What is Bitcoin Mining?

Bitcoin Network Mining

Early bitcoin miners used both CPUs and GPUs for mining. GPUs are better suited to the proof-of-work algorithm than CPUs.

Eventually, many amateurs mined bitcoins with specialized FPGA and ASIC chips. These bitcoin miners have become obsolete due to increasing difficulty of bitcoin mining.

Today, bitcoin mining companies dedicate large facilities to housing and operating industrial scale quantities of high-performance mining hardware around the world.

Bitcoin mining is a record-keeping service done through the use of computer processing power. Miners keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block, which is then broadcast to the network and verified by recipient nodes. Each block contains a SHA-256 cryptographic hash of the previous block, thus linking it to the previous block and giving the blockchain its name.

To be accepted by the rest of the network, a new bitcoin block must contain a proof-of-work (PoW). The PoW requires miners to find a number called a nonce (a number used just once), such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target. This PoW is easy for any node in the network to verify, but extremely time-consuming to generate. Miners must try many different nonce values (usually the sequence of tested values is the ascending natural numbers: 0, 1, 2, 3, ...) before a result happens to be less than the difficulty target. Because the difficulty target is extremely small compared to a typical SHA-256 hash, block hashes have many leading zeros as can be seen in this example block hash:

000000000000000000023d02b5b00dc4ae58739e3dc5612a2421e030849f43be

By adjusting the bitcoin mining difficulty target, the amount of work needed to generate a bitcoin block can be changed. Every 2,016 blocks (approximately 14 days given at approximately 10 minutes per block), nodes deterministically adjust the difficulty target based on the recent rate of bitcoin block generation, with an aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network. As of April 2022, it takes on average 122 sextillion (122 thousand billion billion) attempts to generate a block hash smaller than the difficulty target. Computations of this magnitude are extremely expensive and utilize specialized hardware.

The bitcoin proof-of-work system, alongside the chaining of blocks, makes modifications to the bitcoin blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted. As new blocks are being generated continuously, the difficulty of modifying an old block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.

The vast majority of bitcoin mining power is grouped together in bitcoin mining pools to reduce variance in miner income. Independent miners may have to work for several years to mine a single block of transactions and receive payment. In a mining pool, all participating miners get paid every time any participant generates a block. This payment is proportionate to the amount of work an individual miner contributed to the pool.

Bitcoin Mining Supply

The total number of bitcoins mined is approximately 19 million bitcoins, out of 21 million total, as of March 2023. This represents around 90% of all bitoins that will exist having already been mined.

New bitcoins are mined, on average, every 10 minutes. The successful bitcoin miner finding a new block is allowed by the rest of the network to collect for themselves all transaction fees from transactions they choose to include in the block, as well as a predetermined reward of newly created bitcoins. Since May 11, 2020, this reward is ₿6.25 in newly created bitcoins per block. To claim this mining reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of coinbase transaction. The bitcoin protocol specifies that the reward for adding a block will be reduced by half every 210,000 blocks (approximately every four years), until ₿21 million are generated. The last new bitcoin will be generated around the year 2140. When bitoin mining coinbase rewards have ceased, a successful miner would be rewarded by transaction fees only, pending miner agreed upon bitcoin protocol changes before that time.