To the uninitiated, Bitcoin mining can seem like a confusing process. The very concept of ‘mining’ a currency is one that leaves most beginners understandably stumped.
With fiat currency, new coins are minted centrally and introduced to the money supply—usually at the behest of a central bank or government. But in the world of cryptocurrencies, it’s the process of Bitcoin mining that achieves the same outcome.
Bitcoin mining is the process by which new tokens are created, or rather, discovered. It’s a computational process through which miners can reveal new coins, increasing the available supply of cryptocurrencies such as bitcoin.
Rather than new coins coming from a centralized issuer, bitcoin mining is a decentralized process, in which anyone with the right hardware can uncover new tokens from a predetermined total set.
This delivers in-built scarcity which helps ensure cryptocurrencies hold value, while ensuring new coins are delivered incrementally over time (instead of flooding the market with excess supply, which would depress value).
The process of Bitcoin mining is in reality one of cryptographic problem solving. Miners run computations, often powered by specific mining hardware known as ASICS, that try to solve these cryptographic puzzles in return for payment—a so-called “mining reward.”
In turn, miners are used to verify transactions and prevent double-spending, providing the essential decentralized basis on which many cryptocurrencies exist.
This problem solving function is known as “proof of work,” where bitcoin miners are essentially trying to guess a 64-digit hexadecimal number known as a “hash.”
Mining hardware processes at a rate of megahashes, gigahashes or terahashes per second, which reflects the number of guesses per second the hardware is capable of processing towards uncovering this number.
The process of mining new coins is essentially one of guesswork, and the more computation power you have in your locker, the greater your chance of mining new coins.
Viability therefore becomes a question of offsetting the capital cost of hardware and the cost of electricity to power the mining process with any mining rewards earned.
The concepts in Bitcoin mining are in essence fairly simple—it’s often just the lingo that makes it inaccessible at first glance. Once you know your hashes from your mining rewards, you’re only a few steps away from setting up your own mining operation, and seeing whether you can mine some fresh cryptocurrency along the way.