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You may ask yourself, “where do Bitcoins come from?” Bitcoins aren’t printed out like traditional money, they are mined out of the system. A miner is just a person with a computer that runs a mining program on it.
Why is it Called Mining?
The reason it’s called mining is because, just like any other natural resource, there is a finite amount of Bitcoins. The maximum amount of Bitcoins that can be generated is 21 million.
Until today, over 19 million Bitcoins were mined. Just like real-world mining, you need to invest energy in order to extract these Bitcoins.
The Bitcoin Mining Process
These miners’ computers need to solve complex mathematical problems, and once they solve them, new Bitcoins are generated and awarded to them. But miners don’t just generate new Bitcoins.
They also use their computers to verify transactions and prevent fraud. So more miners mean faster transaction verifications and less fraud.
That’s why we want to compensate miners for their hard work. When verifying a transaction, the miner gets a small fee out of that transaction for his work.
So miners get paid twice; once for verifying the transactions and again when they successfully generate new Bitcoins.
The Challenge of Increasing Mining Difficulty
Sounds profitable? Well, not so fast. Satoshi, the guy who invented Bitcoin, wanted the number of Bitcoins that were mined each time to remain constant, no matter how many miners come aboard.
That’s why the difficulty of mining increases as more miners join the network. In 2009, you could mine 200 Bitcoins with your personal computer at home. In 2014, it will take you about 98 years to mine just one.
The Invention of ASIC Miners
That’s why ASIC miners were invented: super powerful computers designed just for mining Bitcoins. But since so many miners have joined in the past few years, it’s still almost impossible to mine alone.
Mining Pools: A Solution to Growing Difficulty
To solve this problem, mining pools were invented. Groups of miners formed together to deal with the growing difficulty of Bitcoin mining.
Each miner gets paid for his relative share of the work. So that’s how Bitcoins are born—through miners.
