Bitcoin mining is a multi-billion dollar industry that some believe uses as much as 1% of the world’s electricity and which secures BTC the largest cryptocurrency with a market cap in the trillions of dollars and counting but few people even in crypto understand how Bitcoin mining works the result is crazy claims ranging from all the world’s electricity eventually being used up to BTC being controlled by Chinese miners that’s why today we’re going to tell you everything you need to know about Bitcoin mining in plain English by the end of this video you will basically be an expert on the subject my name is Guy stay tuned to understand Bitcoin mining you need to know a bit about what Bitcoin is and what It Isn’t So Bitcoin consists of two components Bitcoin the blockchain and BTC the digital asset that’s native to this blockchain there is only one Bitcoin but there are 21 million BTC coins more on BTC a little later first though the blockchain now you can think of a blockchain as being analogous to a hard drive on a computer where each block is a file on the hard drive of course there are a few differences though the first is that blockchains are distributed meaning that these files are kept on multiple computers not just one the second difference is that the size of the blocks is relatively small in bit bitcoin’s case one block is just 1 Megabyte and the size of the entire blockchain is only around 630 GB despite having been around for 15 years chances are that the hard drive on your computer maybe even your phone has a larger capacity as some of you will know bitcoin’s small blockchain is by Design the smaller the blockchain is the easier it is for more people to store and verify its data this is done by bitco coin nodes which are essentially computers running a software called Bitcoin core there are over 20,000 nodes and Counting the third difference between hard drives and blockchains is that each block on the blockchain usually only contains transaction data in bitcoin’s case each block only has BTC transactions and each block can fit around 2,000 transactions with one block made every 10 minutes that’s three transactions per second this ties into to the fourth and most important difference between hard drives and blockchains and that’s that blocks are added sequentially one block at a time in addition to transactions each block also contains a reference to the previous block creating a link hence the term blockchain this too is by Design whereas bitcoin’s small block size is designed to make it more decentralized I.E more distributed the reference to previous blocks is designed to make Bitcoin immutable I.E impossible to modify if someone does try to modify a transaction in a previous block the other blocks will detect it and reject it now here’s where things get interesting anyone can submit a BTC transaction on the Bitcoin blockchain assuming they have BTC so this begs three questions how do you make sure that new BTC transactions are legit how are new BTC coins created and why would any anyone bother processing BTC transactions well the answer is mining in practice mining involves using computing power to essentially guess a very random number the computer that guesses the number first earns the right to create a block containing BTC transactions and attach it to the Bitcoin blockchain by this point there are so many possibilities of what the random number might be that guessing the answer requires special computers called as that are capable of submitting the literally trillions of guesses required to stand a chance of a lighting on the right one the more Asics you have submitting these guesses the greater your chances of making the correct guess first are nobody knows how many active as6 there are but some estimates put the number in the millions a Bitcoin mining operation will run at least one Bitcoin node so that they can process BTC transactions correctly but a single mining operation will use hundreds sometimes thousands of Asic hence why the node count is so low relative to the number of asex now obviously it’s very expensive to purchase and power these as6 and that’s also by design by making it difficult to create a Bitcoin block it significantly reduces the chances that someone would spend all these resources to create a block containing invalid BTC transactions that’s just because the next minor would identify these transactions as invalid and reject those transactions made by the malicious minor the result would be that the malicious Miner would have spent tens of thousands of dollars on electricity and possibly more on equipment all for nothing in other words mining exists to ensure that all new BTC transactions are legit and this brings us to the other two questions how new BTC coins are created and why anyone would bother processing BTC transactions given the costs involved well in case it wasn’t clear enough the answer is also mining each new Bitcoin blog contains new BTC and transaction fees which are paid in BTC as a fun fact Bitcoin technically does not have a transaction fee users tip miners a small amount of BTC so that their transaction gets included in the block faster once upon a time there wasn’t much competition to get your transaction into a new block so there were not many tips these days you need to tip big to get in that’s because BTC has enormous value so Bitcoin block rewards create a big incentive for people to pay for the as6 and the energy required to correctly guess the random number to earn the right to process new BTC transactions and get the BTC rewards contained in each new Bitcoin block and question and that’s what gives BTC such enormous value the short answer is that it’s the only digital currency that nobody can control this gives BTC value against a backdrop where governments are increasingly seeking to control their currencies and most other cryptos are highly centralized the longer answer is btc’s monetary properties which fit handin glove with Bitcoin mining to recap Bitcoin is a distributed database that consists of blocks containing BTC transactions Bitcoin miners will guess a very random number to earn the right to create a block of transactions and earn BTC as a reward in case you missed it a new Bitcoin block is mined every 10 minutes as you might have guessed this too is by Design the 10-minute time limit exists so that btc’s Supply grows gradually imagine if a new Bitcoin block was mined every second lots of new BTC would be issued and sold which would crash its price this would disincentivize Bitcoin mining which would bring the blockchain to a halt and effectively kill it bitcoin’s 10minute block time is maintained thanks to something called the difficulty adjustment as the term suggests the difficulty adjustment will change the difficulty of the random number Bitcoin miners are trying to guess the difficulty will adjust depending on how much Bitcoin mining there is if there’s more Bitcoin mining going on then the differ difficulty of said mining will increase and if there’s less Bitcoin mining going on the difficulty of said mining will decrease again the purpose of this is to ensure that the puzzle always takes roughly 10 minutes to solve so that the 10-minute block time is maintained it’s very clever and this relates to another clever aspect of Bitcoin and that’s the so-called harving every 210,000 blocks the amount of new BTC awarded in each new block is cut in half at 10 minutes per block this works out to around 4 years when the Bitcoin blockchain launched the amount of new BTC in each block was 50 in 2012 this was cut in half to 25 BTC in 2016 it became 12.5 BTC in 2020 it became 6.25 BTC and in 2024 it became 3.125 BTC the next Bitcoin harving is expected to occur sometime in 2028 and will cut the amount of new BTC in each block all the way down to just over 1.5 BTC these harving will continue until the last BTC is mined sometime in 2140 more about what happens then using the link in the description now for those who never took an economics course when you have less Supply with the same or more demand then prices will rise in btc’s case cutting its newly issued Supply in half every 4 years years means it should theoretically double in price every four years with four Haring BTC should be up roughly 16x in practice though BTC is up over 1 million x since it launched in 2009 the short explanation as to why is because the demand for BTC has been growing exponentially be it for philosophical or speculative reasons the fact of the matter is that nobody knows what Bitcoin or BTC are worth hence the volatility take note of the wording there by the way recall that Bitcoin is a blockchain and BTC is the digital asset native to that blockchain now btc’s value is somewhat easier to understand it has monetary properties like gold except that it’s digital this is a big part of why BTC has gained so much traction its narrative is digital gold however bitcoin’s value is much more difficult to understand remember when I said that Bitcoin blocks only only contain BTC transactions well if you’ve made it this far then you should know that’s not entirely correct Bitcoin blocks can also contain different kinds of data including text audio and video as with the BTC transactions any text audio or video added to a Bitcoin block is stored forever or rather so long as Bitcoin continues to exist now consider that Bitcoin is technically the most secure distributed database on the planet as it survived 50 years despite constant attacks and attempts at manipulation how much is something like that worth again the honest answer is nobody knows what we do know though is that very big BTC fees must be paid to miners to have them include text audio and or video files in each block given how small these blocks are the key takeaway here is that btc’s Supply schedule is designed to increase btc’s value over time this is to ensure that Bitcoin miners are incentivized to continue trying to guess those random numbers in order to create new Bitcoin blocks containing BTC transactions and whatever other stuff people are adding in what’s fascinating is that the mechanisms required to create and maintain btc’s Supply schedule and in particular the difficulty adjustment make Bitcoin mining an incredibly competitive industry as the difficulty increases the harder mining becomes eventually only the most efficient miners can mine BTC profitably by now you’ve probably gathered that Bitcoin mining isn’t for small fry like you and me by the sound of it you need a lot of money and manpower to mine Bitcoin and get some fresh new BTC well this isn’t necessarily true that’s because it is possible to join a mining pool along with other shrimps as the name suggests mining pools are where smaller mining operations will combine their computing power to increase their chances of getting ing the number first if they do then the BTC contained in the Bitcoin block they create is split among the pool’s participants relative to their contribution logically the share of the rewards you receive won’t be very big unless you’re a bigger fish in the pool so to speak but it’s better than the alternative that would be to solo mine which is no different from gambling in an enormous Lottery that’s because the chances of you mining a Bitcoin block on your own are incredibly small but if you get lucky all the BTC in the block you make goes to you jackpot this happens occasionally but it’s very rare anyway back to those mining pools now one of the most common criticisms of Bitcoin is that it’s centralized because most Bitcoin blocks are being created by a handful of mining pools this isn’t entirely correct because the pools often consist of thousands sometimes hundreds of thousands of individual Miners and on the off chance that the mining pool operator decides to do something malicious like say censor certain BTC transactions then these individual miners will simply Point their computing power to a different pool this has actually happened before and you’ll know this if you watched our video about how black rock and other asset managers are trying to control Bitcoin more about that down below now I’d be remiss if I didn’t touch on the other kinds of Bitcoin mining services such as Cloud mining now Cloud mining is one of many so-called thirdparty Bitcoin mining services and most of them are scams you can tell because they’ll promise to give you some insane return on your money via Bitcoin mining as a rule of thumb if it sounds too good to be true it probably is specifically if it’s related to Bitcoin mining by now it should be pretty clear that Bitcoin mining is expensive and complicated to the extent that only the most efficient and well-managed operations are profitable if you think you found one that’s willing to share that kind of wealth with plebs like us I’m afraid you’re sorely mistaken thankfully though there’s much more to the world of mining than Bitcoin there are dozens of other cryptocurrencies you can mine and some of them can be mined without any specialized computers even though many of these are low quality the fact that the crypto Market is entering its bull phase means that most of them will probably rally we’ll leave a link to a few resources down below if you’re interested alternatively you can just speculate on the coins being mined as most people do and if if that’s your up I want to address the elephant in the room and that’s all the energy that’s being used to mine Bitcoin as I noted in the introduction as much as 1% of the world’s energy may be being used for Bitcoin mining the caveat though is that estimates vary significantly with some being as low as 0.1% if btc’s price continues to rise then so will the number of Bitcoin miners this will result in even more energy being used for Bitcoin mining as we’ve learned this increase in mining will cause bitcoin’s difficulty to increase which will further increase the amount of energy being used for mining at first glance it really does look like Bitcoin mining could keep growing to the point that it starts to use a substantial percentage of the world’s power supply upon closer inspection however you realize that Bitcoin miners are incentivized to find the cheapest forms of energy possible in order to maximize profits most of the time this means using energy that would otherwise be wasted like flared gas sometimes it means using very dirty energy like coal but since we’re talking about the Future Let’s think about the future which energy source will be cheapest in the coming years well the answer is likely Renewables specifically nuclear this is precisely why we’ve seen big Tech giants like Microsoft and Google recently purchase nuclear power plants they need massive amounts of energy to power their Advanced AI data centers and they’ve done the maths and realized that the cheapest long-term option is to create their own nuclear power sources as I also noted in the introduction Bitcoin is a multi-billion dollar industry that means it has big players of its own namely publicly traded Bitcoin mining companies lo and behold many of them have been acquiring their own energy sources too Marathon digital buying a wind farm is one of many examples and I’ll quickly note that unlike Technologies like Ai and indeed Society in general Bitcoin miners don’t need a constant power supply and can run on intermittent and unreliable energy sources like wind because as6 can be turned on and off whenever it makes sense to do so but well that’s a topic for another time and for another video anyways when you combine the fact that all Bitcoin miners always use the cheapest available power source that Renewables are the cheapest sources of power that more and more Bitcoin miners are using their own power sources well you realize that all the concerns around bitcoin’s energy use are completely unjustified not only that but it’s easy to forget that the power capacity of the planet is literally growing every single day with the advancements we’re seeing in the energy sector across the board the question we should ask is not what will happen when Bitcoin mining uses up all the world’s power and kills the planet no the question we should in fact ask is what happens when energy becomes so abundant that it costs next to nothing to mine Bitcoin come to think of it we’ll know we’re near btc’s top when people start asking that question because it will mean that all the fud is gone and everyone is feeling fomo instead but that’s also a topic for another time and another video and if this video has piqued your curiosity then why not check out our recent one on what will happen once the last BTC is mined that’s right here let us know your thoughts on Bitcoin mining in the comments and whether you’ve participated in it yourself at any point thank you for watching drop us a like if you enjoyed the video subscribe if you want to learn more about Bitcoin and crypto more broadly and I’ll see you again soon [Music]
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