Bitcoin
What is it and how does it work
In simple terms, Bitcoin mining is the process that creates new Bitcoins and then releases them into circulation. The meteoric rise in the price of Bitcoin has also sparked interest in Bitcoin mining.
Although it may not seem like it, the mechanism for creating new Bitcoins involves unimaginable resources. So, let’s break down the process in detail.
Firstly, what is Bitcoin, anyway?
Bitcoin is not only a popular cryptocurrency, but also the first and most valuable of all.
Technically speaking, Bitcoin, like all cryptocurrencies, works on a decentralized computer network. This means that there is no single entity that controls the network or the creation of new units.
Furthermore, the database or ledger that records Bitcoin transactions is distributed among all users of the decentralized network. This distributed ledger is known as blockchain.
So where does Bitcoin mining come in?
The Bitcoin blockchain is made up of interconnected blocks, with each block containing a collection of Bitcoin transactions.
Simply put, Bitcoin mining is the process that adds a new block to this chain. To successfully add a block, Bitcoin miners compete against each other to solve extremely complex mathematical problems. In other words, to successfully mine Bitcoin, the digital miner must be the first to find the answer.
Does a miner get anything for doing all this math?
Oh yeah. Bitcoin rewards miners for adding a block to the blockchain. Interestingly, this reward is halved after mining 210,000 blocks. In 2009, when Bitcoin emerged, the reward was 50 Bitcoins. Then, in 2012, the reward was halved to 25 Bitcoins. The most recent halving took place in April 2024 and reduced the reward to 3,125 Bitcoins.
Read | Bitcoin Halving: Where Will Cryptocurrency Prices Go From Here?
This means that at today’s prices, a miner would earn US$210,262.5 or AED7,72,028.125 for adding a new block of Bitcoin.
Then there are transaction fees. Miners also receive fees for validating transactions in a block. In fact, when Bitcoin has mined all of its 21 million blocks, which will happen around the year 2140, miners will only be rewarded for transaction fees.
Can I mine with my new MacBook Pro?
Hum no. In the beginning, virtually all Bitcoin mining was done on desktop computers. Then someone discovered that graphics cards, or graphics processing units (GPUs), were better at solving Bitcoin math than regular computer processors.
This skyrocketed its demand, which led to a shortage in supply. In fact, the situation got so out of control that GPU manufacturers were forced to modify their cards to make them unsuitable for mining.
Alright, so what do I need to mine Bitcoin today?
Nowadays, the complexity of the mathematical problem that must be solved to mine Bitcoins has increased to such a level that to do so efficiently requires specialized hardware.
Currently, miners use application-specific integrated circuits (ASIC), which, as the name implies, can be designed for a specific purpose. The ones that Bitcoin miners use are exponentially faster at solving the Bitcoin math problem than the fastest desktop processors.
To read: Bitcoin Price Likely to Hit $100,000 Mark in 2024, Experts Say
But these ASICs cost tens of thousands of dollars, and you need a lot of them to outperform the competition. ASICs also need a lot of electricity. While Bitcoin mining has always been energy-intensive, the use of ASICs has pushed its energy usage into the stratosphere.
I understand, but is it really that bad?
According to Digiconomistthe global energy consumption of Bitcoin mining was 172.26 TWh on June 12, 2024. This is equivalent to the energy consumption of an entire country like Poland!
Then there is the cost of cooling the ASICs in Bitcoin data centers. ASICs emit a lot of heat, and the more you have, the more heat they produce. This is why environmental groups around the world are up in arms against Bitcoin mining. Several countries, such as China, have even enacted laws to ban Bitcoin mining.
So is Bitcoin mining really profitable?
Bitcoin mining certainly looks attractive. But in reality, it is very expensive to do so profitably.
The cost of entry, to acquire the hardware, house it and feed it, can reach millions of dollars. Despite this, you do not have a guaranteed return, as you still need to outperform the competition.
Still, the reward price, which decreases approximately every four years, remains volatile, adding another uncertainty to the equation.
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