Bitcoin mining is the process used to validate transactions on the network and bring new Bitcoins into circulation.
As of July 2024, there are approximately 19.5 million Bitcoins in circulation. However, the cryptocurrency is programmed to have a total supply of 21 million, with the remaining 1.5 million Bitcoins yet to enter circulation. Users called “miners” use powerful computers to solve complex math problems and “mine” new Bitcoins in a process called Bitcoin mining.
When someone makes a transaction on the Bitcoin network, their transaction is placed in a block. Once the block is full, it must be validated before it is added to the blockchain. This process is similar to filling a shopping cart at a store and having a cashier check and validate your items at the checkout counter. You can fill your cart as much as you want, but once it is full, the store needs to check every item to make sure you are not stealing.
Bitcoin mining is like a digital treasure hunt. Armed with powerful computers, miners search for a 64-digit hexadecimal code called a hash that represents a block of transactions. Miners find this code through a process called hashing.
Hashing requires computer hardware to search through trillions of hashes (strings of numbers and letters) to find a hash that matches the difficulty of the block (called the target hash). When miners find the block's target hash, they can verify and confirm the block's transactions. This process releases more Bitcoin into the network. Similar to playing a game where the rewards are locked, it creates a sense of value. Only those with the skill and knowledge to unlock them can earn the rewards.
Finding the target hash can take a long time. The amount of time varies depending on many factors, such as the current Bitcoin mining difficulty. The difficulty is adjusted or changed every 2,016 blocks and increases or decreases based on the number of miners contributing to the network.
More miners means higher difficulty, while fewer miners means lower difficulty. It's like finding treasure: it gets harder and harder as more people try to find it, keeping it scarce and increasing its inherent value.
Bitcoin’s creator, Satoshi Nakamoto, programmed the network to halve every 210,000 blocks (roughly every four years) to create digital scarcity. At this rate, Bitcoin won’t reach its 21 million limit until 2140.
At this point, miners will still earn Bitcoin block rewards through transaction fees but will no longer release new Bitcoins into the network.
How do miners mine Bitcoin?
Miners mine Bitcoins using mining equipment, which can be any regular computer or a specialized machine, as long as it can follow the SHA-256 Bitcoin mining algorithm.
SHA-256 is a method of encryption that makes data difficult to read without the proper tools. It scrambles data, such as a password, and comes up with a really long code to represent it. The problem is, that code doesn't make any sense to people who don't have the tools to decode it, making it completely secure.
Even with the right tools, deciphering this algorithm takes time. Miners mine a new block every 10 minutes, and the network distributes Bitcoins to miners to reward them for their efforts. This release of Bitcoins is called a block reward. Miners also receive transaction fees based on the size of the block.
Before the Bitcoin halving in April 2024, the block reward was 6.25 BTC per block. The Bitcoin halving event reduced this reward to 3.125 BTC. Bitcoin's creator, Satoshi Nakamoto, programmed the halving into the Bitcoin code, which is designed to create digital scarcity and maintain the value of Bitcoin, significantly affecting the profitability of Bitcoin mining.
With each halving, it becomes harder for miners to earn as much as before, which increases scarcity and ideally increases the value of Bitcoin.
How long does it take to mine a Bitcoin on average?
The time it takes to mine 1 Bitcoin can vary depending on the network's built-in difficulty settings.
Each Bitcoin block is committed to releasing 3.125 BTC. To answer the main question, it takes an average of 10 minutes to mine not 1 but 3 Bitcoins, and that rate will change over time.
Just as finding a treasure chest can result in different amounts of treasure, similarly, because it takes a lot of computing power to mine a single block (known as Bitcoin block time), it is nearly impossible for a single miner to earn the entire 3.125 BTC reward on their own.
A miner's hardware will significantly affect how much BTC they earn. For example, some miners have dozens, even hundreds, of mining hardware in an attempt to increase their Bitcoin hashrate.
In that case, they can earn more Bitcoin per block than other miners with lower hashrate. They are like a pirate who brings hundreds of shovels for an expedition and expects to split the reward accordingly.
Many miners join a mining pool to speed up their Bitcoin mining. A mining pool is a group of miners who contribute their hashrate as an entity in the hopes of finding a target hash. In doing so, miners earn rewards based on their hashrate contribution.
Mining pool operators distribute Bitcoin mining rewards, although fees are often required, and miners can contribute to many different types of Bitcoin mining pools.
Different Bitcoin Mining Pools
Rate
A proportional mining pool distributes rewards based on the miners’ hashrate contribution. They can also earn additional rewards through transaction fees. That’s the pirate who brought hundreds of shovels on an expedition as mentioned earlier.
Pay for the last N groups
Paying N Mining Pools The last pool distributes miners into shifts and pays them based on their time in a “shift”. A shift is a fixed amount of time a miner contributes to the mining pool. This is like pirates working in shifts, those who work longer shifts get more money.
Pay by stock
Pay-per-stake pools provide miners with a fixed income, expecting them to contribute a certain amount of hashrate daily. While this is a stable way to mine Bitcoin, it removes the miner’s ability to earn transaction fees. This is similar to how every pirate on an expedition is expected to meet their daily quota. While no one can work overtime, they can expect steady work and a reliable income.
Which hardware optimizes Bitcoin mining speed?
In Bitcoin mining, ASIC is the most efficient hardware because it is specifically designed for this task. It offers significantly faster and more efficient performance than CPUs and GPUs.
Imagine trying to find the best seats in a large, crowded stadium. There are two ways to do it: either go through each row and section individually or use a highly advanced drone to quickly scan the entire stadium and identify the best spots.
In the world of Bitcoin mining, finding new blocks is like finding the best seats — you have to be extremely fast and efficient in your “search.” This is where hardware becomes important:
Central Processing Unit (CPU): Think of the CPU as your standard search and find method. It's like manually going through rows of a stadium. It's not the fastest way to mine Bitcoin, but it gets the job done.
Graphics Processing Unit (GPU): Now, upgrade to faster drones that can perform multiple tasks at once. Similar to this drone, GPUs are much better at handling the complex calculations required for mining than CPUs. They can find ideal seats faster by searching multiple rows at once.
Application-Specific Integrated Circuit (ASIC): This is like having a highly customized drone built specifically to search for the best seats available in a stadium, and it uses cutting-edge technology to complete the task quickly and efficiently. Since ASICs are designed specifically for Bitcoin mining, they outperform GPUs and CPUs at this task.
So if you want to optimize your Bitcoin mining speed, using an ASIC is like using a high-tech drone to find the perfect seat faster than anyone else.
Is it hard to mine Bitcoin alone?
Solo Bitcoin mining involves one miner competing with every other miner around the globe. The process is extremely difficult and miners often cooperate to meet the challenge.
Bitcoin's proof-of-work (PoW) consensus protocol makes mining a natural competition. The chances of a single miner beating the rest of the world to a block's hash target are virtually zero — regardless of the power of their mining rig or their choice of Bitcoin mining software.
A lone miner is like a lone pirate going off on his own, while most of the other pirates have banded together to find the treasure. The group can rely on each other and has a higher chance of finding the treasure, but the lone pirate, if successful, gets to keep all the rewards.
In the early days of Bitcoin, the time it took to mine a Bitcoin was relatively low due to the small number of miners. The block reward was also much higher, with miners earning tens of Bitcoins per block. However, Bitcoin was worth less than $1 at the time, so the reward was commensurate.
Currently, solo miners join cryptocurrency mining pools to increase their chances of earning rewards through Bitcoin mining. Potential miners without powerful mining rigs also join cloud mining services to save on the initial cost of Bitcoin mining equipment.
Cloud mining services involve miners renting out their hashing power through the cloud and asking users to pay for a portion of it. As a result, miners pass on some of the cost of energy consumption to paying users. In return, paying users earn block rewards based on their portion of hashing power.
