Bitcoin Mining
Why would anyone “invest” an enormous amount of money into Bitcoin (by paying for electricity) – seemingly for nothing, for no reason at all?
In reality, miners do not do this for free, but for profit. Approximately every 10 minutes, a competition takes place to find the correct number, and the reward for winning this competition is newly created Bitcoin.
At the very beginning, there were no bitcoins at all. So how did they enter circulation? Through mining.
Behind the scenes of the Bitcoin network, there is an algorithm that distributes new bitcoins. These bitcoins are released into circulation through mining and are awarded to the winner of the competition for a new block.
To be precise, the reward for mining a block consists of newly created bitcoins and transaction fees (fees). We will talk about transaction fees in more detail later.
Halving – reducing the block reward
Satoshi Nakamoto designed the algorithm in such a way that approximately every four years (precisely after 210,000 mined blocks), the reward for finding a block is reduced by half. This process is called halving.
At the very beginning, in 2009, the reward for mining a block was 50 BTC. This meant that for every mined block, 50 new bitcoins entered the network and were awarded to the miner.
After 210,000 blocks, the algorithm reduced the reward by half – to 25 BTC. In this way, bitcoins were gradually released into circulation.
This mechanism was brilliantly designed – it ensured the gradual distribution of bitcoins among people while at the same time limiting their total supply.
As the distribution of new bitcoins gradually decreases, Bitcoin’s inflation rate becomes lower and lower.
In this way, Bitcoin solved not only the problem of modern money, but also the problem of every form of money in history – uncontrollable inflation. As mentioned earlier in this book, all forms of money in the past ultimately failed because of inflation, and today’s fiat currencies will not meet a different fate.
Bitcoin is the only currency where we can be certain that there will never be more than 21 million BTC in circulation. This number is permanently encoded in its algorithm and cannot be changed.
How many bitcoins have already been mined?
At present (March 2025), the reward for a mined block is 3.125 BTC and it will continue to decrease over time.
- 2009 – 2012: the first 50% of bitcoins were mined
- 2012 – 2016: another 25%
- 2016 – 2020: another 12.5%
- 2020 – 2024: 6.25%
- 2024 – present: 3.125%
So far, approximately 19.5 million BTC have been mined, which represents about 92.86% of the total supply of 21 million BTC.
But don’t worry – we are not running out of Bitcoin anytime soon. Thanks to the halving mechanism, the last bitcoin (or a fraction of it) will not be mined until around the year 2140.
As the distribution of new bitcoins continues to decline, I believe this will create enormous upward pressure on Bitcoin’s price – because while demand may grow, the number of new bitcoins entering circulation will keep shrinking.
Transaction Fees
“Every four years the miners’ reward is cut in half. Soon they will be operating at a loss, mining will no longer be profitable, and Bitcoin will die!”
At first glance, this may sound logical. The mining reward is reduced by half every four years, which means miners receive fewer and fewer bitcoins for each new block.
For the sake of simplicity when explaining mining, I deliberately left out transaction fees until now.
What are transaction fees?
For every Bitcoin transaction, we pay a small fee (fee) that motivates miners to include our transaction in a block.
These fees do not go to any central institution, but directly to the miners who secure the Bitcoin network.
Transaction fees are calculated based on the size of the transaction in bytes, not on the amount of bitcoin being sent. In other words, it does not matter whether you are sending one dollar’s worth of bitcoin or bitcoins worth billions of dollars – the fee can be the same.
The level of fees is determined by network congestion and human impatience.
Mempool and transaction selection
Each block has a limited maximum size, which means that not all transactions created since the previous block can fit into the next one.
So which transactions get included? The answer is simple – those that contain the highest fees.
If a transaction does not make it into a block immediately, it does not mean it is lost. All pending transactions are stored in a space called the mempool. From there, miners select transactions to include in a block, which they then confirm.
The mempool can be more or less congested depending on the number of transactions, but sooner or later, all valid transactions are confirmed.
Most Bitcoin wallets automatically estimate transaction fees based on current network conditions. However, users usually have the option to manually adjust the fee, depending on how quickly they want the transaction to be confirmed.
Will transaction fees be enough in the future?
Today (2025), the primary motivation for miners is the block reward. As we approach the year 2140, when the last bitcoin will be mined, the block reward will be practically zero, and transaction fees will become the only source of income for miners.
Will that be enough? We are already seeing early signs.
In May 2023, a historic event occurred. In block 788,695, transaction fees exceeded the block reward itself. Miners earned more from transaction fees than from newly mined bitcoins in that block.
Because Bitcoin has a fixed supply, it is reasonable to assume that its value will increase significantly over time – and with it, transaction fees.
You may now be wondering: “What if I want to buy a coffee with bitcoin, and the transaction fee costs thousands of dollars?”
The solution lies in so-called second-layer technologies of Bitcoin, but we will talk about them later.