REUTERS/Colm Fulton
- Bitcoin mining is the process that allows new coins to enter circulation, adding to the crypto ecosystem.
- Miners receive bitcoin as a reward for verifying "blocks" of transactions on the blockchain.
- Last month, they earned more than $1 billion in combined earnings. Here's how they do it.
- Visit the Business section of Insider for more stories.
Bitcoin is created on a decentralized network called the blockchain, where a vast network of digital "miners" work to verify transactions at any given time.
These miners earned a combined $1.1 billion in January, up 62% from December, when bitcoin's price surged to $42,000. The road to making this amount of money is no easy feat.
What do bitcoin miners do?
Miners have the responsibility to audit transactions on the blockchain to ensure the legitimacy of the network. They also work to avoid the "double-spend" scenario, in which a bitcoin owner could sneakily spend the same coin twice through duplication or falsification.
Miners don't necessarily work as a team. They work to compete with each other in order to add the next "block," or a record of all bitcoin transactions, to the chain. A block contains a partial record of the most recent transactions and carries 1 MB (megabyte) worth of data.
The miner who receives a reward would be the first among a bunch to run through hordes of number combinations to solve a numeric problem, known as proof of work, to arrive at an acceptable 64-character code. The code of this winning block helps keep the blockchain secure. It would normally look something like the last line in this image:
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By being the first to solve the equation and successfully adding the next block to the chain, the miner is rewarded a certain amount of bitcoin. Only one such block can be added at a time, and each one takes about 10 minutes to verify and attach.
Over the course of the next 120 years, a total of 21 million coins will be released.
What are the rewards worth?
In 2009, the first time bitcoin was created, miners were rewarded with 50 bitcoin per block. But according to a mandate by Satoshi Nakamoto, rewards for mining are halved every four years. The rewards were cut to 25 bitcoin by 2012 and to 12.5 bitcoin by 2016.
As of February 2021, miners gain 6.25 bitcoin for every new block mined - equal to about $330,475 based on current value. They're also allowed to keep the transaction fees from each trade carried out on that block, which is worth $20 per trade.
An estimated 1 million bitcoin miners are in operation, at present.
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