The ten-year history of mining development (Part 1) — From Utopia to Shura Field

Many readers should have seen that the recent development of blockchain mining is terrible. The shutdown price of many mining machines has been hit hard, and there are reports that many mining machines are already being sold at a low price. In this regard, many people attribute the reason to the impact of the low price of coins. But few people would have thought that even if the digital currency market ushers in a bull market one day, the traditional mining industry that people are familiar with may not be able to reproduce its former glory. All this is not manipulated by any one person or group, but is determined by the historical trajectory of the mining industry and the future direction of the blockchain industry. Why do you say that? In the past ten years, what kind of development process has the mining industry experienced? In this series of articles, the president will introduce to you the development of blockchain mining in the past ten years.

Figure: No one thought that when mining industry once again entered the public eye, it would be in this form

A fragile utopia: the collapse of the idea that “everyone is a central banker”

On January 4, 2009, three months after the release of the Bitcoin white paper, on a small server in Helsinki, Finland, Satoshi Nakamoto personally created the first block of the Bitcoin network and received the first 50 Bitcoins as a reward. He probably didn't expect that such a simple act would develop into a huge industry in the future, attracting countless investors and creating a large number of jobs.

In fact, not only Satoshi Nakamoto, but all the participants in the Bitcoin mining industry at that time would not believe that a "data guessing" "electronic currency game" would actually produce an industry. After all, from today's perspective, the difficulty of Bitcoin mining at that time was simply outrageous - you only needed to have an ordinary computer, download a mining software, and then create a new text, write the mining pool, miner number, miner password, number of threads and other parameters in it, save it and change the extension to bat format, and then you can open the mining software to mine. For these people, Bitcoin mining at that time was equivalent to Tetris on a PC. It was too unrealistic to say that it could derive a huge new industry.

However, it is precisely because of this low equipment threshold that early Bitcoin, without any certain prospects, was able to gather a group of participants at a relatively fast speed. If it is imagined as a currency, it is indeed quite consistent with the ideal idea of ​​"everyone is a coin issuer". In such a world without a central bank, Satoshi Nakamoto's vision of Bitcoin's "decentralization" seems to be really within reach.

However, just one year later, this fragile utopia was facing the crisis of collapse. As more and more people participated in Bitcoin mining, those who did not care much about the operating principle of Bitcoin soon noticed that the speed of producing Bitcoin with personal computers began to slow down. After digging into the reasons, some people found that the "hash rate" - commonly known as "computing power" - played a crucial role in whether Bitcoin could be mined. In this case, some geeks began to consider using GPUs, or graphics cards, with stronger computing power, to produce Bitcoin.

There are different opinions in the industry about the time and opportunity of GPU in Bitcoin mining. One of the more logical explanations is that the first person to use GPU mining was a programmer named Hanecz, the guy who exchanged 10,000 Bitcoins for pizza. After all, in early 2010, with CPU mining, a CPU could only mine one block a day at most and get 50 BTC. This guy had to mine for half a year to mine 10,000 Bitcoins, but the problem is: Pizza Brother had not been in the mining circle for that long, so where did he get the Bitcoins to buy pizza? The answer is to use GPU. According to Pizza Brother’s post, his daily income could reach several thousand Bitcoins, so it was too easy to take out 10,000 coins to buy a pizza.

Picture: Pizza Brother, who is ridiculed by many people, is the earliest GPU miner recorded in public data

However, according to public information, Pizza Brother did not promote GPU mining. The reason is simple. After he told Satoshi Nakamoto about it, the latter did not agree with this behavior. After all, it is a highly centralized behavior. Data shows that in early 2010, the computing power of GPUs could reach 9MH/S [Note], while the computing power of CPUs was only about 1KH/S. In fact, Pizza Brother had many opportunities to carry out 51% attacks while using GPU mining, but the problem is that even if Pizza Brother mined most of the Bitcoins and kept them in his own hands, Bitcoin would not have much value without decentralized consensus.

【Note】H/S means the number of hash operations that a mining device can perform per second.

Figure: In early 2010, the mining power of GPUs was 9,000 times that of CPUs

So, although Pizza Brother was the first GPU miner with public records, he did not call on the community to use GPU mining. In fact, the straw that broke the camel's back and prompted GPU to enter the mining arena was something that many people did not expect: the sudden explosion of Bitcoin computing power.

In early July 2010, without any warning, the over-the-counter price of Bitcoin increased tenfold in just five days, suddenly rising from $0.008 to $0.08. Since there were no digital currency exchanges at the time, the easiest way to obtain Bitcoin was to mine on a single machine. Therefore, in a very short period of time, the number of people participating in Bitcoin mining expanded rapidly. According to the rules of the Bitcoin white paper, the increase in computing power means that the difficulty of mining has increased sharply, and miners with reduced harvests have begun to make ends meet. Under such circumstances, ordinary CPUs can no longer meet the demand for mining. At this point, even Satoshi Nakamoto is no longer able to stop miners from rushing to GPUs, and what happens next is a matter of course. In July 2010, Bitcoin forum member "Artforz" once again began to use GPUs for mining, and at the same time widely disseminated this plan in the community. Since then, more and more people have begun to participate in GPU mining. With the sudden disappearance of Satoshi Nakamoto at the end of 2010, the Bitcoin community lost its spiritual leader and the last bit of restraint on "decentralized issuance", thus starting a mining war that lasted nearly a decade.

The arms race begins, and mining equipment is rapidly updated and iterated

Just as wars in history often promote technological development, the opening of the Bitcoin mining war has also greatly improved the way people mine Bitcoin. Looking back at the post-CPU era, the fuse of the first round of arms race was the computing power war triggered by a big bull market in Bitcoin in 2011.

Specifically, after Pizza Brother paid for two pizzas with 10,000 bitcoins, people suddenly realized that this thing could really be used as money, so individuals and groups, including WikiLeaks' Julian Assange, began to accept bitcoin payments and donations. This expanded demand for use, coupled with weak liquidity, has led to a continuous rise in the price of bitcoin. By February 2011, it had more than doubled from the previous $0.08 to $1, and then it went sideways until April before exploding again. In just two months, it actually surged to $30. For people at the time, assets that doubled 30 times in two months were simply unheard of. The geek circle was filled with restlessness for a while, just like the great powers that discovered a super gold mine in the New World and wanted to send troops to rush over the next day.

If the great powers needed fleets with strong firepower, then the miners needed machines with strong computing power. Unfortunately, for the miners at that time, a general-purpose machine like GPU was as weak as a kitchen knife. After Bitcoin skyrocketed a thousand times in a year, a large number of gold diggers poured into the field of digital mining, making mining more difficult. Mining with low-computing GPUs was already a loss-making business. After all, graphics cards were originally used for graphics imaging, not professional equipment. For a time, the industry's call for powerful professional mining machines continued to rise.

Figure: The Bitcoin bull market in 2011 was the most important opportunity for the emergence of FPGA

Stimulated by this demand, in June 2011, the first professional equipment for digital currency mining, FPGA, appeared. Its full name is quite difficult to pronounce: Field Programmable Gate Array. This is the world's first professional chip design for mining. For the digital currency mining industry in the cold weapon era, FPGA is like a musket compared to the kitchen knife-like GPU. Although it can only be used in mining, it is also because of this that its performance is extremely strong. The computing power of a single GPU can only reach a few MH/S, while the computing power of FPGA has increased by hundreds or thousands of times, reaching the level of GH/S.

In fact, in addition to the greatly increased computing power, the most powerful thing about FPGA is that, generally speaking, a computer can only work with a few GPUs, but it can run a pile of FPGA mining. For miners, this is equivalent to upgrading a machete squad to a machine gun battalion, which has achieved an exponential leap in both quantity and quality. Therefore, although the first mass-produced spot mining machine did not officially appear until March 2013, before that, many impatient miners had achieved a upgrade through private customization or even self-made, which led to a huge breakthrough in the total computing power and personal computing power of the entire Bitcoin network - data shows that the personal computing power of the entire Bitcoin network soared 20 times between 2011 and 2012, and the total computing power of the entire network increased by 100 times.

There is no doubt that the emergence of FPGA is a milestone event for Bitcoin miners. However, sadly, this "milestone" did not last long in the mining industry. Since 2012, the price of Bitcoin has exploded unstoppably from a low of $2. By November 2013, it had reached $1,200, a 600-fold increase in more than a year. This soaring increase made it impossible for Bitcoin to move forward in a low profile. Considering the global economic downturn at the time and the asset shortage of hot money, gold diggers from all over the world flocked to this killing battlefield of computing power, causing the difficulty of mining to rise sharply again. Miners holding FPGAs were unable to make ends meet and had to start looking for new killer weapons again. The answer they finally found was the ASIC chip that we are very familiar with.

As the saying goes, one man's meat may be another man's poison. The emergence of ASIC marks the beginning of the tragedy of FPGA. If we compare FPGA to a machine gun, then the computing power of ASIC can be called a rocket launcher. Under the latter's offensive like cutting melons and chopping vegetables, FPGA's dominant position in the mining industry quickly collapsed, and its "milestone identity" as the first dedicated mining machine was forgotten. At this time, it was only about three months away from the appearance of the industry's first spot FPGA mining machine. It should be noted that the FPGA commercial machine took nearly two years to conceive. It was so short-lived that one could only lament that it was born at the wrong time.

Figure: Comparison of computing power of GPU, FPGA, and ASIC mining machines

The emergence of mining pools and mines: when tribal city-states evolved into transnational alliances

Looking back at history, it is not difficult to find that the emergence of firearms and other hot weapons has changed not only the form of war, but also the structure of human organizations and society. The upgrade of mining machines and the arms race represented by the emergence of ASICs have not only brought about an increase in computing power, but also a major change in the ecological structure of the "mining circle" - that is, the types of participants have also undergone major changes. Leaving aside those cumbersome details, the overall development trend of the main body of the mining circle is not difficult to understand. The general clues can be seen by sorting out and comparing human history: In the earliest times, humans existed in the form of tribes. As the competition for resources became more intense, countless small tribes gradually moved closer to those powerful tribes, thus merging into city-states, countries, and even empires. In this process, few individuals or tribes are willing to maintain an independent attitude. After all, if you can't buy/make weapons, and don't want to be protected by people with weapons, then the most likely thing to happen is that you will be shot down by firepower from nowhere.

The same is true in the digital world. The start of an all-out war for Bitcoin computing power - especially the improvement of mining hardware performance - is actually forcing miners scattered around the world to pool their computing power together. The reason is simple: for those individuals and units with relatively simple mining equipment and an insufficient share of computing power in the entire network, if they do not join the ranks of large groups to receive protection, they are equivalent to individuals and ethnic groups that are not accepted in the world. They will inevitably perish in isolation because they cannot obtain resources (Bitcoin).

Thus, we can see that in December 2010, Czech programmer Marek founded the world's first mining pool "Quarrel", and in 2011, the world's first Bitcoin mine appeared. Thus, two types of centralized groups were formed in terms of interest positions and geographical locations. Strictly speaking, the initial mining pools and mines did not immediately become the mainstream interest entities in the mining industry, and their share of the total network computing power was relatively low. However, with the emergence of FPGA and ASIC, the advantages of mining pools and mines that are able to gather a large number of professional mining machines have emerged, just like an empire that is able to purchase or produce powerful weapons, forcing small and medium-sized miners to seek to rely on these large groups like weak countries.

Figure: Computing power ratio of the world's top ten mining pools in October 2018. The top three have mastered more than 50% of the computing power ratio

In fact, the concentration process of mining participants is quite similar to human history: although in terms of geography, mines often merge and split due to electricity price adjustments, local policies and other reasons, just like the infinite cycle of disintegration and unification of the world's countries; but in terms of position, the concentration of mining pools has continued to increase, from less than 20% of the total network computing power in 2011 to 95% of the total network in 2015, when only the top ten accounted for 95%, just like the world changed from multipolarization of military and political forces in the 19th century to bipolarization in the 20th century, even if the major empires disintegrated into more than 200 modern countries after the war, this trend did not change.

Under this trend of continuous concentration, by around 2014, there was no room for individual miners in the Bitcoin mining industry except for mining farms and mining pools, and the concentration of the top ten mining pools had basically been determined. It can be said that a high degree of centralization has been achieved while ensuring the security of the Bitcoin network. Many well-known industry star companies and entrepreneurs, such as Ant Pool, F2Pool, Litecoin, GuoPool and other groups, as well as Wu Jihan, Jiang Zhuoer, Qicai Shenyu and others behind them, appeared during this period.

Figure: The development of miners' groups is like the evolution of human nations. Although they may continue to separate and merge geographically, their interests are gradually concentrated (Figure shows the sphere of influence during the Cold War)

For those who still hold the "decentralized concept", although digital assets including Bitcoin no longer need to be popularized through mining, such a centralized scenario is not what they want to see. Under such circumstances, either out of interests or ideals, the digital currency industry has begun an irreversible transformation. So what is the direction of this transformation and what impact will it have on the mining industry? The answers to these questions will be introduced in more detail in our next article.