How bitcoin mining works

Bitcoin mining is the process that creates new bitcoin, adding them to the total supply, which has a fixed limit of 21 million, expected to be reached in the year 2140.

The first block – aka Genesis block – was mined on January, 3rd 2009, and since then at approximately 10 minute intervals, a new block has been added to the network. 

The miner who publishes a block to the network receives a reward, which currently stands at 6.25 BTC. Given the high value of bitcoin, it’s no surprise that competition to become the miner who discovers the next block and claims the reward, is so intense.

To earn the right to broadcast the next block to the network and confirm the transactions contained within it, miners must use their computational power to solve a complex mathematical problem. 

This is why Bitcoin is known as a Proof of Work (PoW) cryptocurrency: because miners must prove that they have completed the computational work required to calculate the correct solution.

While the calculation itself is meaningless, the work required to arrive there is not: it proves that the miner hasn’t cheated, and ensures that no single entity can discover all of the blocks and keep all the bitcoin rewards to themselves. 

Think of it like a lottery where adding more computer power is like buying more tickets. Your chances of winning – finding the correct solution – increase, but so does your outlay, in terms of electricity. To be a profitable miner, the rewards earned from successfully mined blocks, must be greater than the cost of energy consumed in the process.

Miners also earn the transaction fees associated with the blocks they attempt to add to the blockchain, but those are of negligible value compared to 6.5 BTC reward.

6.5 BTC
The current reward for mining a new block on Bitcoin's 
blockchain. As of March 2021, one BTC is worth over 
$50,000

The BTC that is awarded to the miner who confirms each new block is also known as the “coinbase reward” – a term which was later claimed by the cryptocurrency exchange of the same name.

In the early days, Bitcoin could be mined using the GPU in an ordinary home computer. Today, miners must use specialist hardware known as application-specific integrated circuits, or ASICs. These are computer processors that have been optimised to solve the maths problem that is at the heart of bitcoin mining.