. Unlike a GPU, a ASIC isn't used to run games, 3D rendering or AI. It's for hashing, and that's all.

ASIC S21 XP manufactured by Bitmain

This specialization has two major consequences:

The first is a leap in performance and efficiency. For devices of comparable generation, an ASIC produces far more hashes per second than a GPU, while consuming less power. Mining with a GPU quickly became uncompetitive: even though it worked technically, the electricity cost far outweighed the expected revenue in most contexts;
The second is a change of model: investment mainly shifted to industrial-grade hardware. Mining now involves buying machines designed for this purpose, powering them continuously, cooling them, maintaining them, and absorbing their obsolescence. Because an ASIC is not economically eternal: when a new, more efficient generation comes onto the market, the old machines become progressively less profitable, even if they remain functional.

From that point on, we're no longer just talking about a hobby. We're talking about a sector where competitiveness depends on an equation:

cost of electricity;
cost of equipment and depreciation;
ability to cool and operate on a large scale;
machine availability and reliability;
speed of communications;
etc.

Mining farms

An isolated machine can mine, but by grouping hundreds, then thousands of ASICs in a single location, we share fixed costs, optimize logistics, and move closer to a specialized data center model.

A mining farm, in its simplest form, is a building (or set of containers) filled with ASICs running 24/7. The challenge now is to maintain stable operating conditions:

supply large amounts of low-cost, stable electrical power;
manage heat to avoid throttling, as the energy density is considerable;
filter dust, control humidity, clean;
real-time monitoring of machine performance (temperatures, hardware errors, hashrate drops, etc.).

One of the seven buildings dedicated to Bitcoin mining at Riot Platforms' Rockdale site, near Austin, Texas. This one is specifically dedicated to immersion mining

Mining is now driven by industrial players, some of them listed on the stock exchange, who are building and operating very large-scale farms. These include MARA Holdings (Nasdaq: MARA) and Riot Platforms (Nasdaq: RIOT).

Even without going into the details of profitability models, it's important to understand why mining has taken this form. Proof-of-work is a competitive mechanism: the probability of finding a block, and therefore making money, is proportional to the share of hashrate you deploy. As a result, there is constant pressure to increase computing power, reduce the cost per unit of computation and limit losses. As a result, environments that offer cheaper electricity, a climate conducive to cooling, or an abundant energy infrastructure, naturally become more attractive.

Mining Bitcoin has thus evolved from an activity accessible to anyone in its early days, to one dominated by specialized equipment and professional operations. This does not change the rules of the protocol. In theory, anyone can mine with any machine. But in practice, the level of difficulty and efficiency of ASIC has made domestic mining largely uncompetitive in most contexts.

Of course, there are still situations in which home mining can be of interest, for example if you benefit from very cheap electricity, or if you use the heat generated by your miner to heat your home in winter. But in any case, you'll still need to buy a machine equipped with an ASIC chip. What's more, since your mining power will remain extremely small relative to the Bitcoin network, you'll need to find a way of reducing the variance of your income: this is precisely the role of mining pools, which we'll be discussing in the next chapter.

If you'd like to explore home mining solutions with heat recovery, we have tutorials on various tools, both ready-to-use and DIY:

Canaan Avalon Mini 3Configuring your ASIC Avalon for solomining or Miner pooling

Canaan Avalon Nano 3SConfiguring your ASIC Avalon for solomining or Miner pooling

AttakaïTransformation of an S9 into a home heater

Quiz

min1014.1

1/5

With what type of hardware was mining mainly performed in the very beginning of Bitcoin?