1. Bitcoin Basics

Where does bitcoin come from?

The process by which bitcoins are generated is called mining. Using powerful computer processors, individual miners or groups working together essentially solve a complex mathematical problem, which not only uncovers new bitcoin, but also serves to maintain the security and integrity of all bitcoin transactions that take place on the network.

Specifically, transaction details resulting from the transfer of bitcoin around the world are collected into a list called a block. It’s up to miners to confirm those transactions and write them into a general ledger, which is essentially a long list of blocks, known as the blockchain. Anyone can access the blockchain to explore any transaction made between any bitcoin addresses, at any point on the network.

When a block of transactions is created, miners put it through a complicated process involving a hash algorithm and a nonce, which this blog from Coindesk describes in greater detail for those who are so inclined. In return for all their hard work maintaining blockchain, miners earn bitcoins for successfully completing each complex cryptographic hash. The mining process makes use of various checks and balances to ensure that the system’s data remains secure, as tampering with data effectively prevents the production of new bitcoins.

There is a finite number of bitcoins to be discovered — 21 million to be exact — and the process of mining inherently increases in difficulty over time as a way of limiting the number of bitcoins found each day. It is predicted that all 21 million bitcoins will be mined by 2140.

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