Beyond Supply And Demand: Charting The Bitcoin Mining Industry’s Jour

By Nangeng Zhang, Founder & CEO of Canaan

Last week, bitcoin finally surpassed all-time highs, exceeding US$22,000for the first time, seeing year-to-date gains of over 180 percent. Largely attributed to growing institutional interest with established namessuch as Square, Galaxy Digital, and Grayscale Investments all helping to push bitcoin’s scarcity to new heights. Meanwhile, renowned market index providers have made promising announcements, with S&P Dow Jones Indices announcing the launch of crypto indices in the coming year, signalling greater interest within the world of traditional finance. When bolstered by prominent consumer-facing players such as PayPal catalysing renewed interest in cryptocurrencies, this recognition – in the form of financial legitimacy as well as commercial promise – is extremely valuable in charting the path to bitcoin’s long-term future.

But if we pull back the curtain – looking behind the scenes into the very mechanics that have anchored bitcoin over the years – success has rested on an ever-growing ecosystem of miners and their trusty hardware. Over the years, Bitcoin mining has fast cemented its position as a lucrative industry with the global mining industry generating US$5.4 billionin revenue in 2019 alone. In a space where success is determined by the delicate balance of cost, performance, and efficiency, mining hardware firms have certainly felt the effects of the ‘innovation crunch’ as they look to develop infrastructures that can deliver on the computing needs of the future.

In rewinding back to 2009 where the first peak of innovation took place, let’s take a look at what’s changed and where the industry is headed as the year draws to a close.

In favour of specificity

When Satoshi Nakamoto mined bitcoin’s genesis block in 2009, mining was arguably a more accessible task. Far from the computationally intensive image that bitcoin is associated with today, the earliest days of mining merely required the use of a computer’s central processing unit (CPU). This changed in October 2010 when 1 bitcoin was unbelievably valued at $0.10 and the very first mining hardware made with graphics processing units (GPUs) was developed. GPU devices are distinguished for their comparative specificity – often associated with the gaming industry, GPUs are optimised to compute single mathematical operations in parallel, leading to an efficiency uptick of 6 times.

However, in spite of their speed, GPUs were later overshadowed by field programmable gate arrays (FPGAs). Though far more labour-intensive to develop due to their specificity on a software and hardware level, requiring the ability to run custom code, this specificity is what led to the success in the application of FGPAs for mining.

In 2013, innovation struck once…