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Bitcoin mining is another term for validating new transactions and adding new blocks to the blockchain network.
Many people want to participate in Bitcoin mining because successfully confirmed transactions can earn a reward in BTC.
In the early years, Bitcoin could be mined using a regular computer.
As Bitcoin became more popular and its price reached record levels, many decided to participate in the mining process to earn bitcoin.
However, it's not all that simple because Bitcoin is designed so that mining becomes more difficult over time, and the rewards for mining become smaller.
Today, it is impossible to participate in the mining process with a personal computer, no matter how powerful it may be.
Specialized devices known as ASIC miners (Application Specific Integrated Circuits) have been constructed for mining.
Why do you need powerful computers for mining?
Mining can be compared to a race.
Each block of transactions we mentioned earlier contains a specific cryptographic puzzle (referred to as "a hash").
To link a new block with the previous one and make it part of the blockchain, validators must first solve the cryptographic puzzle.
Validators, or their computers (ASIC miners), compete to be the first to crack the combination of the cryptographic puzzle.
From 2009 to the present, the difficulty and the number of attempts required to solve the puzzle have gradually increased. It is estimated that currently, it takes 10 trillion attempts to find the final solution to the cryptographic puzzle.
When a computer finds the solution, the block is confirmed and stored on the existing blockchain. As a reward, the validator receives a certain number of BTC for their effort.
This BTC then enters circulation, thereby increasing the number of available bitcoins (cryptocurrency). So, in addition to confirming transactions, mining releases new bitcoins into circulation.
Currently, a user who successfully solves the cryptographic puzzle will receive a reward of 6.25 BTC per block. Every 4 years, the reward for miners is reduced by 50%. This process of reducing miners' rewards is called the Bitcoin halving process.
How to mine bitcoins?
The blockchain network must operate flawlessly and without interruption.
For this reason, the Bitcoin network has a protocol by which a new block of transactions needs to be produced every 10 minutes.
However, if there are about a million mining devices competing to solve the cryptographic puzzle first, a block could be produced in less than 10 minutes.
Varying block processing times could lead to uneven network operation.
To maintain continuity, the Bitcoin network somehow estimates the current difficulty of solving the cryptographic puzzle and adjusts it approximately every 2016 blocks or every 2 weeks.
As the number of powerful mining computer equipment increases, so does the difficulty of solving the cryptographic puzzle.
Therefore, a miner with a personal computer has virtually no chance of solving the puzzle and earning BTC.
Anyone can become a miner. The first step in this endeavor is to invest in powerful computer equipment.
Today, ASIC miner devices are most commonly used for mining. This device is created exclusively for mining cryptocurrencies.
The power of ASIC miners comes at a certain price because a large amount of electrical energy is required for its operation.
Adding that earning new bitcoins through mining is not guaranteed, mining can be considered an unprofitable venture.
Many miners have realized that going into mining alone is not profitable, which is why they have teamed up with other miners, thereby increasing the chance of finding solutions to cryptographic puzzles.
This association of miners is called a “mining pool”.
How to receive mined bitcoin?
In addition to the ASIC miner, a miner needs to have a digital wallet. If a miner successfully solves the cryptographic puzzle and adds a new block of transactions to the blockchain, the mining software will automatically send the reward to the digital wallet address.
Bitcoin Halving
Bitcoin halving is an important process within the Bitcoin system.
As mentioned, this process reduces the reward that a miner can receive for their work in confirming transactions.
Initially, the reward for a miner who solved the cryptographic puzzle was an incredible 50 BTC.
After every 4 years, or each time 210,000 new blocks are confirmed, the reward is halved.
Rewards for Bitcoin miners over the years:
- 2008: 50 BTC
- 2012: 25 BTC
- 2016: 12.5 BTC
- 2020: 6.25 BTC
- 2024: 3.125 BTC
Each time a miner solves the cryptographic operation and earns a reward, a new BTC enters circulation. However, an unlimited number of BTC cannot enter circulation.
The Bitcoin whitepaper emphasizes that there is a limited number of BTC, namely 21 million.
Bitcoin halving slows down the process of introducing a large number of BTC into circulation.
It is expected that the last of the 21 million BTC will be mined in the year 2140.
Due to the limited number of bitcoins that can exist and their slower entry into circulation, Bitcoin is considered a deflationary asset (unlike fiat currencies which are inflationary because the state and central bank can print new quantities at any given time.
The consequences of uncontrolled printing of new banknotes are seen today in the form of inflation and the loss of purchasing power of citizens).