Introduction to Crypto Mining

Cryptocurrencies rely on a globally distributed digital ledger to track, confirm, and verify transactions as well as secure the network. The digital ledger tracks all transactions, archiving the sending address of the currency and the amount sent, and the receiving address and the amount of the cryptocurrency received. A key goal of the digital ledger and the mining process is verifying transactions to ensure that coins are not spent twice and that each sender has a sufficient balance to fund all pending transactions. Once transactions are verified, they are immutable, so no one can go back and recover value previously sent.

Under a proof-of-work protocol, thousands of bitcoin miners around the world compete to solve difficult cryptographic puzzles. 

The successful miner is the one that solves the puzzle first with the solution of a 64-digit code called a hash.

By solving the puzzle, the miner is allowed to publish the next block of transactions and receive bitcoin as their reward for verifying transactions and securing the network. 

Blocks are published to the Bitcoin blockchain every ten minutes. With the current block reward of 6.25 bitcoins, there are approximately 900 bitcoin awarded to miners every day. When bitcoin is priced at $50,000, the global mining community can earn $45 million per day as compensation for solving the cryptographic puzzles, verifying transactions, and securing the network. 

Marathon Digital Holdings notes that the profitability of bitcoin miners is based on factors they can control, such as the price of electricity, their hash rate, and corporate expenses. Factors that are not under the control of an individual mining firm are the price of bitcoin, the cost and availability of mining rigs, and the network hash rate. As a corporate strategy, bitcoin miners seek to locate their mining operations in areas with the lowest possible cost of electricity. 

The hash rate of an individual computer or mining rig measures the speed at which computations can be made. Each individual mining company will attempt to continually increase the power of their machines as well as the number of rigs deployed. As individual miners add to their computing capacity and grow their hash rate as a portion of the global hash rate, they have a higher probability of publishing the next block and earning the next block reward. 

Graphic: 3-year chart of hash rates

In June 2021, just before bitcoin miners started to leave China, the total global hashing power was approximately 180 exahashes per second (EH/s), where each exahash is a global rate of one quintillion hashes computed each second. While the rigs were being redeployed to global sites outside of China, global hashing power fell by half to under 90 EH/s. Now that the migration is complete and new rigs are being deployed, global hash rates have now reached a record of over 190 EH/s. As the global hash rate rises, it becomes more difficult for any given miner to compete for the next block reward.