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 piqued interest in Bitcoin mining as well.
While it might not sound like it, the mechanism of creating new Bitcoins involves unimaginable resources. So let’s get a low-down on the process.
First things first, what is Bitcoin anyway?
Bitcoin is not just a popular cryptocurrency, but it is also the first one, and the most valuable of the lot.
Technically speaking, Bitcoin, like all cryptos, runs on a decentralized computer network. This means that there is no single entity controlling the network or the creation of new units.
Moreover, the database or ledger that records Bitcoin transactions is distributed among all the users on the decentralized network. This distributed ledger is what is known as a blockchain.
So where does Bitcoin mining come in?
The Bitcoin blockchain is made up of interlinked 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. In order to successfully add a block, Bitcoin miners compete among themselves to solve extremely complex math problems. In other words, to successfully mine a Bitcoin, the digital miner must be the first to come up with the answer.
Does a miner get something for doing all that math?
Oh yes. Bitcoin rewards miners for adding a block to the blockchain. Interestingly, this reward is halved after 210,000 blocks have been mined. Back in 2009, when Bitcoin came into being, the reward was 50 Bitcoins. Then in 2012, the reward was halved to 25 Bitcoins. The most recent halving happened in April 2024 and brought the reward down to 3.125 Bitcoins.
Read | Bitcoin halving: Where will crypto prices go from here?
This means, at today’s prices, a miner would earn $210,262.5 or AED7,72,028.125 for adding a new Bitcoin block.
Then there are transaction fees. Miners also receive fees for validating transactions in a block. In fact, when Bitcoin has mined all its 21 million blocks, which will happen around the year 2140, miners will only be rewarded transaction fees.
So can I mine with my new MacBook Pro?
Um, no. Back in the early days, virtually all of Bitcoin mining was done using desktop computers. Then someone discovered graphics cards, or graphics processing units (GPUs), were better at solving the Bitcoin math than the regular computer processors.
This skyrocketed their demand, which led to a shortfall in supply. In fact, the situation got so much out of hand 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?
These days the complexity of the math problem that must be solved to mine Bitcoins has risen to such a level that to do it efficiently you need specialized hardware.
Miners these days use application-specific integrated circuits (ASIC), which as the name implies can be designed for one specific purpose. The ones Bitcoin miners use are exponentially faster at solving Bitcoin’s math problem than the fastest desktop processors.
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 lots of them to outrun the competition. ASICs also need a lot of electricity. While Bitcoin mining has always been energy-intensive, the use of ASICs has kicked its energy use into the stratosphere.
I understand, but is it really that bad?
According to Digiconomist, the global energy consumption from Bitcoin mining is 172.26 TWh as of June 12, 2024. This is equivalent to the energy consumption of an entire country like Poland!
Then there’s the cost of cooling the ASICs in the Bitcoin data centers. ASICs give out a lot of heat, and the more you have, the more heat they’ll produce. This is why environmental groups around the world are up in arms against Bitcoin mining. Several countries, like China, have even enacted laws to ban Bitcoin mining.
So is Bitcoin mining even profitable?
Bitcoin mining sure does sound appealing. But in reality it’s very expensive to actually do it profitably.
The input cost, for acquiring the hardware, housing it and powering it, can run into millions of dollars. Despite this you aren’t guaranteed a return, because you still need to outpace the competition.
Even then, the price of the reward, which shrinks roughly every four years, remains volatile, adding another uncertainty to the equation.
For more news on cryptocurrency, click here.