Since the creation of the first cryptocurrency more than a decade ago, many have been often skeptical about its legitimacy, and some have even dismissed them as a fraud. But by 2020 this paradigm seemed to have shifted. What has emerged is a shared acknowledgment that Bitcoin (BTC) and other digital assets are here to stay and that they will play a key role in the future of global finance.
This is not some far-fetched view reserved for crypto-anarchists – financial actors who have traditionally been wary of cryptocurrencies are now expressing confidence in their disruptive potential. JPMorgan and Goldman Sachsfor example, have recently reversed their initial opposition to cryptocurrencies and are among the latest to offer new banking services and offerings for the digital asset market.
As optimism and appreciation for the long-term potential of cryptocurrencies continues to grow, so will the opportunities for revenue expansion among players within the ecosystem. Bitcoin miners, for example, saw their sales numbers rise by nearly 50% on a monthly basis in November, while Bitcoin prices soared more than 60% to above $ 18,000 over the same period. Yet success in a highly competitive environment has been largely confined to a few market leaders, while remaining elusive for many.
For miners, gaining access to highly sophisticated mining equipment – one with the highest level of energy and cost savings and the fastest throughput speeds – remains the most critical factor in gaining a competitive advantage.
The crypto mining industry has undergone a succession of substantial transformations to reach today’s advanced technical state. In the beginning, mining was done using simple computers without complex or powerful devices. General purpose central processing units, or CPUs, were enough to produce Bitcoin. This led to a rapid expansion of the Bitcoin network, as the lure of easy money spurred an influx of newcomers – so much so that these first-generation miners couldn’t keep up with demand, making them obsolete in just a year.
Graphics processing units were subsequently introduced and made Bitcoin mining more efficient and profitable. Combining different GPUs became a common occurrence as miners wanted to further improve their mining performance and capabilities while maximizing profits. Despite these advancements, second-generation miners have not stood the test of time due to their high energy consumption and lack of long-term effectiveness.
In 2011, field-programmed gate arrays or FPGAs emerged as the next logical step in progress. They were fast, very energy efficient, offered better performance and easier cooling than their predecessors. Nonetheless, FPGA miners were short-lived and were eventually replaced by ASICs, which remain the dominant technology for the Bitcoin mining industry to date. ASICs are designed, built and optimized for the sole purpose of mining and are recognized for their superior harmonization of power consumption, performance and cost – approximately one million times more energy efficient and 50 million times faster in mining Bitcoin than the CPUs used in 2009 .
The way ahead
Indeed, crypto mining has come a long way. Aside from performance-related developments, there are also notable improvements in the environmental aspect of the technology, such as higher energy efficiency and faster hash rates. With a growing emphasis on sustainabilitythis is a trend that is likely to continue as chip design vendors seek to develop innovative solutions to meet this evolving demand.
Two major areas of development come to mind. First, redesigning current mining hardware to use radically less energy; and, second, reprogramming current mining chips to enable the use of hybrid energy for optimal cost performance.
Restructuring of the current mining hardware. There are already several concepts on the market that are being researched and rigorously tested – one of which is the use of photonic chips to run computers. In theory, the technology looks promising, with two to three orders of magnitude better in energy efficiency over current electronic processors. Yet in reality, it remains unclear whether the energy savings are achievable, especially as Bitcoin scales. Until then, ASICs and their continuous improvements will continue to dominate the crypto mining space and take the lead in energy efficiency in crypto mining.
Reprogramming of the current mining chips. Contrary to popular belief, the crypto mining industry is a relatively green one. As of December 2019, Bitcoin was powered by more than 70% of renewable electricity. While the benefits of using renewable energy sources are undisputed, the truth is that renewables are an intermittent energy source and are not always reliable for Bitcoin miners, who have a constant energy demand. Fossil fuel-based energy, on the other hand, generally serves as a more stable energy source. To strike a balance between the sustainability of the industry and sustainability in a broader sense, a hybrid model can be adopted, using renewable energy sources mainly as an energy source, harnessing fossil fuel-based energy during production shortages. This includes redesigning and reprogramming current mining chips to more easily switch between the two variants of energy sources, without disrupting the mining processes.
As cryptocurrencies gain in popularity, so will the influx of competition from new providers wanting a piece of the pie. Healthy competition can be positive in the sense that it can lead to more innovation that makes the industry more efficient and mature. However, to take full advantage of the growth of the emerging cryptocurrency market, established chip designers will need to further invest in research and development, particularly in energy optimization and energy performance.
The views, thoughts and opinions expressed here are solely of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Nangeng Zhang, also known as NG, is the founder, chairman and CEO of Canaan Inc., a leading provider of supercomputer solutions. While NG specialized in supercomputing, NG explored the potential of application-specific integrated circuit design, launching the world’s first digital cryptocurrency miner based on ASIC chips and catalyst of the era of ASIC mining.