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What Is Bitcoin Mining?

Bitcoin mining is the process of creating new bitcoins for circulation by using sophisticated computers to solve complex math problems, or cryptographic equations.

Bitcoin mining, explained

Bitcoin is a cryptocurrency – literally, an encrypted currency – that uses a blockchain network to create new coins and confirm Bitcoin transactions. Because the responsibility of approving transactions is not in the hands of one person or government, Bitcoin is considered “decentralized” money that does not rely on a central authority for regulation.

In addition to “minting” Bitcoins, mining helps maintain, develop, and secure the ongoing blockchain ledger (transaction history), thereby serving as a crucial component of this cryptocurrency’s continuity and legitimacy.

Another purpose of Bitcoin mining is to ensure that transactions are accurate and do not duplicate coins. This unique quirk of digital currencies, known as “double-spending,” occurs when spenders make a copy of their Bitcoin and to complete a transaction while keeping the original – in other words, the digital version of counterfeiting.

Another way to look at Bitcoin miners is that they’re theauditors of Bitcoin transactions. They do the work of verifying the legitimacy of Bitcoin as it circulates through users’ wallets. Once they’ve validated one block of Bitcoin transactions and added it to the chain, they’re eligible to receive Bitcoins in return. (One block is equal to 1 megabyte of information.)

What this means for you

The future number of Bitcoins is limited.

To earn your Bitcoins, you need to meet two conditions of the blockchain:

  • You have to verify one megabyte worth of Bitcoin transactions
  • You have to be the first miner to solve a numeric puzzle, known as “proof of work”

Many miners mine Bitcoin for the sheer thrill that comes with designing their own mining rigs or being part of “the future of money.” Some mine coins to earn “voting” power when changes to the Bitcoin network protocol are proposed, such as when it comes time to fork in a new coin.

And still others, particularly mining operations, mine Bitcoin to turn a profit and ensure that more Bitcoins enter circulation.

By design, the Bitcoin Protocol, as it’s known, will limit the number of mined Bitcoins to 21 million. After that point, miners will be paid a small fee to verify transactions and maintain the network’s integrity without the thrill of minting their own currency.

But if you’re worried about jumping in too late, never fear! Because the rate of mined Bitcoin is reduced over time, the final Bitcoin won’t be minted until around the year 2140.

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

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