Even though the history of bitcoin mining is short, there have been some big moments. There have even been some industry-rattling moments that tested the virtual currency, but what many don’t realize is a lot of those moments are intricately tied to mining.
Here are 6 big moments in Bitcoin and their implications on how we view bitcoin as a currency and a technology today.
Bitcoin had to start somewhere. Its transition from a simple whitepaper into something real was when creator Satoshi Nakamoto produced what is known as the genesis block. The genesis block was the first bitcoin block of transactions, generated by mining with a plain old PC CPU.
Six days later, Satoshi announced the release of bitcoin version 0.1 on a cryptography mailing list.
The genesis block was the inception point of bitcoin. It was a validation that bitcoin mining would become a new way to literally mint digital money in a distributed and safer way than ever before possible.
It’s easy to forget that people used to be able to fire up the Bitcoin-QT client and mine bitcoin. Or that GPUs were once the most sought after hardware for mining.
Typically important for PC gamers alone, it was soon discovered that graphics cards were more powerful and specialized than regular CPUs when it came to Bitcoin mining. That discovery was credited to bitcointalk user Artforz, who was incentivized to find a more efficient way to obtain block rewards.
Eventually the bitcoin community released open source GPU mining software for everyone to use. It marked another era in mining, although it was fairly short-lived as the aggressive pace of mining hardware innovation continued to plod onward.
Engineers and cryptographers around the world have lauded bitcoin as a remarkably secure system. It’s a fascinating feat, given that it is in the nature of technical systems for flaws to exist.
In the early years of Bitcoin there was a fairly serious bug officially found on August 6, 2010. It allowed for the bypass of bitcoin’s blockchain — which had the potential to wreak total havoc on the principles of the cryptocurrency.
Additionally problematic in this discovery was that the flaw wasn’t immediately addressed by the community — until it was exploited less than a week later.
The vulnerability served as a test of sorts. It showed that bitcoin’s value provided a call to action when problems arose, which has helped to protect the network (and mining) along the way.
At some point, the community of miners grew large enough that some enterprising people realized that combining forces and sharing rewards would increase efficiency even more.
Slush’s Pool was one of these early mining collaborations that led to a rush towards pooling resources. Today, almost all bitcoin miners use pools in order to maximize their rewards.
The future of pooled mining may involve more decentralized characteristics going forward to combat the nagging issue of centralization. This is especially true given that pools such as Ghash.io and BTCguild have gotten dangerously close to having more than half the share of network mining power.
History has shown that individual miners still have the power to switch to another pool if a dominating pool abuses their power.
Nevertheless, pools are here to stay in some form or another as miners continue to search for the ultimate winning edge.
To learn more about pooled mining check out: Bitcoin Mining: It Doesn’t Work the Way You Think it Does
There is a controlled supply of bitcoin — only 21 million will ever be created. As more bitcoin is mined, less bitcoins are available to be unlocked within the system. In order for the system to readjust, bitcoin’s creators instituted something called “halving”, where the reward for bitcoin is decreased by 50%.
While it was once possible to obtain a reward of 50BTC per block for mining, today, that number has decreased to 25BTC. Current projections estimate that the next halving to a 12.5BTC reward will happen in July of 2016.
Every time that a halving event occurs, it is hotly debated in the bitcoin community as to what will happen. This was the case in 2012, when the reward went down to 25BTC.
While many initially feared that the occurrence of halving in mining would cause chaos or other disruptions to the network, that hasn’t been the case. Core Developer Gregory Maxwell sees the halving simply as part of the economics of bitcoin — he believes it is a well-designed limiter of bitcoin supply over time, and that miners will simply adjust.
“There is — to some extent — a natural order to [mining]. It’s worked so far. The more people mine, [the more] difficulty goes up and it gets harder to mine. It exactly balances the block rate constant.” — he noted.
In early 2013, the current generation of bitcoin mining hardware began. That’s when chip designer Avalon released its first set of Application Specific Integrated Circuits (ASIC). The best way to explain what a bitcoin ASIC means is to simply say it is a fancy computer chip built specifically to do one thing only: mine bitcoin.
While Avalon was courting serious bitcoin enthusiasts with its ASICs, there was a short period of time when there were a number of mining manufacturers in the bitcoin space that targeted the more average consumer.
This brought problems for many of these companies as many people struggled to understand how to use bitcoin miners, much less understand how the process worked.
A majority of of these companies, as a result of courting consumers and taking pre-orders to build their hardware, have changed business models or worse suffered bankruptcies and other financial difficulties.
Though mining is in its infancy stages, these are clearly some defining moments for the industry as a whole. There are still a lot of unknowns about what the future of bitcoin looks like, what type of products and services will be built on the blockchain, or what financial institution will be the first to fully embrace the technology. But one thing is clear, at this pace we should have the answer to those questions and more in no time at all.
What are some other moments in Bitcoin, have we missed some? Let us on know on Twitter, @hashrabbitco.