Bitcoin Mining 101: How New Crypto is MintedLaura
People who hodl Bitcoin already know that its value is mainly derived from its inherent rarity, which is baked into its DNA. There can only ever be 21 million BTC in existence, and 18.6 million, or 88.77% of those, have already been mined. Another 2.35 million remain locked away in the network and must be unlocked by the process known as crypto mining.
This mining process is an essential aspect of the entire crypto industry. Understanding how new coins are created, distributed, and controlled is critical for any investor or developer looking to adopt the technology.
With that in mind, here’s a deep dive into the Bitcoin mining process and the evolution of the mining industry over the past decade.
Bitcoin mining 101
The Bitcoin protocol is built into the token’s underlying blockchain technology. As the name suggests, blockchain technology is literally an ongoing chain composed of blocks of information. In this case, the information blocks are transactions on the network.
When users initiate transactions of BTC, the information is stored on a separate block. This block must be verified using computing power. Essentially, the computer runs a program to guess a series of numbers and letters that unlock the next block and corresponds to the numbers and letters of the previous block. These sequences of numbers and letters are called “hash.” Guessing the right hash is like trying several different keys to match it with a lock.
Once the computer finds the right hash, the block is verified and added to the ongoing chain. The computer that successfully verified it is rewarded with freshly minted BTC. This is the mining process.
Every day, roughly 900 new BTC are created through this process. However, there is one other aspect baked into the network to ensure its stability: competition.
To ensure stability and security, the Bitcoin blockchain has special controls built-in. These controls adjust the difficulty of guessing the right hash according to the number and collective power of computers trying to guess it simultaneously.
The complexity of the hash adjusts higher alongside the amount of computational power used. In other words, generating BTC becomes more difficult when more people are trying to generate it.
This ensures that the supply of BTC is consistent. Each block always rewards miners a set of 6.25 BTC per block. Then protocol also maintains a 10-minute time gap between two consecutive blocks. If blocks are being mined too quickly (under 10 minutes) the difficulty is adjusted higher to make the next block harder to verify. This ensures that the network is secure and cannot be controlled or attacked by any entity with brute force and higher computational power.
At the moment, Bitcoin mining is so popular and widespread that the difficulty is at a record high. Commercial laptops and regular servers can’t mine BTC profitably any more. This is why larger corporations with more resources have stepped in and become commercial miners.
Bitcoin mining companies
Publicly-listed Bitcoin miners such as Argo Blockchain have access to capital to power vast mining farms and expand computational power alongside Bitcoin’s network difficulty. This puts Argo ahead of the competition and small-scale miners, potentially allowing it to generate more BTC over time.
In fact, Argo’s hashrate ranks in the top-tier of global mining operations, around 0.6% of the world’s aggregate Bitcoin mining network hashrate.
The Bitcoin mining process is a critical part of the network that investors and developers must understand. The way new BTC are generated also determines the network’s security and long-term supply.