What Is Bitcoin Mining?
Mining is the process that cryptocurrencies, including Bitcoin, use to validate transactions and generate new coins. These are not physical coins because mining is a process that takes place on networks of specialized computers.
The way to think about this is to imagine computer networks around the world that are vast and decentralized. These networks validate and secure blockchains. A blockchain is a public ledger that records cryptocurrency transactions. The miners on the network provide the processing power to add new blocks of transactions to the public ledger and maintain the blockchain and for doing that the miners on the network are rewarded with new coins.
There is another role that mining plays as well as releasing new coins into circulation - that of security. The blockchain needs to be validated and secured which is what mining also does. Mining creates a sizable economic cost for an attacker to change the public ledger to their advantage. If the blockchain is secure it enables cryptocurrencies, including Bitcoin, to function as a peer-to-peer decentralized network with no oversight from a third party.
A Breakdown of Mining
- Powerful computers are used to validate and record every new Bitcoin transaction - they do this by performing calculations.
- You may also read about ASICs - these are application-specific integrated circuit computerized devices designed for the sole purpose of mining a cryptocurrency.
- Devices on the decentralized network try to be the first to guess a nonce that can be used to generate a ‘hash’ with special properties (a certain number of leading zeros).
- It’s sometimes described as a race of sorts as there is a virtual winner - but it’s important to note that with low latency and a ten minute block time even ‘slower’ miners have a chance at winning over much ‘faster’ miners.
- All the newly validated transactions are added by the winner to the blockchain - this adds a new ‘block’ to the ledger.
- This block contains all of those transactions and simultaneously is granted a predetermined amount of newly minted Bitcoin.
- This happens on average every ten minutes.
- In 2022 the reward for these calculations was 6.25 Bitcoin.
- It’s expected that all the Bitcoin will be mined by 2140.
- In the original Satoshi paper it was outlined that there could be a limit to the number of Bitcoin - generally speaking that number is said to be 21 million Bitcoin.