The whole premise behind Bitcoin is to democratise the economy. But increased mining costs and processing power requirements have led to the creation of few large Bitcoin mining pools run by data centres belonging to companies which invite people to invest in these centres for a small share of rewards in bitcoin.
Mining is an important operation in the Bitcoin economy. Bitcoin mining is responsible for registering and verifying transactions on the Blockchain. Mining operation requires a lot of processing power, which makes it more energy intensive. The processing power is now supplied by special hardware known as ASICs (Application Specific Integrated Circuits). Theses ASICs are developed specially for mining Bitcoin.
Increase in the number of bitcoins and bitcoin transactions is progressively increasing mining difficulty. As the difficulty increases, the need for processing power increases which in turn translates to increased energy requirements and costs. The unit prices for electricity from conventional sources is high which makes Bitcoin mining using independent rigs at homes uneconomical, thereby effectively discouraging individual miners. However, it is good news for Bitcoin mining companies who choose to set up their data centres in places with access to alternative energy to reduce energy costs and maximise profits by taking over a large chunk of mining.
When it comes to costs, electricity from renewable sources is cheaper compared to other conventional sources. Currently, the electricity production using renewable sources is confined to harnessing wind and solar energy. While wind turbines have become more efficient in converting wind energy into electricity, the solar panels (photovoltaic cells/solar cells) still needs to improve. Even though the rate of energy conversion is not as much as we wish for it to be, solar panels can still be used to generate a decent amount of electricity for running mining rigs. Any shortfall can be offset using conventional energy.
For now, companies are setting up Bitcoin data centres in places like Iceland where electricity is produced predominantly using renewable and green energy solutions. But soon it will change, thanks to affordable wind turbines and solar panels entering the market. People will soon be able to have their own setup on their homes and generate enough power to power their mining hardware. In addition to cheaper power in foreseeable future, we can also expect more powerful and energy efficient ASICs along with smart devices that connect to Blockchain as part of the Internet of Things movement. All these things put together will soon democratize mining as it was meant to be. We can bid adieu to closed mining pools and welcome individual miners contributing bandwidth and processing power to the Bitcoin network.
READ MORE: Can Bitcoin Mining Harm the Environment?
