CPU mining

Personal computers consist of a few key components chief among which is the central processing unit, the CPU. Central processing units are very flexible computer chips, good at computing a wide variety of tasks from email to web browsing to word-processing. They are capable at performing all these tasks, but aren’t exceptionally efficient or specialized in any of them.

An off-the-shelf CPU today could perform roughly 20 to 200 hashes per second (H/s) when pointed to a proof of work mining protocol. However, deploying a CPU to mine on the Bitcoin network today would be an exercise in futility, like going into battle against a modern army, equipped only with arrows and spears. A CPU simply can’t compete against the specialized equipment in use today. However, there are still cryptocurrency blockchains with lower network hash rates and unique mining algorithms that can be effectively mined with a CPU.

Adoption of GPUs

Beginning around 2011, Graphics Processing Units (GPUs) became the mining hardware of choice on the Bitcoin network (though they were somewhat obsolete by 2013). GPUs are pieces of hardware designed to manage the kind of calculations required for computer graphics. Gamers and graphic designers often upgrade their desktop computers by buying graphics cards to improve their systems’ performance. Graphics in computer games would display more quickly, and the huge graphics files produced by graphic designers could be managed more quickly and easily. GPU cards are also designed to run for long intervals while dissipating heat through large heat sinks and fan cooling systems.

From the cryptocurrency miner’s perspective, these cards had the additional advantage of being able to hash more quickly, with a lower energy expenditure per hash than a CPU. This allowed miners to increase their overall hashing power while maintaining relatively low power usage.

Miners are in competition with each other. The more quickly a miner can hash, the more likely the miner is to win the hashing competition. Hash power is everything!

The total Bitcoin network hashing power as well as block difficulty increased substantially during these years, essentially pushing CPU mining into the history books on the Bitcoin blockchain.

Rise of the FPGAs

Another mining device used to increase hash rate was the Field Programmable Gate Array, or FPGA. These devices can be rapidly reconfigured, or field programmed, to process different algorithms at a more efficient rate without the need to design and manufacture circuit board chip sets designed for a specific algorithm. These types of mining rigs are still popular and used to mine cryptocurrencies that change their Proof of Work algorithm frequently in an attempt to prevent hardware specific mining equipment from proliferating.

Dominance and efficiency of ASICs

As mining cryptocurrency became more widespread and profitable, suppliers began developing hardware specifically designed to mine cryptocurrency.

CPUs are designed to do a wide range of tasks reasonably well, and consequently do none of them really well. This new hardware was designed to do just one thing really well — process the algorithms required for mining a specific cryptocurrency.

Thus, the FPGA developments quickly gave way to the development and manufacturing of Application Specific Integrated Circuits, or ASICs for short. These chips were deployed for a single purpose, which was to mine proof-of-work cryptocurrencies, such as Bitcoin. These ASICs would do a poor job of word-processing, email, or web browsing, but were orders of magnitude more effective and efficient at cryptocurrency mining. The increases in chip efficiency can be seen in Figure 5-1, which graphs popular and widely used chips during the 2014 to 2017 period. As you can see, the amount of power used to process a terahash (a billion hashes) dropped dramatically as ASICs were designed specifically to process these algorithms. Today’s state of the art ASICs are even more capable.

The rise of ASICs led to an enormous increase in the network’s hash rate. The network hash rate is the number of hashes that can be done every second by the combination of all the miners working on a network. The chart in Figure 5-1 shows that the Bitcoin network hash rate peaked at more than 120 million TH/s — that is, 120 million terahashes per second. A tera is a trillion, so a terahash is a trillion hashes; thus, 120 million TH/s means that the entire combination of all the miners on the network could, at the peak, run 120,000,000,000,000,000,000 hash operations in a single second, a truly vast amount of computational power!

You can see how quickly processing power on the Bitcoin network grew, in the logarithmic chart in Figure 5-2. (You can see the latest data at www.blockchain.com/en/charts/hash-rate?timespan=all.)

What is a mining pool?

The users who participate in mining pools pool their computational resources together and work as a team to find blocks. If a mining pool user were to find a block, but at the time is only contributing to ~5 percent of the total pool hash rate, that user would collect ~5 percent of the total block reward associated with that block. This distributes the costs and gains in a very fair manner across the pool based on each miner’s contribution.

By the way, even though the thousands of participants in a pool think of themselves as miners — and for the purpose of this book, we’re going to call them miners — from a system standpoint, they are not. A miner is really a mining node, and from the perspective of the cryptocurrency network, the pool itself provides a mining node, and the individual members of the pool are really invisible to the network, behind the node. That is, you’re not setting up your own node; pool mining is far simpler than solo mining! You’re not carrying out every task required of a real miner. The individual pool members provide their computers’ processing power to the mining operation, but there’s really, from a technical perspective, a single miner, the pool operator, who has to manage the entire process and run the node. The pool provides the tools for you to work with them. Figure 5-3, for example, shows Antpool’s statistics page.

Choosing a pool

Many different pools are in the Bitcoin and cryptocurrency mining industry today. Some of them are very altruistic in nature, and others could be considered bad actors.

It is important to select a mining pool that reflects your values. If not, the pool could be utilizing your hashing power in a manner that does not coincide with your goals. (You can find out more about picking a pool in Chapter 7.) You can employ lots of tools to help you make the right choice. Figure 5-4, for example, shows a chart on the Coin Dance website that displays blocks added to the Bitcoin blockchain over the previous 24 hours, broken down by the mining pool.

Pros and cons of pool mining

Pool mining allows a miner to consistently collect rewards for the work provided toward the network, even though the average pool miner has such a low hash rate that they aren’t likely to earn a reward working alone. Even if you never actually find the hash to win the reward, as long as you are contributing processing power, you’ll still share in the profits.

Of course, if you are the lucky miner finding the winning hash, you don’t get to keep the entire block reward; you share it with all the other miners, each according to the proportion of contributed hash power.

The pool also takes a small fee for providing their service. That is, the block rewards — comprising the block subsidy and transaction fees — that are earned are not shared out equally among everyone; the guys running the pool take their cut, of course (hey, it’s business!).

One criticism of pool mining is that it is leading to the concentration of power in a small number of hands (the various pool operators). For example, when nodes vote on a blockchain network’s policies, it’s just a few pool operators that get to vote for tens of thousands of individual pool members.

This has become obvious during code improvement debates where mining pools were voting for code proposals that individual users on those pools may not have agreed with. Misuse of hash rate was also apparent when some pools were mining blocks that did not include any significant amount of transactions in an attempt to clog the mempool, increase transaction fees, and congest the network. By not adding transactions to blocks, the mempool isn’t cleared as fast, and precious blockspace is wasted. This situation backlogs transactions and causes finality of settlement to be delayed. It was a tactic used to push Bitcoin alternatives with larger blocksizes and is also used to push transaction fees up, increasing rewards for miners. Miners select transactions from the mempool that they want to include in a block. Most choose to load blocks to their maximum with the largest transaction fees for more profit to themselves, but sometimes miners and pool conglomerates have other political motives.

These downsides can easily be overcome by users, however, by simply pointing their mining hardware to a different pool that more closely aligns with their objectives and goals. As the mining pool is providing a service, if a user doesn’t like the way the pool operates, that user can take their hash rate and go elsewhere. This free market pool ecosystem normally acts as a check and balance against pool operators and creates incentives for pool behavior that benefits the cryptocurrency instead of hurting it.

Pool mining versus cloud mining

So what’s the difference between pool mining and cloud mining? In both cases you’re working with a third party:

• With pool mining, you need your own mining rig, and through the use of the pool’s software, you contribute your mining rig’s processing power to the mining operation. You’ll need to deal with buying and managing equipment, running the equipment, cooling the equipment, keeping a solid Internet connection up and running, and so on.
• With cloud mining, you are essentially an investor in a mining operation; all you provide is money. Cloud mining companies sign up thousands of individuals to invest various sums into the operation and who take a cut of the proceeds in return. All you need to do is find a reputable cloud-mining operation (be careful!), send them money, and go about your daily business while they manage everything.

Pros and cons of cloud mining

Cloud mining has similar pros and cons to pool mining, of course. You don’t get to keep blocks you mine (you have to share them); you have to pay the cloud-mining firm a fee to play (but think of all the hassle you avoid!), and like pool mining there is the danger of concentration of power into a small number of hands.

You may also find switching more difficult, as some cloud contracts require a longer term commitment; you may not be able to jump ship quickly. Also, on occasion, if mining the particular cryptocurrency becomes unprofitable (as sometimes happens), the operator may cancel the contract. Carefully do your homework and research on cloud mining firms prior to investing any significant amount of money into these services.