Bitcoin Mining Basics and What Mining Means to Bitcoin
In short, bitcoin mining adds transactions to the blockchain. Let's walk through exactly what bitcoin mining is, starting with why mining exists.
Bitcoin Mining Uses a Process Called Proof of Work
The bitcoin blockchain is a public ledger that records all bitcoin transactions. Using a system called proof of work, miners put forth effort to process bitcoin transactions. Bitcoin miners use powerful computers, along with time and energy, to solve complex mathematical problems. Doing so proves that the bitcoin miners did the work they say they did. In turn, transactions are recorded on the blockchain and bitcoins are rewarded to miners for their effort.
Powerful computers and software are needed for bitcoin mining. These complex mathematical problems also get harder and harder. Faster computers and better hardware fare better when it comes to bitcoin mining.
When bitcoin first started, an individual could mine lots and lots of bitcoin right on their home computer. Now, large mining pools in the forms of companies and other collectives join together to increase their chances of success. Bitcoin mining is a tough space to be in but the juice is worth the squeeze. On top of just creating and supporting the blockchain, miners receive bitcoins for their hard work.
Bitcoin Miners Are Rewarded for Their Efforts
There are several ways to acquire bitcoins. You can purchase them on an exchange, earn them by receiving bitcoin as payment, be gifted them from others, and so on. Or, you can be a bitcoin miner. When miners validate transactions and add them to the blockchain, they receive bitcoins as a reward.
Here's a quick breakdown of what bitcoin mining is from Investopedia: Bitcoin miners solve mathematical problems and confirm the legitimacy of a transaction. They then add the transactions to the end of a block and create chains of these blocks of transactions, forming the blockchain. When a block is filled up with transactions, the miners that processed and confirmed the transactions within the block are rewarded with Bitcoin. Transactions of greater monetary value require more confirmations to ensure security. This process is called mining because the work done to get new Bitcoin out of the code is the digital equivalent to the physical work done to pull gold out of the earth.
Bitcoin Mining Won't Last Forever
The creator of bitcoin, Satoshi Nakamoto, put a limit on the amount of the cryptocurrency that will exist. There can only ever be 21 million bitcoins. Miners are key to bringing bitcoins into existence but their purpose will eventually be rendered obsolete. In the meantime, they receive their bitcoin rewards roughly every 10 minutes. Every four years, the reward for their mining is also cut in half. This is called the "halving." Bitcoin mining will eventually end but there's a lot of time before that happens and before all possible bitcoins are in circulation.
Is Bitcoin Mining for You?
Bitcoin mining is only for you if you have access to cheap electricity, many powerful computers, a cool environment for those computers, and a lot of spare time and money to dedicate to the necessary upkeep. In other words, it's not for the faint of heart. There are massive mining pools working together and even professional companies working hard at it. The mining space is only getting more competitive.
Keep reading about bitcoin and find out if the cryptocurrency is becoming a new and innovative form of digital gold.