Bitcoin mining is about 12 years old (2020), and as the activity trudges on in its role of maintaining the cryptocurrency’s network, a lot is changing. Despite the overt sheer dynamism, not much change is happening now in a way that might influence the sustainability of the industry in the long-term. However, this is bound to change.
The big debate about the sustainability of the Bitcoin and cryptocurrency mining industry is raging. While a cross-section of industry experts thinks that the time for a complete overhaul is nigh, still, the alternative school of thought holds that the status quo should not be compromised.
Of course, such a debate that leans on technological advancements can be heated, depending on who is championing for whatever innovation. However, breakthroughs are only possible when every side of the coin is judged on the merits it brings to the table.
The History of Cryptocurrency Mining
The first cryptocurrency, Bitcoin, was mined successfully in 2009. The process, which includes verifying transactions in the network and adding fresh blocks with transaction details into the blockchain, also serves to release new coins into the network.
Over the more than a decade that the process has existed, a lot has happened, and so are millions of coins that have been mined. According to available information, the Bitcoin network alone has some 18 million plus Bitcoin already mined.
This information implies that more than 85% of the 21 million Bitcoin that can be in circulation at any one time have already been mined. Aside from the many coins that have been mined, the industry has created several subsets borne of the industry-wide trends. For instance, initial coin offerings (ICOs) raged and died down some to pave way for only regulated mature projects.
ICOs/STOs and their Role in Shaping the Mining Industry
ICOs, which were active between 2016 and 2018 are a crowdfunding method, albeit largely unregulated, used by cryptocurrency companies to raise money from the public. While speaking about the phenomenon in an earlier statement, Roger Aitken, a former contributor at Forbes, said that despite the obvious dip in ICO/STO activity, the overall landscape has experienced a continued maturity phase.
According to Roger, the emerging regulations seem to have curtailed the pace of development in the once free for all sphere. The slowdown notwithstanding, the number of quality products and ideas getting money from the public is constantly rising, Roger said.
Roger’s assertions are supported by a report done by the Swiss-based Crypto Valley Association and the strategy arm of PricewaterhouseCoopers (PwC). The cited report shows that while Q3 and 4 of 2018 saw decreased ICO and STO activity, the number was still twice the number of successful crowdsourcing activities carried out in 2017.
Besides, the amount raised almost tripled from the modest $7 billion sourced in 2017 to the $20 billion that ICOs and STOs raked in in 2018. However, the bulk of the 2018 figures can also be attributed to the EOS and Telegram crowdfunding campaigns that brought in a combined $5.8 billion.
The ICO and STO processes are important in the context of the mining history even though most coins issued in this manner are never meant to be mined. That notwithstanding, the said coins magnify the place of Ethereum and EOS, the world’s second crypto by market cap, and the second largest Blockchain operating system, respectively, and their places in the cryptocurrency mining space.
Demise of the Crypto Fanatics’ Hobby: Standing at Efficiency’s Gate
At inception, cryptocurrency mining was a unique hobby enjoyed mostly by crypto enthusiasts. However, as highlighted here above, it is a lot commercialized now. Besides, it requires very specialized devices, and the very nature of the activity has changed.
The introduction of specialized mining device with heightened block finding speed also introduced mining farms. Bitcoin or cryptocurrency mining farms are a collection of miners lined together to collaborate in finding and adding fresh blocks containing transaction details into the blockchain.
These farms have become a preserve of countries with cheap power tariffs. Essentially, the warehouse-type structures stuffed with mining data centers and specialized miners are set up to mine various coins, fast.
Because of the many devices linked together to mine collaboratively, mining farms often solve the math puzzles associated with the cryptocurrency transactions a lot faster compared to a hobbyist miner.
Despite their faster speeds and improved mining efficiency, mining farms have not been without blame.
A cross-section of mining enthusiasts lobbying for democratization of mining think that mining pools are gaining undeserved dominance over the industry. Thomas Norberg, a cryptocurrency enthusiast and founder of Miny, a Hong Kong-based cloud mining startup, thinks that mining farms are a necessary evil.
Thomas said that the strides that the Bitcoin and cryptocurrency mining processes have made cannot be easily reversed. Hoping that the world can go back to the democratic mining process of yesteryears is akin to dreaming, he added. Besides, the program tweaks necessary to see such a process come to fruition may not be worth it in the end, Thomas reiterated.
Thomas suggests that the mining industry is better off maximizing the benefits so far achieved by the specialized devices. He added that even though the said machines have locked out individuals of ordinary means from participating in the process of mining crypto, ruing the outcome is crying over spilt milk.
Thomas thinks that some of the perils of the intensive commercialization of the cryptocurrency mining process can be rectified by the social solutions that mining farms offer.
The Way Forward
Bitcoin and cryptocurrency mining may be only about 10 years old but industry players agree it is time to refine the workings of this subset of the nascent blockchain space. While technological evolution is one of the fastest aspects of life today, many operators in the blockchain and cryptocurrency industry think tech is not shifting fast enough to aptly address the arising challenges.
The technology debate aside, a few significant factors are defining the path that Bitcoin mining might assume in the next two years or so. Kirill Shilov, a cryptocurrency enthusiast who is also the founder and CEO of Sky-Drones, an augmented reality solutions company, thinks that the basic aspects of the practice will define the industry’s future more than the tech aspects possibly will.
Kirill said that mining farms will continue in their constant pursuit for cheap electricity, even if such quests mean moving from country to country every so often. Between 2016 and 2018, China was attractive to much of the Bitcoin and crypto mining activities because of the country’s cheap power tariffs.
The country’s dominance in the industry did take a beating when Beijing decided to shift its policies to go against cryptocurrency-related activities. While China later reviewed this policy stand, the uncertainty created drove many mining firms out of the populous Asian nation. Iceland, Canada, Russia, and Georgia are now the emerging as the destinations of choice.
Kirill said that the time for an overhaul of the world’s power supply is now. While India and Egypt have banned cryptocurrency and Bitcoin mining activities, China is deliberately making it difficult for crypto mining companies to operate within its borders since it started reviewing power tariffs upwards.
And while all this is happening, some countries are investing in environment-friendly power sources and inviting mining entities to take advantage of the innovations coming up.
The Algorithm Battle
Siwon Kim, a blockchain specialist who also trades crypto, said that the time might be right to shift from Proof of Work (PoW) mining algorithm to Proof of Stake (PoS). His reasoning is that the former is power intensive ad relies on expensive devices.
Energy-friendly coins are dumping PoW mining algorithm for the PoS approach, which is energy efficient. Already, Ethereum has already blazed a trail. As more networks choose PoS over PoW or other new algorithm approaches for that matter, the path of mining coins such as Bitcoin might change. The algorithm debate stretches a lot further than just these two.
More recently, Proof of Audit (PoA) and Proof of Participation (PoP) models have been thrown into the works. While PoA mirrors the value of integrity and trust among the community of miners, the relatively new PoP focuses on how miners contribute to the maintenance of a network by participating in the various tasks available.
As the need for cleaner mining practices gather pace, a shift towards environment-friendly mining procedures will take center stage.
Besides, mining entities might not need to invest in the expensive mining paraphernalia. Whatever happens in the short- or long-term, many industry players agree that a shift is now a matter of when and not if.
Bitcoin and cryptocurrency mining is 12 years old this year. While this process that is the cornerstone of the price of Bitcoin is embroiled in controversy, a lot will happen in the near future that will reshape it completely. Some of the changes are already taking shape. Others will come because of external pressures exerted on the crypto mining sphere. And when they do get installed, everyone hopes that Bitcoin and cryptocurrency will then change for the better.