When Bitcoin (CRYPTO:BTC) was launched in 2009, it introduced the concept of Bitcoin mining. Miners are responsible for confirming transactions and for the creation of new coins; they receive Bitcoin rewards for their efforts.
Considering Bitcoin’s value, getting it as a reward is an enticing proposition. No doubt most of us have at least briefly considered Bitcoin mining after first hearing about it. When you dig a little deeper, however, you find it’s not nearly as great as it sounds. In this guide, we’ll cover exactly how it works and whether Bitcoin mining is worth it in 2022.
What is Bitcoin mining?
Bitcoin mining is the process for validating Bitcoin transactions and minting new coins. Since Bitcoin is decentralized, there’s no central authority managing transactions or issuing coins like there is with government-backed currencies. Bitcoin miners, who can be anyone, handle this instead.
To record transactions, Bitcoin uses a blockchain, a public ledger that contains all of Bitcoin’s transactions. Miners check each block, and, once they confirm it, they add it to the blockchain.
For helping to keep the network secure, miners earn Bitcoin rewards as they add blocks. The rewards are paid using transaction fees and through the creation of new Bitcoin. However, there is a fixed maximum supply of 21 million Bitcoins. Once that many are in circulation, rewards will be paid entirely using transaction fees.
How Bitcoin mining works
The Bitcoin mining process always starts with a block that contains a group of transactions. The transactions have already gone through an initial security check by the network to verify that the sender has enough Bitcoin and has provided the correct key to their wallet.
Here’s what occurs next to mine a block:
- The network creates a hash (a string of characters) for the block of transactions. Bitcoin uses an algorithm called SHA-256 to do this, and it always generates hashes with 64 characters.
- Bitcoin miners start generating hashes using mining software. The goal is to generate the target hash– one that’s below or equal to the block’s hash.
- The first miner to generate the target hash gets to attach the block to their copy of the Bitcoin blockchain.
- Other miners and Bitcoin security nodes check that the block is correct. If so, the block is added to the official Bitcoin blockchain.
- The Bitcoin miner then receives block rewards. Blocks offer a set amount of Bitcoin as a reward; the amount is cut in half for every 210,000 blocks that are mined (this is called Bitcoin halving).