As a Bitcoin investor or trader, you must have come across the term “bitcoin mining” quite a few times and must be wondering what it means and the process involved in mining Bitcoin.
What is bitcoin mining?
Bitcoin mining is the process of creating/generating bitcoins by solving mathematical problems by miners using bitcoin mining hardwares and softwares.
A group of people known as miners competes to solve mathematically complex problems and receive rewards in the form of Bitcoins when successful. The miners keep the network decentralized by using their hardware and electricity to participate in the system.
What is the process involved in mining
The mining process starts with the blockchain. A blockchain is a decentralized ledger that records all the transactions carried out in a network. When transactions are approved they form a block which are then linked together to form a blockchain.
The miners are responsible for adding more blocks to the blockchain by solving mathematical problems. Many miners compete in solving these problems but it’s only the first miner to solve the problem successfully and adding a block to the blockchain is rewarded with 6.25 bitcoins (as of November 2020).
Before miners can actually earn the bitcoin from verifying transactions, they must first verify transactions worth one megabyte, and then solve a complex computational math problem called ‘proof of work’ before they can add a block of transaction to the blockchain. They try to come up with a hash (a 64 digit hexadecimal number) that is lesser or equal to the target hash.
The reward rate for successfully solving and adding a block is cut in half after every 210,000 blocks, which is around every four years. The block reward was 50BTC in 2009, in 2013 it was halved to 25BTC, in 2018 it was 12.5BTC and in May of 2020 it was halved to 6.25BTC This is to prevent inflation and to ensure an unchangeable rate of introducing new bitcoins into the existing supply.
Due to the high level of competition among miners and the fact that mining of bitcoin has become harder and has an increased level of difficulty, miners now come together to form a pool and work on solving puzzles together and then share a block reward amongst themselves.
In 2025, 95% of all Bitcoins will be mined and the rest will be in the market by 2140. From then on miners will only receive transaction fees as rewards but it will be large enough to keep the network moving.
Who is allowed to mine bitcoin?
Bitcoin is an open-source software therefore anybody can join the bitcoin network and start mining as long as you are equipped with the required mining hardware and sufficient electricity.