logo

Mining Explained

The Economic Engine

Bitcoin is an economic system driven by the incentives of stakeholders such as miners, users, and enterprises. Bitcoin SV has evolved into a globally scalable system due to the alignment of incentives.

Miners provide the computing power

Bitcoin's economic design is where its greatest brilliance lies, not its underlying blockchain technology. Bitcoin was designed to incentivise multiple nodes in a network to maintain a copy of the same transaction ledger, so that network participants do not have to rely on any single keeper of the ledger to create a decentralised payment system in which participants do not need to rely on an intermediary (such as a bank or payment processor) to facilitate transactions and prevent "double-spending" of coins. Bitcoin's "miners" supply computational power to maintain a verified public ledger of all past transactions.

How Mining Works

New blocks are added to the blockchain on average every 10 minutes, and miners compete for the privilege. They earn that privilege by finding a very rare value in a difficult mathematical method that takes a lot of computer power (a "proof-of-work") in order to validate and rank transactions. It's the equivalent of keeping computer servers running until one of them generates a winning lottery ticket. To add the next block of validated transactions to the blockchain, a miner must first identify the exceedingly uncommon value. In order to compete for each block, miners must keep their computers online throughout the clock.

What are the economic incentives for miners?

A miner’s Bitcoin block reward is made up of two components: (1) newly minted Bitcoin in a defined number of coins — a time-depreciating static “subsidy”; and (2) the transaction fees paid by senders for all transactions included in their block.

After the initial 21 million Bitcoins have been mined and distributed into the system at Bitcoin’s inception, the per-block subsidy will decrease by half every four years until it disappears entirely. It was therefore never intended for the static subsidy to be the principal source of money supporting miners.

Bitcoin’s design instead anticipated that miners would earn more through transaction fees when the static subsidy (of newly created Bitcoin) declined. Once the block reward is eliminated, transaction fees will need to take its place in perpetuity.

Bigger Blocks are Critical

As the static subsidy continues to be halved, larger block sizes are essential to ensure that miners have a financial incentive to continue protecting the Bitcoin Blockchain. These larger blocks are required to accommodate millions and eventually billions of transactions, each of which generates more cash for the miners in the form of transaction fees to compensate for the loss of revenue caused by the decreasing static subsidy.

Unfortunately, the BTC network has maintained the block size low, at 1MB, which only allows for a tiny number of transactions. As the fixed subsidy continues to be halved, this will not provide miners with enough transaction fee revenue.

Satoshi’s original intent is reinstated in the BSV blockchain. BSV can support blocks with massive quantities of transactions, which, even with modest transaction fees, can continue mining profitability for years to come because of the uncapped block size and limitless data capacity.

Join Our Community

Stay updated with the BSV Blockchain Association's latest news and events.
Subscribe to our weekly newsletter.