When you hear about bitcoin “mining,” you envisage coins being dug out of the ground. But bitcoin isn’t physical, so why do we call it mining?

Because it’s similar to gold mining in that the bitcoins exist in the protocol’s design (just as the gold exists underground), but they haven’t been brought out into the light yet (just as the gold hasn’t yet been dug up). The bitcoin protocol stipulates that 21 million bitcoins will exist at some point. What “miners” do is bring them out into the light, a few at a time.

They get to do this as a reward for creating blocks of validated transactions and including them in the blockchain.

The result of “bitcoin mining” is twofold. First, when computers solve these complex math problems on the Bitcoin network, they produce new bitcoin, not unlike when a mining operation extracts gold from the ground. And second, by solving computational math problems, bitcoin miners make the Bitcoin payment network trustworthy and secure, by verifying its transaction information.

There’s a good chance all of that only made so much sense. In order to explain how bitcoin mining works in greater detail, let’s begin with a process that’s a little bit closer to home: the regulation of printed currency.

Rewarding Miners

With as many as 500,000 purchases and sales occurring in a single day, however, verifying each of those transactions can be a lot of work for miners, which gets at one other key difference between bitcoin miners and the Federal Reserve, Mastercard or Visa. As compensation for their efforts, miners are awarded bitcoin whenever they add a new block of transactions to the blockchain.

The amount of new bitcoin released with each mined block is called the "block reward." The block reward is halved every 210,000 blocks or roughly every 4 years. In 2009, it was 50. In 2013, it was 25, in 2018 it was 12.5, and sometime in the middle of 2020, it will halve to 6.25.

• Bitcoin successfully halved its mining reward for the third time on May 11th, 2020.
• From that date, it will take roughly 1,458 days until the network reaches its fourth halving, making the reward for mining just 3.125 Bitcoins per block.

This system will continue until around 2140. At that point, miners will be rewarded with fees for processing transactions that network users will pay. These fees ensure that miners still have the incentive to mine and keep the network going. The idea is that competition for these fees will cause them to remain low after halvings are finished.