What is Bitcoin Mining? ⛏
💡 Daily Reminder: Stay humble, stack sats
Bitcoiners,
If you heard of bitcoin, you most likely heard of bitcoin mining but not exactly sure what it actually is.
Here is a broad overview of Bitcoin mining for beginners to understand how it works within the Bitcoin protocol and impacts the limited supply of bitcoin while securing the network.
Overview
Bitcoin mining can be thought of as a lottery system in which computers all over the world expend energy to potentially win a block reward.
This achieves (3) things:
Distributes the remaining supply of bitcoin to market participants in a decentralized way.
Produces a new block of valid transactions in order to allow transactions to happen and keep the bitcoin blockchain growing.
Secures the network by tying in energy from the real world which cannot be compromised by bad actors.
1. Distributes bitcoin
As of today, there are a little more than 19 million bitcoin mined of the total 21 million bitcoin to ever exist. Miners all over the world are competing for the last 2 million bitcoin. Every 10 minutes that passes, a miner wins the block reward lottery system and receives 6.25 bitcoin ($125,000).
2. Produces a new block
A block is a list of valid bitcoin transactions. When a miner wins a block, it is placed in the bitcoin blockchain. When you send someone bitcoin, it typically takes 10 minutes to settle because a miner must validate the block your transaction is in.
3. Secures the network
Miners from all over the world secure the network by tying in energy from the real world to compete in this lottery system. In order for a new block to be mined, at least 51% of all miners must agree the new block is valid. The cost of producing 51% of real world energy is so high that it is virtually impossible for one miner to control the network.
I hope this broad overview helps you understand mining a little more. Check out this video to get an idea for how large the bitcoin mining industry has become!
Happy Wednesday,
-Pod
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Eric Podwojski
Founder, Bitcoin EDU
Twitter: @epodrulz
Disclaimer: This should go without saying: This is not financial advice. This is not investment advice. I write this newsletter for education and entertainment. Act accordingly.
