What is Bitcoin Mining

You may ask yourself “where do Bitcoins come from ?”

Bitcoins aren’t printed out like traditional money, they are mined out of the system. A miner is just a person with a computer that runs a mining program on it. The reason it’s called mining is because:

1. Just like any other natural resource, there is a finite amount of Bitcoins. So the maximum amount of Bitcoins that can be generated is 21 million. Until today over 12 million Bitcoins were mined.
2. Just like real world mining, you need to invest energy in order to extract these Bitcoins. The miner’s computer needs to solve complex mathematical problems, and once it solves them – new Bitcoins are generated and awarded to him.

But miners don’t just generate new Bitcoins. They also use their computers to verify transactions and prevent fraud. So more miners means faster transaction verifications and less fraud. That’s why we want to compensate miners for their hard work.

When verifying a transaction the miner gets a small fee out of that transaction for his work. So Miners get paid twice – once for verifying the transactions and again when they successfully generate new Bitcoins. Sounds profitable ? Well….not so fast…

Satoshi, the guy who invented Bitcoin, wanted the number of Bitcoins that were mined each time to remain constant, no matter how many miners come aboard. That’s why the difficulty of mining increases as more miners join the network.

So if in 2009 you could mine 200 Bitcoins with your personal computer at home. In 2014 it will take you about 98 years to mine just 1…

That’s why ASIC miners were invented. Super powerful computers designed just for mining Bitcoins. But since so many miners have joined in the past few years it’s still almost impossible to mine alone. To solve this problem mining pools were invented. Groups of miners formed together to deal with the growing difficulty of Bitcoin mining. Each miner gets paid for his relative share of the work.

So that’s how Bitcoins are born, through miners…. 

Disclaimer

Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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