What Is Bitcoin Mining And How It Works?


Before thinking of mining a Bitcoin, you must know what exactly is a Bitcoin. Bitcoin is a digital currency which was created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto. Bitcoin is the first decentralized digital currency and its conception is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.

Bitcoin is a craze nowadays, you can find many people discussing about investing in Bitcoins and the bumper gains they made through Bitcoin investment. Bitcoin may be the next big thing, but it is very difficult for an average person to understand how it works. Have you ever thought, How Bitcoins are created? What is the source of origin of Bitcoin ? How the transactions are controlled? Let me tell you, in simple language, Bitcoin’s are created and controlled through a process called “Bitcoin mining”, which is a very time and power consuming process.

For example, how do we know that person A has sent 1 bitcoin to person B?

How do we stop person A from also sending that bitcoin to person C?

The answer is mining.

What is Bitcoin mining and how it works?

Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain. This ledger of past transactions is called the block. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block.

The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Miners are paid any transaction fees as well as a “subsidy” of newly created coins. Mining helps in disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.

Mining is becoming very difficult nowadays with thousands of people all around the world setting up mining rigs to discover Bitcoin blocks.

When a block is discovered, the discoverer may award themselves a certain number of Bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 Bitcoins; this value will halve every 210,000 blocks.

Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new Bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.

Below is an infographic showing the Bitcoin mining process.

bitcoin mining


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