What is Mining?
Cryptocurrency mining is the process of adding new blocks of transactions to the decentralized database, known as blockchains. Mining nodes aim to hash blocks to confirm transactions and update the blockchain’s ledger. As new transactions are sent to the blockchain network, they are added to a pool for confirmation. Network nodes then verify the transaction data. Once a block is full, nodes work to solve its hash, and the validated block is added to the chain.
Miners receive rewards for contributing to the network by mining blocks and validating transactions. Some blockchains like Bitcoin created the idea of a “halving” event to control the rate at which new BTC is created. On the Bitcoin blockchain, after every 210,000 blocks, the miner rewards are cut in half. This Bitcoin halving, or halvening, increases the difficulty of mining and slows the rate of Bitcoin creation as computing power increases.
What is Mining Used For?
Mining is used both to verify transactions and create new blocks on a digital ledger. The network itself uses mining to maintain verified transaction data and secure its history. Individuals and companies that set up mining nodes use it to earn rewards.
With each new block that is added to the chain, the miner who solves its hash gets a reward. This reward incentivizes more nodes to join the network. This, in turn, improves the security of the blockchain. Today, only very powerful computers have a hash rate sufficient to mine Bitcoin successfully.
How does Mining Work?
When the network receives a new transaction request, miners verify all the data for the transaction. This includes checking that the sender actually has sufficient funds. After the data is confirmed, it’s added to a block.
Blocks have limited space for transaction data. As a miner confirms transactions, it adds them to the block. When the block is full, the node broadcasts it to the rest of the network. The entire block is then validated by solving its hash. A hash is a function that computers on the network must solve in order to mine the block and add it to the chain. Once the block is solved, it gets added to the database, distributed across the network, and validated.
Notable Mining Statistics
- The US had the largest share of Bitcoin’s mining hashrate in 2022 at 37.84%
- In April of 2023, Bitcoin mining revenue hovered between $20-30 million per day
- By early 2023, 19 million of the total 21 million bitcoins had already been mined
- Block rewards in 2023 were 6.25 bitcoins
- The next Bitcoin halving is expected to occur in 2024
Mining Related Terms
Blockchain — A blockchain is a decentralized database that records transactions on a distributed ledger.
Node — A network node is a computer or device that’s connected to a blockchain network, helping to maintain the distributed ledger.
Hash Rate — A hash rate (or hashrate) measures the total computing power used on a proof-of-work blockchain. It measures the number of nodes hashing blocks on the network.
Proof-of-Work — An blockchain-based algorithm that uses computing power to secure the network.
Bitcoin Halving — A Bitcoin halving is a mechanism that is encoded into the Bitcoin protocol to control the rate at which new bitcoins are created.