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New bitcoins are added to the system about every 10 minutes through a process called “mining.” This involves using computing power to verify bitcoin transactions across the network by solving cryptographic problems called “hash puzzles.”

Bitcoin Mining 101

Here’s how it works:

Every bitcoin holder’s balance is designated by a unique bitcoin address, which is a long string of numbers and letters. Each address features both a private and a public key, together known as a cryptographic key pair.

Bitcoin transactions involve the use of both the private and public keys. A bitcoin holder uses the private key to initiate a transaction; this then makes the public key available to anyone on the network who wants to help verify the transaction.

People on the network who use their computers to verify bitcoin transactions are called miners. Their computers bundle the last 10 minutes’ worth of bitcoin transactions into blocks, then work to solve cryptographic problems to help validate that block.

The cryptographic problem involves producing a hash-based (algorithm-generated set of data) proof-of-work that’s built on the solution to the previous transaction block. In this way, every transaction block is used to validate every subsequent transaction block, producing a blockchain. This makes it essentially impossible to fraudulently manipulate any transaction record, as changing one would change the solutions to all the other transactions in the blockchain built upon it.

The first miner to successfully produce the proof-of-work is awarded a new batch of bitcoins. At first, this was a batch of 50 bitcoins, but the mining reward is halved after every 210,000 transaction blocks to ensure that no more than 21 million bitcoins in all will be generated over time. (This hard limit is expected to be reached in 2140.) As of 2013, the mining reward is a batch of 25 bitcoins; this is scheduled to drop to 12.5 bitcoins in 2017.

The difficulty of solving each cryptographic problem varies according to how many miners are on the network, among other factors. This helps ensure that a new transaction block – as well as a new batch of bitcoins – is generated in a controlled manner every 10 minutes.

Still not got it? Visit the CoinDesk bitcoin information centre article: How bitcoin mining works

The history of bitcoin mining

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BitcoinX Mining Factor

The first person ever to mine bitcoins was, of course, the currency’s creator, Satoshi Nakamoto. Nakamoto designed the bitcoin protocol to deliberately make mining a resource-intensive process, and to adjust the difficulty of that process over time as more miners join the network and as more bitcoins are mined.

The idea behind this was to ensure that new bitcoins are added to the network at a controlled rate and that, over time, the number of bitcoins in each new batch mined is gradually reduced. This helps ensure that the currency ultimately reaches a hard limit of 21 million bitcoins … no more.

Nakamoto’s protocol keeps the brakes on the production of new bitcoins by adjusting the difficulty of mining after every 2,016 new blocks. As more processing power is detected on the network, the difficulty of solving a block is adjusted upward.

In the earliest days of the currency, mining was easier and almost anyone with a CPU (central processing unit) could download the bitcoin client and try their hand at mining. Today, that’s no longer considered a viable option – the power a CPU uses for every hash would end up costing far more than the value of any bitcoins it eventually succeeded at mining.

As the number of bitcoin miners on the network grew and the difficulty of mining increased, hardcore bitcoin fans turned to ever-more powerful and specialized servers called bitcoin miners. At first, these were GPU-driven, but now they’re increasingly using field-programmable gate arrays (FPGA) or application-specific integrated circuits (ASIC).

For now, ASIC technology is basically the “end of the line” in terms of mining power, according to We Use Coins. ASIC-based bitcoin miners might be incrementally improved in terms of hashing power or power usage, the site notes, but no other disruptive technology appears to be on the horizon that could make mining either exponentially more powerful or more energy-efficient.

Want to get involved? Then read our guide on how to setup a bitcoin miner

Everyone into the pool

For those who don’t want to make a major technology investment but still want to try mining, there’s another option: a mining pool. By joining a mining pool, bitcoin fans can combine their computing power with others in hopes of increasing their chances of solving hash puzzles.

When a batch of coins is successfully mined, members of a pool generally divide the reward in one of several ways, such as according to each member’s share position in the pool or each one’s hashing contribution. Other pools might pay members a flat reward for each share solved.

Participating in a mining pool generally requires a fee of some kind. Read our guide on bitcoin mining pools for more information.


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