You're about to understand how Bitcoin mining works, and how most of crypto mining works in general. My hope is that once you see it, it stops feeling mysterious. That's usually what happens when you explain how something actually functions.
Here's the way I think about it. You can picture the Bitcoin blockchain as a giant spreadsheet. Mining is the process of deciding who gets to add new entries to that spreadsheet and update everybody's balances. Bitcoin mining runs on the SHA-256 algorithm, which is basically a little guessing game. There's an enormous number, and every computer running these mining programs is trying to guess a number that meets the conditions set by the last problem that was solved. Whoever guesses the correct solution to the next problem gets to add the next block.
This is what lets Bitcoin mining be determined somewhat randomly and somewhat by your computing power. The more computers you have, quote, Bitcoin mining, what they're really doing is just guessing a whole bunch of times at the right combination to solve the math problem. Then, based on how long it took to solve, the difficulty gets adjusted by the network. If Bitcoin blocks are getting mined too quickly, meaning the math problem is too easy, the blockchain adjusts and makes the problem harder. If blocks aren't being mined often enough, it makes the problem slightly easier.
Watching Bitcoin Blocks In Real Time
You can see Bitcoin blocks in real time right now on mempool.space. You can see who mined each block. What you'll notice is that Foundry USA has something like a third of the entire computing power on the planet that is doing Bitcoin mining. Antpool also has a huge share, and so does ViaBTC. So all the people saying Bitcoin mining is decentralized, in theory it should be. In practice, you have public companies taking in huge amounts of money from investors to buy massive amounts of computers that do insane amounts of guesses.
This is where you hear people talk about the hash rate. The hash rate is basically how many guesses each computer can take at the problem every second. The block reward for Bitcoin right now is three Bitcoin. The halving means that after a certain number of blocks have been mined, the block reward gets cut in half. Over the long term, in my view, this is probably not going to work out that well, because eventually, if the Bitcoin price doesn't constantly go up and up, and if more of the value moves onto things like layer twos, it may not make sense to put all this computing power behind Bitcoin. But for now, it functions just fine.
Right now, every few minutes, one Bitcoin miner gets paid three Bitcoin plus all the fees. You can look at a single block where Foundry USA got 3.158 Bitcoin, around $300,000 worth of Bitcoin. People say that Bitcoin doesn't have inflation, but the way I see it, you could look at mining as token unlocks. That's exactly what mining does. So there was about $314,000 of Bitcoin in that block, or if you just stick with the three Bitcoin and set the fees aside, about $300,000 of Bitcoin unlocked ten minutes ago, about $300,000 unlocked seventeen minutes ago, twenty minutes ago, twenty-nine minutes ago.
If you go throughout an entire day, with maybe ten to fifteen blocks an hour, that's millions of dollars an hour being received by Bitcoin miners. That turns into tens of millions of dollars, and depending on the price, close to hundreds of millions of dollars every single day, depending on how many blocks are mined. This is Bitcoin that wasn't previously accessible on the chain, unlocked through mining. And then miners will often dump their Bitcoin immediately so they can pay their expenses.
Why I Believe Proof Of Work Is Wasteful
What's really important about Bitcoin mining, and mining on these other coins, is that I've come to believe it's massively wasteful for the value it delivers. This is why most new cryptos are proof of stake. With Bitcoin mining, there's no real incentive to hold Bitcoin. You're literally just holding Bitcoin, hoping the price goes up over time. You don't get anything by holding it. You don't get to control the network at all. There's no built-in reason to hold the token. So to me, proof-of-work mining is not sustainable for the long term.
When you look at something like the Internet Computer Protocol by comparison, the entire power consumption of Internet Computer is around 354 kilowatts. That's basically like running a couple of blocks of houses and air conditioners in my neighborhood. Bitcoin mining is, in my estimation, about a million times more wasteful in terms of energy than the Internet Computer blockchain. And the Internet Computer blockchain is also hosting websites, including my own website. This is why some people, like Elon Musk, effectively killed the last Bitcoin bear market when he raised the energy concern. Elon is big into energy with electric cars and solar and going to Mars, and Bitcoin is massively wasteful in terms of energy.
A couple of years ago, the system, what I'd call the crypto matrix, was flooding the conversation with how wasteful Bitcoin's energy use was. Although one could fairly argue that banks waste plenty of energy themselves with all their locations and everything else. But Bitcoin's mining process uses a huge amount of computing power in an extremely wasteful way. You have all these computers, and every few years they make better ones, so all the old Bitcoin mining machines just get thrown out, and hopefully some of them get recycled. Bitcoin mining takes a huge amount of computers all over the planet and a huge amount of energy just to do a very simple thing.
The Decentralization Question
Bitcoin maxis will tell you it's worth it for the decentralization of the network. But in my opinion it's not really decentralized. Foundry USA could basically do whatever it wanted to the Bitcoin blockchain at this point, and it'd be very hard for anybody to stop them. So Bitcoin mining is this term that's been made to make you think it's some weird, exotic thing, but it's basically just a process of guessing a number in an algorithm. If you guess that number, you get to process the next block in the Bitcoin blockchain.
With Bitcoin, there's also nothing to stop Foundry USA or some of these pools from causing problems. You could have a lot of chaos on the blockchain if some of these mining pools started doing fraudulent things with transactions. You can have things like a double spend, where you spend it on one block and somebody else mines another block and the Bitcoin was spent differently on each block. This is why Bitcoin transactions take a really long time to confirm.
Fifteen years ago, Bitcoin mining was a big innovation. It was really cool. But today there are proof-of-work blockchains that mine way faster than Bitcoin and crank blocks out constantly. Even so, most things in crypto are moving toward proof of stake, because proof of stake gives you a reason to hold the coin. Most of the top cryptos are proof of stake now. Ethereum is proof of stake, Solana is proof of stake, Cardano is proof of stake. A lot of these others are proof of stake because it gives you a very clear reason to hold the coin.
On Internet Computer, for example, if you hold the coin, you get to vote on new proposals and you get rewards, and the inflation is given to holders of the coin. On Ethereum, if you look at ultrasound.money, changing Ethereum away from proof of work to proof of stake appears to have been a fantastic change for the system. If you compared it to proof of work, you'd see that the network would be wasting a ton more computing power and would have to pay way more out. If you want to go deeper into how all of this fits together, you can explore my Money playlist.