What is mining?

Definition

Mining is the process by which a dedicated computer network generates and publishes new bitcoins and verifies new transactions.

Mining is the process used by Bitcoin and several other cryptocurrencies to generate new currencies and verify new transactions. It involves a vast decentralized computer network around the world that is used to verify and protect blockchain, a virtual ledger that records cryptocurrency transactions. In return for contributing their processing power, computers on the network will receive new monetary rewards. This is a virtuous cycle: miners maintain and protect the blockchain, the blockchain grants money, and the currency provides the power for miners to maintain the blockchain.

How does mining work?

There are three main ways to obtain Bitcoin and other cryptocurrencies. You can buy on a trading platform like Coinbase, receive it as payment for goods or services, or virtually \"mine\" it. We introduce the third category here, taking Bitcoin as an example.

You may have considered trying Bitcoin mining yourself. When Bitcoin was born, anyone with a highly configured home computer could participate. But as blockchain develops, so does the computing power required to maintain it. (The increase is significant: Due to the exponential increase in mining difficulty over the past 15 years as more miners have joined the network, the computing power required to mine a Bitcoin in 2024 is about 6 times higher than when mining the first Bitcoin blocks in 2009.)

As a result, for many years, amateur Bitcoin mining has often been very profitable for enthusiasts. Currently, almost all mining work is done by professional companies or groups that integrate resources. But it is very useful to understand how it works.

Dedicated computers perform the calculations needed to verify and record each new Bitcoin transaction and ensure blockchain security. Verifying blockchain requires a lot of computing power, which miners volunteer.

Bitcoin mining is like running a big data center. Companies buy mining hardware and pay for the electricity needed to keep it running (and cooling). To be profitable, the value of the money earned must be greater than the cost of mining it.

What are the miners \'motivations? The network has a reward nature. Every computer on the network wants to be the first to guess the 64-bit hexadecimal number called a \"hash.\" The faster the computer guesses, the more likely it is that the miners will be rewarded.

The winner will update the blockchain ledger to include all newly verified transactions, adding a newly verified \"block\" to the chain that contains all these transactions and receiving a predetermined amount of newly minted bitcoins. (This process occurs on average every ten minutes.) As of April 2024, the reward is 3.125 BTC per block. As the difficulty of mining increases with each new halving, the reward will continue to decrease until there are no more bitcoins available to mine.

There will always be only 21 million bitcoins. In theory, the last Bitcoin should be discovered in 2140. From then on, miners will no longer rely on newly issued bitcoins as rewards, but instead on fees charged for transactions.

Why is mining important?

In addition to issuing new currencies into circulation, mining is at the core of the security of Bitcoin (and many other cryptocurrencies). It verifies and protects blockchain, allowing cryptocurrencies to act as a peer-to-peer decentralized network without the need for any third party supervision. This inspired miners to contribute their computing power to the network.