A few years ago, people used their home PCs to mine bitcoin. Today, bitcoin mining is a multi-million dollar growth industry. Large scale miners now run whole warehouses full of circuit boards, mining bitcoin 24/7. It’s been estimated that last year as much as $15 million was spent on electricity to run bitcoin mining operations.

How Does Mining Bitcoin Work?

The Bitcoin network is protected by complex military-grade encryption system that makes it next to impossible to fraudulently reverse transactions, or counterfeit bitcoin. All transactions are recorded in the ‘blockchain’. When a transaction is made, it is added to a ‘block’, these blocks are then ‘mined’ using specialized computers, which solve millions complex equations called ‘hashes’. The higher the hash-rate, the faster it can mine. As each block is mined, it is added to the blockchain. This process maintains the integrity of the blockchain, and keeps the Bitcoin network secure.

New bitcoins are rewarded to miners as an incentive to mine, as well as a share of transaction fees. As more people mine bitcoin, the encryption becomes more difficult, and new bitcoins become harder to acquire. If the number of people mining decreases, the encryption becomes less difficult. This prevents the network from becoming over-saturated with new miners, and keeps mining profitable.

The amount of bitcoins rewarded for mining a block halves around every 4 years. At the moment, the number of bitcoin received for mining a block is 25, by 2017 this number will be 12.5. This model was designed to mimic the scarcity of precious metals like gold or silver, and maintain bitcoin’s value. There are currently around 13 million bitcoins in circulation. By around 2140 this figure will have grown to 21 million, at which point all bitcoins will have been mined, and the main incentive to mine will be to earn transaction fees.

Want to know more on how to mine for bitcoins?
Then why not take a peek at How Do I Mine Bitcoins?