When you think of Bitcoin, you often think of roller coaster rides in price events, trading, futures or similar investment-related topics. The cryptocurrency can do a lot more than give investors hope for price gains. Satoshi Nakamoto’s invention gave rise to an entire ecosystem, supported by the decentralized rails of a distributed ledger technology – better known as blockchain.
As this ecosystem continues to grow, the market regularly welcomes new units of Bitcoin (BTC). The process behind the appearance of new Bitcoins is called “mining”.
Do you want to know everything about Bitcoin mining? Check out the relevant BTC-ECHO ACADEMY entry.
What is Bitcoin Mining?
The term “mining” – in German it means “prospecting” – is reminiscent of the mining of gold. This analogy is no coincidence, after all, crypto enthusiasts sometimes refer to the digital currency as digital gold. But while the precious metal is sought in mines or riverbeds when mining, things are a little different with Bitcoin. This much is certain: it’s a complicated one.
Bitcoin mining is initially about combining BTC transactions into a list and then appending them to the blockchain as a block. The miners’ job is to confirm the transactions and enter them in an account book. If miners create the next valid block, they receive BTC as a reward.
To do this, they have to apply a mathematical formula and convert the respective transactions into something shorter. They then add the result to the end of a block in the form of a hash. The mechanism used in this process is called Proof of Work. Miners have to prove that they have put in a certain amount of effort. This process is very energy intensive. This is the only way to ensure that the network is not being manipulated. Dangers such as double spending, i.e. spending Bitcoin twice, can be prevented in this way.
Do you want to know everything about Bitcoin mining? Check out the relevant BTC-ECHO ACADEMY entry.
Miners compete with each other in search of new blocks. Currently, every time someone successfully generates a hash, they receive 6.25 Bitcoin and the transaction fees paid.
The halving and the BTC price
The reward for “mining” is halved at regular intervals. At the next so-called halving, which is expected in 2024, miners will only receive 3,125 units of the cryptocurrency for each valid block (in addition to transaction fees). This has been accompanied by increases in the Bitcoin price in the past. In the crypto space, this event is sometimes associated with high hopes – some traders are betting on the effects of the halving.
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