Why Bitcoin mining is more than solving puzzles

Bitcoin mining is often described as solving complex puzzles, but the reality is both simpler and more intricate. While mining underpins the Bitcoin network, ensuring security and transaction integrity, it also sparks debates over its energy consumption and long-term sustainability.

Greg Walker, an educator at Learn Me a Bitcoin, told The Crypto Radio that mining is not just about discovering new Bitcoin but about securing transactions and maintaining decentralization.

"Mining is basically just adding transactions onto the blockchain," Walker explained. "When they hit the blockchain, they’re there forever – it’s like a permanent ledger that keeps everything in order."

As Bitcoin continues to evolve, understanding mining is essential not just for miners but for anyone interested in the mechanics of decentralized finance. From proof-of-work (PoW) to mining difficulty, we explore what makes Bitcoin mining a cornerstone of the network's success.

How Bitcoin mining secures the network

Bitcoin mining is more than just creating new coins – it ensures the integrity of transactions. Miners collect recent transactions, package them into a block, and attempt to add them to the blockchain. But why is this process necessary? Without mining, the network would be vulnerable to fraud, particularly the double-spend problem.

"Bitcoin runs on a network of computers," Walker said. "If you make a transaction, it's possible to insert one version on one side of the network and another on the other side. Half the nodes might see one, the other half might see the other. Mining resolves that by selecting which transaction gets added to the blockchain."

This process relies on proof-of-work, a decentralized lottery where miners compete to solve a cryptographic hash. The winner earns the right to add the next block and is rewarded in Bitcoin, ensuring ongoing network participation and security.

"It’s all about energy expenditure," Walker said. "No single miner can control which transactions get added, which keeps the system decentralized and prevents manipulation."

Why mining difficulty adjusts over time

The Bitcoin network is designed to adjust its mining difficulty roughly every two weeks. This adjustment ensures that new blocks are consistently added approximately every ten minutes, regardless of how many miners are competing.

"If more miners join and hashing power increases, blocks would be mined too quickly," Walker explained. "So, the difficulty adjusts to maintain that ten-minute average."

Conversely, if miners leave the network, difficulty decreases, making mining more accessible. This built-in mechanism prevents sudden fluctuations in Bitcoin issuance and maintains the network’s stability.

"It’s not about making mining harder for the sake of it," Walker added. "It’s about ensuring a consistent and predictable supply of new Bitcoin."

The energy debate: Is Bitcoin mining wasteful?

Bitcoin mining has faced criticism for its high energy consumption, with comparisons to entire nations' power usage. But Walker argues that the energy debate lacks context, particularly regarding Bitcoin’s security function.

"If you don’t think Bitcoin is useful, then mining might seem like a waste," he said. "But if you’re using Bitcoin to store wealth, that energy is protecting your money – just like banks use energy to secure traditional financial systems."

Many mining operations are also shifting towards renewable energy sources, further challenging the notion that Bitcoin mining is inherently wasteful. Ultimately, Walker sees Bitcoin’s energy use as a tradeoff for financial independence and censorship resistance.

"Bitcoin doesn’t require fossil fuels – it just needs electricity," he pointed out. "If mining uses renewables, the environmental argument becomes much weaker."

What happens when all Bitcoin is mined?

With a fixed supply of 21 million Bitcoin, the mining process will eventually reach an endpoint. But what happens to miners once the last Bitcoin is mined?

"Right now, miners earn Bitcoin rewards and transaction fees," Walker said. "Over time, the block rewards halve, and eventually, transaction fees will become the primary incentive for miners."

As Bitcoin adoption grows, transaction fees are expected to rise, making mining profitable even without block rewards. However, if network usage declines, low fees could deter miners, potentially impacting security.

"It’s a balance," Walker said. "If Bitcoin remains widely used, fees should sustain mining. If not, we might face security risks."

The future of Bitcoin mining

Mining has evolved from an activity anyone could do on a personal computer to an industry dominated by specialized mining farms. This centralization raises concerns about power concentration, but Walker believes Bitcoin’s design still ensures resilience.

"We saw a mining pool getting close to 50% of network control in 2016," he recalled. "The community reacted by shifting hash power away, keeping the system decentralized."

Looking ahead, mining’s future will depend on technological advancements, energy efficiency, and Bitcoin’s continued adoption. For those considering entering the mining industry, Walker advises caution.

Walker explained that mining has changed significantly over the years, making it less accessible to individuals without cheap electricity and specialized hardware. In most cases, he suggested that buying Bitcoin directly might be a more practical option.

Bitcoin mining is a crucial yet often misunderstood aspect of the network. Beyond creating new coins, it secures transactions, maintains decentralization, and ensures the system remains fair and resilient. While mining presents challenges – such as energy use and centralization risks – it remains a fundamental part of Bitcoin’s long-term vision.

As Walker summed it up, "The energy isn’t used to create Bitcoin – it’s used to protect the network. That’s what people misunderstand the most."

Understanding mining isn’t just for miners; it’s for anyone who wants to grasp Bitcoin’s true value. As the industry evolves, its role in securing decentralized finance remains as critical as ever.

Listen to the whole interview on The Crypto Radio's live player or in Guardians of Bitcoin podcast.