Bitcoin mining is performed by high-powered computers that solve complex
computational math problems; these problems are so complex that they cannot
be solved by hand and are complicated enough to tax even incredibly powerful
Bitcoin mining is the process of creating new bitcoin by solving a
Bitcoin mining is necessary to maintain the ledger of transactions upon
which bitcoin is based.
Miners have become very sophisticated over the last several years using
complex machinery to speed up mining operations.
The result of bitcoin mining is twofold. First, when computers solve these complex
math problems on the bitcoin network, they produce new bitcoin (not unlike
when a mining operation extracts gold from the ground). And second, by solving
computational math problems, bitcoin miners make the bitcoin payment network
trustworthy and secure by verifying its transaction information.
When someone sends bitcoin anywhere, it's called a transaction. Transactions
made in-store or online are documented by banks, point-of-sale systems, and
physical receipts. Bitcoin miners achieve the same thing by clumping transactions
together in “blocks” and adding them to a public record called the “blockchain.”
Nodes then maintain records of those blocks so that they can be verified into the
When bitcoin miners add a new block of transactions to the blockchain, part of
their job is to make sure that those transactions are accurate. In particular, bitcoin
miners make sure that bitcoin is not being duplicated, a unique quirk of digital
currencies called “double-spending.” With printed currencies, counterfeiting is
always an issue. But generally, once you spend $20 at the store, that bill is in the
clerk’s hands. With digital currency, however, it's a different story.
Digital information can be reproduced relatively easily, so with Bitcoin and other
digital currencies, there is a risk that a spender can make a copy of their bitcoin
and send it to another party while still holding onto the original.
Rewarding Bitcoin Miners:
With as many as 300,000 purchases and sales occurring in a single day, verifying
each of those transactions can be a lot of work for miners. As compensation for
their efforts, miners are awarded bitcoin whenever they add a new block of
transactions to the blockchain.
The amount of new bitcoin released with each mined block is called the "block
reward." The block reward is halved every 210,000 blocks (or roughly every 4
years). In 2009, it was 50. In 2013, it was 25, in 2018 it was 12.5, and in May of
2020, it was halved to 6.25.
This system will continue until around 2140. At that point, miners will be
rewarded with fees for processing transactions that network users will pay. These
fees ensure that miners still have the incentive to mine and keep the network
going. The idea is that competition for these fees will cause them to remain low
after halvings are finished.
These halvings reduce the rate at which new coins are created and, thus, lower
the available supply. This can cause some implications for investors, as other
assets with low supply—like gold—can have high demand and push prices higher.
At this rate of halving, the total number of bitcoins in circulation will reach a limit
of 21 million, making the currency entirely finite and potentially more valuable