What is Bitcoin Mining?

Bitcoin mining has nothing to do with digging in the earth. In fact, this is a Bitcoin miner:

It's Just a Computer

You’re right, it’s basically a computer. Well, it’s actually a very specialized machine that can do a specific job much better than a regular computer. While anyone can purchase one of these computers and begin ‘mining’, there are also companies that have thousands of them all hooked up to increase their computing power on the Bitcoin network.

What Miners Do

What is it that these miners do? They are actually trying to solve a mathematical (or, cryptographic) puzzle by guessing and checking over and over again. What makes it really hard is that miners all over the world are trying to figure out the puzzle at the same time. So, it’s a mathematical race to find the right answer.

Proof-of-Work

The winning miner gets to add a new block of transactions to the blockchain. This process of solving the mathematical puzzle is called ‘Proof-of-Work’.  In other words, the miner is demonstrating that it has put in a certain amount of work to get the answer. This is just like solving math problems in primary school, when the teacher needed you to show how you solved the problem so she would know the answer was truly yours. On the Bitcoin network the ‘teacher’ is the rest of the network that verifies the proof-of-work done by the miner.  Having thousands and thousands of these computers around the world making sure that the transaction is correct is one way that keeps the Bitcoin network very secure.  

The Reward

Of course, the miner that solves the problem first, gets more than a verification for their trouble. They also get a reward in the form of a predetermined amount of Bitcoin. This reward is halved approximately every four years in an event known as the halving.  You can read our post entitled, ‘What is the Halving?’ to find out more about that. 

Mining and the Environment

The number of computers on the Bitcoin network is growing everyday, but these computers, or mining rigs, use a large amount of electricity. This has caused a lot of people to think that Bitcoin mining is bad for the environment. Yet, this has become a very complex issue. Miners are now using renewable energy sources and the technology is evolving quickly to a point where some miners use strategies to actually help the environment. Look out for more information about Bitcoin mining and the environment in an upcoming post.