Bitcoin mining is far removed from the average Bitcoin owner these days, but that doesn’t change how important it is. It’s the process that helps the cryptocurrency function as intended and what continues to introduce new Bitcoins to digital wallets all over the world.
Collecting cryptocurrency can be boiled down to a simple premise: “Miners,” as they are known, purchase powerful computing chips designed for the process and use them to run specifically crafted software day and night. That software forces the system to complete complicated calculations — imagine them digging through layers of digital rock. If all goes to plan, the miners are rewarded with some Bitcoin at the end of their toils.
WHY DO WE NEED MINING?
Bitcoin works differently from traditional currencies. Where dollars and pounds are handled by banks and financial institutions which collectively confirm when transactions occur, Bitcoin operates on the basis of a public ledger system. In order for transactions to be confirmed — to avoid the same Bitcoin from being spent twice, for example — a number of Bitcoin nodes, operated by miners around the world, need to give it their seal of approval.
For that, they are rewarded the transaction fees paid by those conducting them and while there are still new Bitcoins to be made — there are currently more than 16.8 million of a maximum 21 million — a separate reward too, in order to incentivize the practice. In taking part in mining, miners create new Bitcoins to add to the general circulation, whilst facilitating the very transactions that make Bitcoin a functional cryptocurrency.
Mining is a risky process though. It not only takes heavy lifting from the mining chips themselves, but boatloads of electricity, powerful cooling, and a strong network connection. The reward at the end isn’t even guaranteed either, so it should never be entered into lightly.
THE FUTURE OF MINING
Bitcoin was originally designed to allow anyone to take part in the mining process with a home computer and thereby enjoy the process of mining themselves, receiving a reward on occasion for their service. ASIC miners have made that impossible for anyone unable to invest thousands of dollars and utilize cheap and plentiful electricity. That’s why cloud mining has become so popular.
Although hardware has pushed many miners out of the practice though, there are safeguards in place that prevent all remaining Bitcoins being mined in a short period of time.
The first of those is a (likely) ever-increasing difficulty in the mining calculations that must be made. Every 2,016 blocks — at a rate of six blocks an hour, roughly every two weeks — the mining difficulty is recalculated. Mostly it increases as more miners and mining hardware join the network, but if the overall mining power were to reduce, then the difficulty would decrease to maintain a roughly 10-minute block-generation time.
The purpose of that relatively hard 10-minute time is because that way the number of Bitcoins being generated by the process will be slow and steady and mostly controlled. That is compounded by the reduction in reward for blocks mined every 210,000 blocks. Each time that threshold is reached, the reward is halved. In late 2018 mining a block rewards 12.5 Bitcoins, which is worth around $80,000.
In the future as mining rewards decrease, the transaction rewarded to miners will make up a larger percentage of miner income. At the rate with which Bitcoin mining difficulty is increasing, mining hardware development is progressing, and rewards are decreasing, projections for the final Bitcoins being mined edge into the 22nd century.