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What is mining and how it works?

In order for the entire network to function, there should be someone in charge to take care of it. In the case of Bitcoin, it’s not centralized party but rather thousands of computers that host the entire Bitcoin network, maintain it and take care of its security. 

Everyone can do it and all he needs is a powerful computer and the program to run on that computer and he will become part of it. In this process, new coins are being produced and given as a reward for those who are working on verifying users’ transactions and making sure that everything is according to the rules. 

Since the process of creating new coins is similar to the process of mining and refining Gold, this process is called mining.

Miners are getting two types of rewards for their work after the creation of every block.

What type of reward Bitcoin miners get?

Firstly, miners get the block reward. For every block that was created, there is a certain amount of Bitcoins that goes to the miners. If the miner verified the transaction that was added to the block, he is going to receive his part of the share.

The second reward is the transaction fee that is paid by users for verifying their transactions. Miners require a lot of computational power. The more the power you have, the more the chances you have that you are going to find first the solution to the mathematical problem because only the first who solve the problem is going to receive the reward. 

The increase of miners will cause an increase in the difficulty of solving the mathematical problem.

It means that miner reward will decrease.

That’s why mining is currently considered as not so profitable because it requires a lot of computing power and what is an even bigger problem is that you are competing with mining conglomerates with enormous mining power and your chances to be the one that is going first to find the solution are not so big.

Mining is deflationary which means that the number of mined coins is dropping. As it is declared by bitcoin white paper, every four years mining reward is halved.

Currently, miners are getting 6.25 Bitcoins per block.

As it was defined in the white paper, the last Bitcoins will be mined around 2140.

What will happen once all Bitcoins are mined?

Once the last Bitcoin is mined in 2140, miners will still be rewarded for processing transactions by receiving transaction fees. By then, blocks will also be bigger and contain more transactions which will give miners a larger aggregate of fees.

Considering that by 2140 the increase in price will happen and also increase in the number of transactions in each block, it leads to the conclusion that mining will still attract interest.

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