Mining for Bitcoin

The process for creating new bitcoins and other cryptocurrencies is one of the key attractions, especially among libertarians. Because traditional currencies are no longer backed by hard assets such as gold or silver, government-controlled central banks have absolute power over the quantity of currency in existence. They can create new supply by printing more money or reduce supply through taxation—whereas Bitcoin is immune to meddling governments.

Like a kind of digital gold, the supply of bitcoins is finite and new ones are created through a process known as “mining”. Anyone with a computer can mine blocks of bitcoin, but in practice, most are extracted by organised groups using hundreds of dedicated machines that earn the blocks by cracking a computer code. 

There is a limit of 21 million coins and 16.5 million have been mined so far. The value of each block, which is controlled by a mathematical protocol, halves every four years, meaning that 99 percent of all bitcoin will be mined by 2036—though it will take another century to mine the remaining 1 percent, assuming that the reward is still sufficient to pay for the cost of the electricity needed to mine them.

To put it simply, cryptocurrencies are money that exist outside of government control and the traditional banking system. They do not rely on the internet and can be stored offline on any external storage device—which means they can be lost just like paper money. It is estimated that 25 percent of all bitcoin in existence have been lost forever.

This article first appeared on hk.asiatatler.com.