Bitcoin Mining Methods

Benjamin Aubury

The phrase “mining bitcoin” is commonly misunderstood. In a nutshell, a bitcoin’s miner job is to verify a bitcoin transaction (a block). This is a necessary process because bitcoin is decentralised. The appeal of this process comes down to the comparisons made to the California gold rush of the 1840s and 50s.

As a reward for completing this verification (the process of verification is commonly known as minting), the miner receives remuneration in the form of bitcoin. The specific mechanism by which bitcoin is mined is by employing some hardware to solve a Gordian Knot of a maths problem that has the result of giving the block a unique hexadecimal code (this process is known as hashing - a process that uses the SHA-256 algorithm). The speed and energy cost of hashing determines the efficacy of the mining method.

Chain 0: Mining Pools

The title is a common phrase in cryptocurrency mining, and its meaning is quite simple. In essence, it is when miners work together to mine a cryptocurrency, and then they share the dividends.

Advantages: “The whole is greater than the sum of its parts.” - Aristotle.

Disadvantages: the equal sharing of dividends may be undesirable if one person did more work than another etc.

Chain 1: ASIC Mining

ASIC stands for application-specific integrated circuits. In a nutshell, this means that they are small circuits that are very specialised in their application. ASICs are widely regarded as the most modernised and effective of all the current mining methods. Furthermore, an ASIC only needs a computer to be plugged into and an internet connection - so it is very space efficient. However, ASICs are a double-edged sword, and their purchase may only be suited to certain types of people. To start, ASICs are the more expensive options for bitcoin mining on the market. A high-end ASIC could cost tens to hundreds of thousands of dollars which is generally more costly than the other options. In addition, the extent of ASIC specialisation means that ASICs can only mine one type of cryptocurrency. So if Bitcoin loses all its value and Monero becomes the new biggest cryptocurrency, then your Bitcoin-adapted ASIC may not be able to adapt to mine Monero.

To summarise,

Advantages: Best hashing rate, best energy usage and very space efficient.

Disadvantages: Very expensive, cannot mine multiple cryptocurrencies due to degree of specialisation.

Chain 2: GPU and CPU Mining

GPU (graphics processing unit) and CPU (control processing unit) mining have an intertwined history, so it is best to examine them in the same section.

At the inception of bitcoin mining, miners used their CPUs to mine the bitcoin. However, miners soon discovered that GPUs are objectively superior for mining bitcoin. This is because GPUs are far easier to maintain and upgrade. In addition, GPUs have a superior ALU (arithmetic processing unit). The power of the ALU is crucial in mining bitcoin as the application of SHA-256 requires a hefty amount of arithmetic computation.

In comparison with other mining methods, GPUs and CPUs are generally cheaper than ASICs and are more accessible to the layman. In addition, a GPU is a far more multifunctional tool than an ASIC. ASICs cannot mine more than one cryptocurrency, let alone run video games or videos like a GPU. In some sense, the GPU provides a more multifunctional mining and general computer style than ASICs. On the other hand, GPUs and CPUs are far less space efficient than ASICs. A GPU will require many components, such as a motherboard and a cooling system, to keep it running. In addition to this, GPUs and CPUs are far less energy efficient and slower than ASICs:

To summarise,

Advantages: Cheaper, more multifunctional.

Disadvantages: Slower, less energy efficient, less space efficient.

Chain 3: FPGA Mining

An FPGA (field programmable group array) is generally a more effective mining method than GPU and CPU mining in terms of hash rate and energy efficiency. In addition, it does not suffer from the lack of flexibility that ASICs have - an FPGA miner can be reprogrammed to mine for different cryptocurrencies. FGPAs also tend to fall in the 200-500 dollar price range, which is significantly less expensive than ASICs and generally slightly less expensive than GPUs.

However, FPGAs suffer from being the Jack of all trades of mining but master of none. FPGAs are not as multifunctional as GPUs and not as effective as ASICs. In addition, FPGAs are very difficult to program, and the buyer will need a significant amount of knowledge in FPGA technology to configure or reconfigure an FPGA miner.

To summarise,

Advantages: multifunctional relative to ASIC, cheaper, better than GPUs in terms of efficacy but still way worse than most ASICs (logarithmic scale of the graph).

Disadvantages: not as multifunctional as GPU, difficult to configure and reconfigure.

Chain 4 An Illustrative Graph

(from https://www.iea.org/data-and-statistics/charts/efficiency-of-bitcoin-mining-hardware)

Light blue - ASIC

Dark blue - FPGA

Light green - GPU

Dark green - CPU

N.B The scales are logarithmic - this means that the movement from one marking to another is by a multiplication or division by 10, not an addition or subtraction. This means that the vast majority of ASICS are around 1000x faster in terms of hash rate than even the fastest GPUs.

Chain 5 Cloud Mining

The final mining method discussed in this article is a reasonably simple ending point.

Cloud mining is where a company manages the mining hardware, and a person buys the service from the company. This has a significant advantage in terms of environmental impact over other mining methods. The ecological impact is two-pronged:

Firstly, this system ensures that all the hardware is used. It protects against those people who would buy some mining hardware only to throw it away a few weeks later - creating waste.

Secondly, the hardware of cloud mining companies could be more easily powered by renewable energy sources. If these cloud mining companies were to be established in California - a part of the world with thriving sunlight-capture infrastructure - twice as much energy is produced from solar per day than is required. This energy could be used to power the hardware of these companies sustainably. This would be a preferable solution to using natural gas to power our at-home GPUs.

However, this system does seem to be trending towards a more centralised approach. Given that cryptocurrency were founded in part as an effort to experiment with decentralised currencies - this would defy the point - in some sense. In addition, the companies managing this hardware would have to profit from the buyer to cement themselves as a profitable business model. Therefore, the buyer would earn less than if they owned the equipment.

To summarise,

Advantages: Sustainability

Disadvantages: Centralisation (misses the point of cryptocurrencies), profit made from the buyer.

Conclusion

Chainspeech.com does not endorse any particular product over another - we merely present you with the facts and let you decide which mining method (if any!) to use. However, it would generally seem that in the following three categories that we have deemed most important, the winners are:

Price: FPGAs

Efficacy: ASICs

Sustainability: Cloud Mining

However, this result may vary from individual to individual and from ASIC to ADIDAS (it’s a joke - don’t worry if you don’t get it.)

Now click on all our other articles!

(https://chainspeech.com/articles/environmentalimpactsofcrypto

https://chainspeech.com/articles/blockchain-gambling

https://chainspeech.com/articles/blockchain-mortgages-amp-real-estate)