Bitcoin Mining
Bitcoin mining is the process by which new Bitcoin transactions are verified and added to the blockchain. Miners compete to solve cryptographic puzzles using computational power, and the first miner to solve the puzzle gets to add the next block to the blockchain and receive a reward.
Why "Mining"?
The term "mining" is borrowed from gold mining. Just as gold miners expend resources (labor, equipment, energy) to extract gold from the earth, Bitcoin miners expend computational resources (hardware, electricity) to "extract" new bitcoin from the protocol.
The analogy runs deeper:
| Gold Mining | Bitcoin Mining |
|---|---|
| Requires work to extract value | Requires computational work (proof-of-work) |
| Gold supply is finite | Bitcoin supply is capped at 21 million |
| Gets harder to mine over time (deeper deposits) | Gets harder over time (difficulty adjustment) |
| New gold enters circulation through mining | New bitcoin enters circulation through mining |
| Anyone can mine (permissionless) | Anyone can mine (permissionless) |
This parallel was intentional. Satoshi Nakamoto designed Bitcoin to be "digital gold": a scarce, hard money that requires real-world cost to produce, preventing arbitrary inflation.
What Mining Does
Mining serves two critical functions:
- Transaction Processing: Validating and confirming transactions
- Currency Issuance: Creating new bitcoin according to the predetermined supply schedule
How Mining Works
Block Creation Process
- Transaction Collection: Miners collect pending transactions from the mempool
- Block Construction: Miners assemble transactions into a candidate block
- Proof-of-Work: Miners repeatedly hash the block header with different nonce values
- Difficulty Target: The hash must be below a certain target (determined by network difficulty)
- Block Discovery: When a miner finds a valid hash, they broadcast the block to the network
- Block Validation: Other nodes verify the block and add it to their blockchain
- Reward: The successful miner receives the block reward plus transaction fees
The Mining Algorithm
The core of Bitcoin mining is finding a nonce that, when combined with the block header data and hashed twice with SHA-256, produces a value below the current difficulty target.
Mining Hardware
- ASIC Miners: Application-Specific Integrated Circuits designed specifically for Bitcoin mining (most efficient)
- GPU Mining: Graphics Processing Units (less efficient than ASICs, rarely profitable)
- CPU Mining: Central Processing Units (least efficient, primarily educational)
See Hardware Evolution for the complete history of mining hardware development.
Mining Pools
Most miners join mining pools to:
- Reduce Variance: Share rewards with other miners
- Consistent Payouts: Receive smaller but regular payments
- Lower Barrier: Don't need to find a full block individually
- Combine Hash Power: Pool hash rate increases chances of finding blocks
See Mining Pools for detailed information on pool operations and payout schemes.
Key Concepts
| Concept | Description |
|---|---|
| Proof-of-Work | Cryptographic puzzle that miners solve to validate blocks |
| Block Reward | Currently 3.125 BTC per block (after 2024 halving) |
| Difficulty | Adjusts every 2016 blocks to maintain ~10 minute block times |
| Hash Rate | Measure of mining power (network: ~700 EH/s) |
| Coinbase Transaction | Special transaction that creates new bitcoin as block reward |
Why Mining Matters
Network Security
Mining provides Bitcoin's security through proof-of-work. To attack the network, an adversary would need to control more than 50% of the global hash rate: an astronomically expensive proposition requiring billions of dollars in hardware and electricity. See Mining Attacks for more on security considerations.
Decentralization
Unlike traditional payment systems with central authorities, Bitcoin's mining is permissionless. Anyone with hardware and electricity can participate, contributing to the network's decentralization.
Monetary Policy Enforcement
Mining enforces Bitcoin's fixed supply schedule. The protocol rules embedded in mining software ensure that:
- Only ~21 million bitcoin will ever exist
- Block rewards halve every 210,000 blocks
- No entity can create bitcoin outside the rules
Mining Today
Current Statistics (2024)
- Network Hash Rate: ~700 EH/s (exahashes per second)
- Block Reward: 3.125 BTC
- Average Block Time: ~10 minutes
- Difficulty: Adjusts every ~2 weeks
- Daily Blocks: ~144
Who Mines?
Modern Bitcoin mining is dominated by:
- Industrial Operations: Large-scale facilities with thousands of ASICs
- Mining Pools: Collectives that combine hash power
- Home Miners: Hobbyists and those with cheap electricity
Related Topics
- Proof-of-Work Mechanism - How the mining algorithm works
- Difficulty Adjustment - How difficulty adjusts to maintain block times
- Mining Economics - Block rewards, fees, and profitability
- Block Construction - How miners build blocks
- Mining Pools - Collaborative mining operations
- Mining Attacks - Mining-specific attack vectors
- Network Attacks & Security - Network-layer security threats