As more and more people learn about Bitcoin and become familiar with the network, we decided that it was about time we set the record straight about mining. Bitcoin mining is an essential practice to sustain the payment system, from confirming transactions to generating new coins. Starting with what it is and how it works, we’re covering it all in this piece on everything you need to know about Bitcoin Mining in 2021. Let’s start with the basics.
What Is Bitcoin Mining?
Forget about dark underground tunnels and drills, Bitcoin mining is something entirely different. As the currency is digital, you can expect the process to take place online too. The process of mining BTC happens when miners, computers on the network, verify transactions and add them to blocks before adding them to the blockchain. Through this process the miner will receive both the transaction fees from each transaction, as well as the block reward (more on this later).
The process sounds simple, however in order to do so the miner needs to solve a complex mathematical problem, and be the first to solve it. And with the Bitcoin network increasing, so too has the competition between miners. Some miners have grouped together to create mining pools, where miners work together to solve the problem and pool the rewards. Whether an individual company or a mining pool, miners have had to invest in specialized hardware, software, and powerful computers. The process also requires hefty electricity usage and a reliable, strong internet connection. Bitcoin mining these days is a big investment..
How Does Bitcoin Mining Work?
As part of everything you need to know about Bitcoin Mining in 2021, we’ve broken down the process into the 3 core functions mining is responsible for:
#1 Creating new BTC
While governments control the printing of money, Bitcoin relies on its decentralized network of miners to create new BTC. The network is designed to “mint” a certain number of BTC for every new block added to the blockchain. Every 210,000 blocks (roughly 4 years) the reward per block halves, you can find more on this below.
#2 Confirming transactions
Miners are responsible for verifying all transactions made on the platform. Each miner will compete to solve the complex problem, and the winning miner will add the confirmed transactions to a block, add it to the blockchain, and broadcast the new block to the rest of the nodes on the network. By nature, Bitcoin is designed that all transactions are irreversible, so once it has been broadcast to the network the transaction is final.
#3 Maintaining the Bitcoin network
Miners and nodes are responsible for securing and maintaining the network through their mining and broadcasting activities. If a miner tries to submit incorrect information the network will immediately pick this up and reject it, the same way that hackers cannot access the network due to the sheer number of nodes. If a hacker wanted to reverse a transaction, for example, they would have to reverse every transaction in the block, and any blocks added after them. This would use up a large amount of energy and money, and is near impossible.
What Are The Mining Rewards?
Briefly mentioned earlier, miners are rewarded with both the transaction fees paid by users to make a transaction, as well as the block rewards for adding a new block to the blockchain. Network fees are determined at the time of the transaction and are shared with the user before they confirm the transaction. These fees are based on how busy the network is, and fluctuate to reflect that.
The block rewards on the other hand are determined by a mechanism known as halving. In Satoshi Nakamoto’s original design of Bitcoin, every 210,000 blocks (roughly every 4 years) the mining reward per block halves. This is to keep the payment network deflationary. When Bitcoin launched the reward was 50 BTC, which gradually over the years has halved. Currently, following the third halving in May 2020, the mining reward per block is 6.25 BTC.
As Bitcoin has a limited supply of 21 million and there are currently 18,600,000 in circulation, it is estimated with the continuing halvings that the last Bitcoin will be mined in 2140.
Everything You Need to Know About Bitcoin Mining In 2021
That about covers everything. While mining Bitcoin isn’t something recommended for an individual at home, there are plenty of other cryptocurrencies you can mine should you be interested. You can learn more about anything and everything Bitcoin related from our insightful blogs, or better yet get access to buying the cryptocurrency through our credit and debit card facilities. Easy to navigate and simple to execute, buying Bitcoin should be available to everyone (no matter how tech savvy you may or may not be).