Since the creation of the first cryptocurrency more than a decade ago, many have been skeptical about its legitimacy, and some even consider them a fraud. But in 2020, that paradigm seemed to have changed. What has emerged is a shared recognition 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 a far-fetched view reserved for crypto-anarchists – financial actors who traditionally distrusted cryptocurrencies now express confidence in its destructive potential. JPMorgan and Goldman Sachs, for example, recently reversed their initial opposition to cryptocurrencies, becoming some of the most recent to offer new banking services and offers to the digital assets market.
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As optimism and appreciation for the long-term potential of cryptocurrencies continues to grow, so do opportunities for revenue expansion among ecosystem participants. Bitcoin miners, for example, saw their main numbers rise by around 50% on a monthly basis in November, as Bitcoin prices rose by more than 60% to more than $ 18,000 in the same period. Still, in a highly competitive environment, success has been largely confined to some industry leaders, although it remains elusive to many.
For miners, gaining access to highly advanced mining equipment – the one that boasts the highest level of energy and cost efficiency and the fastest processing speeds – remains the most critical factor in ensuring a competitive advantage.
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The evolution
The crypto mining industry has undergone a succession of substantial transformations to reach today’s advanced technical state. In its early days, mining was done using simple computers, without complex or high-powered devices. General-purpose central processing units, or CPUs, were sufficient to produce Bitcoin. This led to a rapid expansion of the Bitcoin network, as the fascination with easy money generated an influx of new participants – so much so that these first generation miners were unable to keep up with demand, making them obsolete in just one year.
The graphic processing units were introduced below and made Bitcoin mining more efficient and profitable. The combination of multiple GPUs has become a common sight as miners sought to further increase their mining performance and resources, maximizing gains. Despite these advances, second-generation miners have not stood the test of time due to high energy consumption and lack of long-term efficiency.
In 2011, field programmed door arrays, or FPGAs, emerged as the next logical step in progression. They were fast, highly energy efficient, offering better performance and easier cooling than their predecessors. However, the FPGA miners were short-lived and were eventually replaced by ASICs, which, to this day, remain the dominant technology for the Bitcoin mining industry. Designed, built and optimized for the sole purpose of mining, ASICs are recognized for their superior harmonization of energy consumption, performance and cost – about a million times more energy efficient and 50 million times faster in mining Bitcoin than the CPUs used in 2009.
The road ahead
In fact, crypto mining has come a long way. In addition to performance-related developments, there have also been notable improvements in the environmental aspect of the technology, such as greater energy efficiency and faster hash rates. With an increasing emphasis on sustainability, this is a trend that is likely to continue as chip design suppliers seek to develop innovative solutions to meet this evolving demand.
Two main areas of development come to mind. First, the reengineering of current mining hardware to use radically less energy; and, second, a reprogramming of current mining chips to allow the use of hybrid energy for optimal cost performance.
Reengineering of current mining hardware. There are already several concepts on the market that are being researched and rigorously put to the test – one of them is the use of photonic chips to perform computing. In theory, the technology looks promising, with two to three orders of magnitude better energy efficiency than today’s electronic processors. However, in reality, it remains inconclusive whether energy savings are achievable, especially with the Bitcoin scale. Until then, ASICs and their continuous improvements will continue to dominate the crypto mining space and lead the charge on energy efficiency in crypto mining.
Reprogramming of the current mining chips. Against common belief, the crypto industry is relatively green. As of December 2019, Bitcoin was powered by more than 70% renewable electricity. While the benefits of using renewable energy are indisputable, the truth is that renewable energy is an intermittent source of energy and is not always reliable for Bitcoin miners, who have a constant need for energy. Fossil-based energy, in contrast, generally serves as a more stable energy source. To find a balance between industry sustainability and sustainability more broadly, a hybrid model can be adopted, in which renewable energies are used predominantly as an energy source, with energy based on fossil fuels being established during the scarcity of production. This involves redesigning and reprogramming current mining chips to allow greater ease of switching between the two variants of power sources, without interrupting mining processes.
As cryptocurrencies continue to grow in prominence, so does the influx of competition from new vendors who want a slice of the pie. Healthy competition can be positive, as it can lead to more innovation that brings greater efficiency and maturity to the sector. To fully capitalize on the growth of the nascent cryptocurrency market, however, incumbent chip designers will need to invest more in research and development, particularly in the areas of energy optimization and performance.
The views, thoughts and opinions expressed here are solely those 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, president and CEO of Canaan Inc., a leading provider of supercomputing solutions. While specializing in the field of supercomputing, NG explored the potential of application-specific integrated circuit design, consequently launching the world’s first digital cryptocurrency miner based on ASIC chips and catalyzing the era of ASIC mining.