What is Bitcoin mining?

You can't have Bitcoin without mining. Confused? Here's how it all works

NurPhoto/Getty Images

Bitcoin mining is far removed from the average Bitcoin owner these days, but that doesn’t change how important it is. It’s the process that helps the cryptocurrency function as intended and what continues to introduce new Bitcoins to digital wallets all over the world.

Collecting cryptocurrency can be boiled down to a simple premise: “Miners,” as they are known, purchase powerful computing chips designed for the process and use them to run specifically crafted software day and night. That software forces the system to complete complicated calculations — imagine them digging through layers of digital rock. If all goes to plan, the miners are rewarded with some Bitcoin at the end of their toils.

Why do we need mining?

Bitcoin works differently from traditional currencies. Where dollars and pounds are handled by banks and financial institutions which collectively confirm when transactions occur, Bitcoin operates on the basis of a public ledger system. In order for transactions to be confirmed — to avoid the same Bitcoin from being spent twice, for example — a number of Bitcoin nodes, operated by miners around the world, need to give it their seal of approval.

For that, they are rewarded the transaction fees paid by those conducting them and while there are still new Bitcoins to be made — there are currently more than 16.8 million of a maximum 21 million — a separate reward too, in order to incentivize the practice. In taking part in mining, miners create new Bitcoins to add to the general circulation, whilst facilitating the very transactions that make Bitcoin a functional cryptocurrency.

Mining is a risky process though. It not only takes heavy lifting from the mining chips themselves, but boatloads of electricity, powerful cooling, and a strong network connection. The reward at the end isn’t even guaranteed either, so it should never be entered into lightly.

How it works

The reason it’s called mining isn’t that it involves a physical act of digging. Bitcoin are entirely digital tokens that don’t require explosive excavation or panning streams, but they do have their own form of prospecting and recovery, which is where the “mining” nomenclature comes from.

Prospective miners download and run bespoke mining software — of which there are several popular options — and often join a pool of other miners doing the same thing. Together or alone though, the software compiles recent Bitcoin transactions into blocks and proves their validity by calculating a “proof of work,” that covers all of the data in those blocks. That involves the mining hardware taking a huge number of guesses at a particular integer over and over until they find the correct one.

It’s a computationally intense process that is further hampered by deliberate increases in difficulty as more and more miners attempt to create the next block in the chain. That’s why people join pools and why only the most powerful of application specific integrated circuit (ASIC) mining hardware is effective at mining Bitcoins today.

The individual miner or pool who are the first to create the proof of work for a block are rewarded with transaction fees for those confirmed transactions and a subsidy of Bitcoin. That subsidy is made up of brand new Bitcoin which are generated through the process of mining. That will continue to happen until all 21 million have been mined.

There is no guarantee that any one miner or mining pool will generate the correct integer needed to confirm a block and thereby earn the reward. That’s precisely why miners join pools. Although their reward is far smaller should they mine the next block since it’s shared among all members of the pool, the chances of earning such a reward are far greater as a collective and a return on any investment much more likely.

The future of mining

A BitMain AntMiner S9 ASIC miner BitMain

Bitcoin was originally designed to allow anyone to take part in the mining process with a home computer and thereby enjoy the process of mining themselves, receiving a reward on occasion for their service. ASIC miners have made that impossible for anyone unable to invest thousands of dollars and utilize cheap and plentiful electricity. That’s why cloud mining has become so popular.

Although hardware has pushed many miners out of the practice though, there are safeguards in place that prevent all remaining Bitcoins being mined in a short period of time.

The first of those is a (likely) ever-increasing difficulty in the mining calculations that must be made. Every 2,016 blocks — at a rate of six blocks an hour, roughly every two weeks — the mining difficulty is recalculated. Mostly it increases as more miners and mining hardware join the network, but if the overall mining power were to reduce, then the difficulty would decrease to maintain a roughly 10-minute block-generation time.

The purpose of that relatively hard 10-minute time is because that way the number of Bitcoins being generated by the process will be slow and steady and mostly controlled. That is compounded by the reduction in reward for blocks mined every 210,000 blocks. Each time that threshold is reached, the reward is halved. In late 2018 mining a block rewards 12.5 Bitcoins, which is worth around $80,000.

In the future as mining rewards decrease, the transaction rewarded to miners will make up a larger percentage of miner income. At the rate with which Bitcoin mining difficulty is increasing, mining hardware development is progressing, and rewards are decreasing, projections for the final Bitcoins being mined edge into the 22nd century.

Emerging Tech

DARPA’s next robotics competition is an obstacle course in an abandoned mine

Kicking off this week, the DARPA Subterranean Challenge will put 11 robotics teams through their paces in a simulated disaster scenario in a defunct mine system in Pittsburgh, Pennsylvania.
Gaming

The best indie games on Nintendo Switch

The Nintendo Switch's portability makes indies feel at home on the platform. Luckily, there are plenty of great titles to choose from. Here are our picks for the best Nintendo Switch indie games.
Gaming

The best Nintendo Switch games

The Nintendo Switch's lineup started off small, but games have steadily released as the console continues through its second year. Here are the best Nintendo Switch games available now.
Home Theater

Enjoy your favorite content in style with the best 4K TVs of 2019

If it's time to upgrade your old 1080p to a new 4K model but you don't know what to look for, fear not, as we're here with a list of the best 4K Ultra HD TVs to help make your buying process as easy as possible.
Computing

The best Chromebook deals available in August 2019

Whether you want a compact laptop to enjoy some entertainment on the go, or you need a no-nonsense machine for school or work, we've smoked out the best cheap Chromebook deals -- from full-sized laptops to 2-in-1 convertibles -- that won't…
Deals

The 2018 Apple iPad Pro Wi-Fi tablet gets a huge $124 discount on Amazon

If you have been holding off on buying the Apple iPad Pro because of its price, now is the time. The best tablet for 2019 gets a $124 discount on Amazon today. This deal is more affordable than the one we previously found.
Computing

AMD Ryzen and Nvidia GTX join forces in HP Pavilion laptops and desktops

The HP Pavilion range has two new entries that are perfect for anyone looking for their first dedicated gaming system but don't have a fortune to spend. You even get AMD and Nvidia hardware in the same system.
Computing

Stuck in ELO hell? HP’s A.I. coach wants to help Omen owners become better gamers

HP has an exciting new update for its Omen Command Center software: A.I. coaching driven by machine learning. It uses the power of A.I. and analytics to figure out where you can best improve in your favorite game.
Computing

Visually stunning HP Omen X 27 HDR TN display closes color gap with IPS monitors

The HP Omen X 27 could prove to be the sweet spot for gamers everywhere. At a 1440p resolution, it's blazingly fast, with a 240Hz refresh rate and a 1ms response time. Better yet, its HDR support really helps colors pop.
Computing

Windows Core OS: Everything you need to know

Known as Windows Core OS, a new version of Windows will be a single universal operating system for all kinds of devices. It's expected to look very different, and here's what we know.
Computing

From Air to Pro, here are the best MacBook deals for August 2019

If you’re in the market for a new Apple laptop, let us make your work a little easier: We hunted down the best up-to-date MacBook deals available online right now from various retailers.
Computing

The best web browsers for 2019

Choosing a web browser for surfing the web can be tough with all the great options available. Here we pit the latest versions of Chrome, Opera, Firefox, Edge, and Vivaldi against one another to find the best browsers for most users.
Computing

Microsoft’s new Chromium Edge browser has entered beta. Here’s how to get it

Microsoft's Chromium-based Edge browser has been downloaded over 1 million times. In this guide, we'll explain how you can download and install the browser on your PC or Mac in just a few quick and simple steps.
Computing

Dell Latitude 7400 2-in-1 vs. ThinkPad X1 Yoga

The Dell Latitude 7400 2-in-1 and the Lenovo ThinkPad X1 Yoga Gen 4 are both well-built and equipped business 2-in-1s. Which is better comes down to their displays and battery life advantages.