What is bitcoin mining?

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Mining is the process of minting new bitcoins by playing a game with the blockchain.

The game is a puzzle which must be resolved using special computer hardware called ASIC. In a nutshell, bitcoins are given to the miners as a reward for their huge financial investments. Indeed, they must spend millions, go into debts to be able to play the game of solving puzzles.

Miners spend so much money in ASIC computers and burning electricity for two reasons:

1. That makes them trustworthy (Indeed, would you hack the system which is giving you bitcoins to pay your debts to the bank?).

2. They can confirm transactions on the bitcoin network.

Miners are now multimillion businesses which use very sophisticated hardware. They must survive in a very competitive environment where a single management mistake can bankrupt them. Their main objective is to secure the network and fight against the double-spending problem (More about this in coming chapters but for the time being, let’s say that online digital data can be easily duplicated so, regarding bitcoin, there is a risk that a sender/hacker can duplicate or triplicate the bitcoin she is sending.) In other words, bitcoin mining keeps the hackers away by maintaining the ledger of transaction upon which bitcoin is based free from bad actors.

Bitcoin miners put valid transactions into a block and say to the system they want to resolve a puzzle. If they resolve it, the block of assembled transactions is sealed and verified by other miners. Then the winner receives a block reward.

The block reward is halved every 210,000 blocks (every 48 or 50 months). In 2009, when bitcoin was launched, the reward was 50 bitcoins per block mined. After the first halving in 2013, it was 25. Then it became 12.5 btc. In 2022 and until 2024, the reward will be 6.25 and so on. The last block reward will happen in 2140.

Miners also receive an additional reward: fees from any transaction verified and locked in a block. Each time you send a bitcoin or a piece of it, you must pay a fee which is then transferred to the miners. After 2140, miners’ rewards will only be fees.