Understanding the concept of bitcoin mining answers questions such as:

Where do bitcoins come from?

Who is in charge of the generation of new bitcoins?

Who is in control of the bitcoin ecosystem?

Of course, with the traditional fiat currency, everything comes down to government. It generates and distributes new units through financial institutions such as commercial banks and credit card companies.

Bitcoin, on the other hand, is not managed nor controlled by any form of central authority. It entirely depends on bitcoin mining.

And in order to understand what bitcoin mining is you first need to wrap your head around the concepts of bitcoin network and the blockchain.

The Bitcoin network

Yes, this is a network of computers.

Anybody can decide to join it at any time by acquiring and setting up relevant hardware and software. Indeed, by connecting these resources to the bitcoin network, you contribute computation power that is needed to make bitcoin transactions possible.

On average the number of computers connected to the network is over 100,000. And collectively they form one of the world’s most powerful supercomputers.

The Blockchain

This is a public record or a ledger of all bitcoin transactions ever to take place. It is part of the software one downloads when they join the bitcoin network. Therefore, every node on bitcoin network maintains a copy that is updated automatically every time a new transaction takes place.

Recent transactions are verified and compiled into a block on the public ledger. Each of these blocks is then secured through hashes or mathematical equations that link them into a chain. This is done in a way that the validity of a transaction is dependent on the validity of previous transactions and thus preventing fraud.

What is Bitcoin Mining?

In essence, bitcoin mining is providing computation power to the bitcoin network to verify and record transactions on the blockchain.

Even though all the computers in the network work together, the process itself is a mathematic solving race. The first computer to find a solution for linking a new block to the blockchain gets a reward in the form of new bitcoins.

You can say that Bitcoin mining is getting a reward after solving a mathematical problem in order to verify and secure bitcoin transactions.

The total amount of bitcoins that will ever be mined is 21millon. Since every four years the block reward is cut by a half, the last coin will be mined in the year 2140. Hardly anyone alive in 2015 will witness this.

At this point you are likely to ask; when bitcoin mining ceases, what incentive will miners have to continue processing transactions?

After the year 2140, the only practical way to keep the network going is to include fees for transactions. However, the anticipation is that these fees will be very low.

Meanwhile, Bitcoin mining serves two purposes; securing the blockchain and adding new bitcoins into circulation.

What it takes to be a miner

Mining is one of the ways through which you can accumulate bitcoins for yourself. However, over the years it has become more difficult to solve the mathematical problems.

In the early days of the crypto currency, you could mine with your ordinary desktop. This is no longer the case. Now you need special hardware and more powerful hardware and even with that you are not guaranteed to get a stable income.

Even more challenging is the amount of electricity you will require in order to mine.

All these make bitcoin mining very expensive

In order to stand a chance of getting the mining reward, miners join mining pools where they contribute the computing power, collectively solve blocks and share the reward.