By Abdumalik Mirakhmedov
Even though it’s only been around for a little over a decade, most people have already heard of Bitcoin. Investments are skyrocketing, adoption is increasing, and big names are tweeting about it.
But it’s surprising that so few leaders in the space actually know how it works — and why knowing how it works matters.
There’s a lot of attention paid to the price of Bitcoin on a daily basis. As well as to institutional investors and big retailers who announce they’re now accepting Bitcoin. All of this news is great because it means that the world is becoming more aware of this decentralized currency. Which I believe is the future of money.
But where does Bitcoin come from?
More attention should be paid to the mining industry that makes Bitcoin usage and adoption possible. It’s grown from laptops in a house to a multi-billion dollar, worldwide industry, with thousands of companies working at high-level operations, a full supply chain, and infrastructure that can have a real positive impact on economies, society, and the environment.
A recent report by ARK Invest states that “since the inception of dedicated Bitcoin hardware in 2013, we believe billions of dollars have been spent on design, production, and tapeout, spawning an industry dedicated exclusively to manufacturing this robust and specialized hardware.”
Here’s what you need to know about Bitcoin mining from someone who started mining in his dorm room and who scaled it to a multinational mining operation — and also why Bitcoin mining matters for the future.
Origins of Bitcoin
In 2008, an entity named Satoshi released a white paper creating a new kind of currency that would be purely digital and decentralized, in response to the recent market collapse.
This currency would be a scarce store of value, like gold, and would be resistant to inflation and other governmental interventions. It would be based on the blockchain and would be run collectively by individuals outside of financial institutions. It’s in every way the future of money.
Because Bitcoin is a finite resource like gold — only 21 million bitcoins were programmed into the original code — they have to be mined, digitally.
Miners from around the world compete to solve an algorithm that will allow them to add the next block of transactions to the blockchain. Whoever solves this algorithm and uncovers the right hash is awarded transaction fees and some bitcoins (currently 6.25 bitcoins per block) for their efforts. This is how Bitcoin gets into circulation.
Without mining, there is no Bitcoin to use, and no decentralized currency that provides an alternative to fiat money. Additionally, without mining, there’s no verification and structure to the blockchain, either, and the system falls apart.
Rise of the Mining Industry
When Bitcoin was first created, hobby miners could run the algorithm software from their desktops on standard CPUs, and mine Bitcoin for themselves.
But as more people wanted to mine, there was more competition, and miners found that they needed faster and more powerful hardware to compete and stay profitable. A year later, the first dedicated miner with a GPU was released.
Mining quickly scaled from single desktops to multiple mining rigs set up in basements, but even then hobbyists found that they couldn’t keep up. That was when Bitcoin mining pivoted from a hobby to an industry.
Those who wanted to keep scaling filled trailers, then warehouses, with mining rigs, expanded their operations, hired teams, built a supply chain, and created demand for faster technology to evolve.
Today, big mining companies located all over the globe are the ones competing to provide the world with Bitcoin, and have scaled an entire industry and ecosystem around it.
And without this industry, we wouldn’t be building the future of money.
Why Bitcoin Mining Matters
Bitcoin mining is enabling the growth of a new kind of currency that will change the world’s approach to money and exchange of value, but it’s also pushing blockchain technology, accelerating the use of sustainable energy, and providing technology for use in other industries.
According to Marc Andreessen in the New York Times, Bitcoin will revolutionize the world in the same way personal computers did in 1975 and the Internet did in 1993.
Bitcoin is a decentralized, trustless financial system, one that’s run by consensus, not a government.
This means that it’s independent of governmental policy and untouched by inflationary practices. It also offers the option of monetary exchange for unbanked populations or those subject to unfair monetary policies, like the citizens in Venezuela who use crypto to avoid the country’s hyperinflation.
More people are recognizing the benefits of using Bitcoin as a currency, and it’s poised to become a competitive alternative to fiat currency very soon — in fact, El Salvador declared Bitcoin legal tender in the country as of June 8, 2021, the first country to do so.
Bitcoin works off of the basis of blockchain technology, which itself is changing industries around the world. It can be used as a public ledger of transactions or data, which can be used to give more transparency into supply chains, record keeping, digital transactions, and more.
Additionally, mining companies themselves, with their high level of computing power, can also lend their capabilities to support scientific research and other initiatives that need powerful data processing, like scientific calculations, drug discovery, data processing for driverless cars, and more.
Because Bitcoin mining requires such a high level of energy consumption, mining operations have to find the cheapest energy available, which also tends to be the most sustainable and clean: hydro, solar, and wind.
Mining companies are also looking at sustainable ways to reuse the excess energy and heat produced by their operations, and are using it to power greenhouses and other local industries.
The Future is Founded on Mining
By all means, pay attention to the price of Bitcoin, who’s tweeting about it, and the headlines that are covering it.
But also pay attention to the expanding industry of Bitcoin mining, and watch how it’s changing the world.