The Bitcoin mining industry has undergone massive changes over the years. In the early days of cryptocurrencies, Bitcoin mining was an easy process. Anyone would mine it from their computers. However, with time the mining has become more lucrative with several bigger players joining. It is now only possible to mine with special ASIC miners. That is where the mining problem starts, hence some calling for its abandonment.
What is the crypto mining issue?
To understand the crypto mining issue, you need to know what mining involves. Cryptocurrencies like Bitcoin use a Proof-of-Work (PoW) consensus mechanism to add new blocks to the network. It involves various computers in the network competing to solve various mathematical puzzles. These computers operate as nodes, with the first node to complete the puzzle getting rewarded in BTC. Other nodes in the system must all verify the solution before a new block can be added to the network.
Mining is also ideal in validating Bitcoin transactions. Without a single authority, the network is susceptible to issues like double-spending. The miners ensure all transactions meet network requirements.
As Bitcoin becomes more popular and the value increases, Bitcoin mining also becomes more lucrative, hence more nodes join the network. Mining works such that its difficulty adjusts by the number of nodes competing for block rewards in the network. The more nodes, the more difficult it becomes to mine. Therefore, the only computers with the prospects of successfully adding new blocks are the most powerful.
This led to the emergence of powerful ASIC machines for mining. These machines are costly to purchase and run. This has meant only wealthy companies and individuals can afford to run these mining rigs. With limited access, mining suddenly became somewhat centralised; something blockchain was seeking to end by introducing the cryptocurrencies.
The other issue with crypto mining is the effects on the environment. With crypto mining utilising more power than some countries do in a year, mining could be having a devastating impact on the environment. This has led to the China crypto crackdown and some companies like Tesla to stop accepting Bitcoin as a payment option.
Therefore a solution is necessary if Bitcoin is to thrive in the long term.
Why is moving to an alternative consensus mechanism not the solution?
Apart from PoW, the other popular consensus mechanism is Proof-of-Stake (PoS). Unlike PoW where computers compete to mine, PoS requires token holders to stake their coins to mine. It is less energy-intensive.
With this realisation, some cryptocurrencies like Ethereum have since upgraded from the PoW to PoS. However, it also comes with challenges. It is not nearly as battle-tested as PoW and can have instances of centralisation, especially if the token supply is primarily held by a small number of wallets.
What is the best solution?
The China crypto ban has led to a reshaping of the mining landscape. However, the network cannot rely on such calamities for realignment. The best way out is to look for solutions from within the network. The environmental concerns are already being solved by using energy from renewable sources.
Yet, this still won’t stop centralisation. The network might have to agree to introduce new ways to balance the hash rate such that any machine can participate in mining or potentially add asic-resistant code.
