Bitcoin mining is a process that involves the generation of new Bitcoin by solving mathematical processes. Bitcoin was launched in 2009, by the alias ‘Satoshi Nakamoto’. Ever since its launch, there have been two developments to the Bitcoin mining process.
Bitcoin Mining History
Till today, there have been two developments to the evolution and composition of Bitcoin mining. The first one was the development of mining machines customized for Bitcoin mining. The mathematics puzzle to be solved in Bitcoin mining is not a puzzle but is a speculative mechanism to guess the right hash, before anyone else. In the early days, Bitcoin mining could be accomplished through regular desktop computers with ordinary CPUs, with the passage of time and increase in the difficulty level of the algorithms it became nearly impossible to predict the correct hash with regular desktops.
With time miners realized that GPUs or graphics processing units were very effective in Bitcoin mining. The only drawback associated with GPUs was the amount of energy required by them.
Currently, customized mining machines are used by Bitcoin miners. Often referred to as, ASIC miners, use ASIC (application-specific integrated circuit) chips for more efficient and faster mining of Bitcoin. If desktops and GPUs or older models were used today, the cost would have been very high and would have exceeded the reward. Even the latest models at a user’s disposal wouldn’t have been enough to compete against mining pools. Mining pools are formed by miners, by combining their computational power and splitting the rewards among them.
Bitcoin fork has also been a critical factor in influencing the makeup of the Bitcoin miner network. With the mining difficulty and the huge competition between the miners, one block of transactions gets verified after approximately 10 minutes.
At present, in every second only four transactions can be processed, whereas Visa in comparison could process around 65,000 transactions per second. With the increasing number of users on the Bitcoin network, there will be a time soon when the number of transactions made in 10 minutes will be more than the transactions processed in 10 minutes. This will make the transactions waiting for approval and will continue to increase unless a change is made to the Bitcoin protocol.
This problem is referred to as scaling. Two solutions have been proposed to solve this problem. One is in which a secondary off-chain layer is developed for processing the transactions faster. Second, the number of transactions in each block is increased, by increasing the size of the block.
In 2017, SegWit (segregated witness) upgrade was added to the Bitcoin network. In this, the number of transactions in each block was increased, by separating the transaction signatures from all transactions in each block and attaching them as an extended block.
A month later, a hard fork was initiated by a group of miners and a new currency was created with the same codebase as Bitcoin. The reason for the hard fork was that they believed SegWit was not fully capable to address the issue of scaling.
They instead implemented the second solution, by increasing the number of transactions in each block. The new cryptocurrency created was Bitcoin cash and has a block size of 8MB. In Nov. 2021, Bitcoin Cash was valued at $712 and Bitcoin at $66,500. At the time of writing Bitcoin cash was trading at $287.74 and Bitcoin at $35,015.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
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