Evolution of mining: the path of the modern goldrush

Mining is a term familiar with pretty much any cryptocurrency enthusiast. Even for newcomers, as soon as they step into this world, the term “mining” is something they’ll encounter. This sort of mining doesn’t require any pickaxes or strong arms. But it does demand delving deep into a virtual “hole”, which can be time consuming…

The origins of mining

Back when Bitcoin launched, in 2009, the process of performing computations that could result in a block reward was called “mining”. Similar to its real-world counterpart, this digital gold rush was mostly a matter of luck. Think of mining cryptocurrency as akin to participating in a lottery. In the case of Bitcoin in particular, the network issues tickets for this “lottery” every 10 minutes. The faster your machine, the more “tickets” you can search. This increases your chances of finding the elusive “winning ticket”, in the same amount of time. This “winning ticket” essentially translates to finding the answer to a complicated mathematical puzzle that will give you the block reward.

With varying block times, and a multitude of different algorithms, all cryptocurrencies based on Proof of Work function more or less in a similar way. Things started out very quietly. A few individuals mined off of their CPU power. Eventually, clients enabling GPU usage for mining were released, dramatically increasing computational power in the Bitcoin network. With more people participating in mining, and more hashrate being added into the network, finding the “winning ticket” became increasingly challenging. ASIC’s came along, exponentially increasing this difficulty. These machines have hardware specifically tailored for mining, and mining only, offering exponentially more power than CPUs and significantly outstripping GPUs

The very same thing happened with the Scrypt algorithm shortly after, made popular by Litecoin, and all other algorithms thereafter.

Mining in modern times

Mining has undergone a transformation in recent years, marked by the emergence of new methods.

Liquidity mining has gained traction with the rise of DeFi services such as Bancor and Uniswap. Contributing to liquidity pools is now regarded as a form of mining, even though it doesn’t involve token generation, but rather entails receiving a share of the activity within the pool’s contract.

With some apps, you can mine coins by walking, or practising sports. Examples such as Stepn, Sweatcoin or DEFIT stand out. Others incentivize participation, such as the recent hype with Notcoin, which rewards you for simply tapping, or mining HOT through the Near Wallet. While in some cases, users receive coins from a community or airdrop allocation, the term “mining” has been broadly applied. This has further democratised mining, making it accessible to everyone without having to pay for specialised and expensive hardware.

Where are we heading to?

The evolution of mining underscores a desire for affordable, environmentally friendly, and inclusive methods of coin generation. With this in mind, we anticipate a shift towards Proof of Stake protocols. Ethereum’s recent transition to this model, which relies on online nodes and token staking rather than costly hardware, exemplifies this trend. We envision this becoming the norm for major chains, with smaller initiatives such as liquidity mining and participation rewards in given protocols continuing to exist alongside it. Mining is poised to become a universally accessible and sustainable activity, propelling cryptocurrency into the next phase of development.