What Is Bitcoin Mining

What Is Bitcoin Mining?

Bitcoin is a digital currency that requires a process called mining. Bitcoin mining is a network-wide competition to generate a cryptographic solution that matches specific criteria. When a correct solution is reached, a reward in the form of bitcoin and fees for the work done is given to the miner(s) who reached the solution first.

This reward process continues until 21 million bitcoins are circulating. Once that number is reached, the Bitcoin reward is expected to cease, and Bitcoin miners will be rewarded through fees paid for the work done.

Key Takeaways

• Validating transaction information, maintaining the integrity of the blockchain, and opening new blocks are mining's purposes, while the Bitcoin reward is the incentive to mine.
• Bitcoin mining is necessary to maintain the ledger of transactions upon which Bitcoin is based.
• Miners have become very sophisticated over the past several years, using complex machinery and grouping to speed up mining operations.
• Bitcoin mining has generated controversy because it is not considered environmentally friendly.

investopedia / Ellen Lindner

How Does Bitcoin Mining Work?

Here's a simplified example to explain the process. Say you ask friends to guess a number between 1 and 100. Your friends don't have to guess the exact number; they just have to be the first to guess a number less than or equal to your number. If you think of the number 19 and a friend comes up with 21, another 55, and yet another 83, they lose because they all guessed more than 19. But they get to guess again, and the next guesses are 16, 41, and 67. The one who guessed 16 wins because they were first to guess a number less than or equal to 19.

In this case, the number you chose, 19, represents the target hash the Bitcoin network creates for a block, and the random guesses from your friends are the guesses from the miners.