How Is Bitcoin Mined?

W here does cryptocurrency come from and how is Bitcoin mined? How come an intangible series of code is worth so much more than most massive economies, combined?

The answer is quite simple: computer algorithms meet electrical power.

What is Mining?

Mining refers to the process of making Bitcoin.

Let’s understand with a simple scenario-based example. Say you want to eat bread. You have two options: you can either buy bread, or you can make your own bread. If you make your own bread, you’re going to need basic ingredients for it. But I’ll make you an offer: I’ll give you a crossword puzzle, and for each correct answer I’ll hand you an ingredient. Solve the puzzles, collect your flour and salt and everything else, and then you can bake your bread.

Bitcoin is similar. You can either buy preexisting Bitcoin, or you can make it yourself by mining. If you want to mine, you will need some basic “ingredients.” To get those, you require a powerful computer to solve math problems, and for each solved problem, you’ll get a piece of code. Combine them together and you get Bitcoin.

How Is Bitcoin Mined?

Just like you require an oven to bake your bread, you need software to mine Bitcoin. There is multiple mining software available. They are all open-source (free) and very easy to run.

However, just like it is easy for 1 chef to bake in 1 kitchen but difficult for 100 chefs to bake in 1 kitchen, the same is the case with Bitcoin mining. It gets harder with time as more and more miners join, thus requiring stronger PCs and more computational power now than they did before.

Will I Get Money If I Mine Bitcoin?

Well, that depends. If the Queen of England wants garlic bread, many people will want to bake it for her. Can you be the first one to bake it closest to the way she likes it?

That’s how Bitcoin mining works, too. You don’t just have to solve the math problem, you also have to be the first one to solve it if you aim to earn any money out of it.

If you, however, solve the question at the exact same time as someone else, deciding who gets the money can be a slightly tricky task. Simply put, whichever one of you has a higher acceptance rate for their answers, will get the reward.

How Much Can I Earn By Mining Bitcoin?

Say the Queen of England wants bread every day. She has wanted it since 2009 without fail. But, every four years, she halves the price at which she’ll buy bread from you. So if she’s willing to pay you a hundred in 2009, she will be willing to pay you fifty in 2012. By 2016, her offer will decrease to twenty-five. Every four years, she'll divide the price by half. Why? Because she can.

That's what happens with Bitcoin too. Well, not entirely, because the value of Bitcoin does not halve “because it can,” it halves to ensure that Bitcoin remains scarce. Scarcity increases value. Halving the reward for successfully solving a puzzle before anyone else makes sure that the value of the reward remains valuable.

To What Extent Does Bitcoin Halving Matter?

So, you can earn a considerable amount by mining Bitcoin, but do keep in mind that every four years the reward that you earn will halve. However, following trends of inflation, the halving of the reward does not have a huge effect on the monetary value.

For example, right now in 2021, the reward for mining a block (solving a puzzle) is 6.25 BTC. This is 373,723 USD.

In 2014, the reward for mining a block was 25 BTC. Back then, it equaled 8,004.25 USD.

Accounting for inflation of 16.8% from 2014 to 2021 (according to the US inflation calculator), BTC should be 9,351.71 USD right now.

However, despite being halved twice since then, its price has gone up enormously.

In Conclusion

So, exactly how is Bitcoin mined? Through the random guesswork of thousands of individuals at their computers most, if not all the time. If you think Bitcoin mining may be for you, do keep in mind that the electrical costs of running your computer will be permanent, but the probability of getting a reward will neither be permanent nor be certain.

Now that the answer to your question “how is bitcoin mined” has been stated above, it is up to you to decide whether mining is for you.

• This post is tagged in:

• Bitcoin
• cryptocurrency
• crypto
• mining