TradingKey - When we set aside short-term market sentiment and technical charts, we return to the essential fundamental analysis of Bitcoin (BTC).
What is Bitcoin Mining? How Does it Work?
You may have heard about Bitcoin mining, but how does it function?
In simple terms, mining is essentially a "digital gold rush" involving miners from around the world, with the rules governing it revolving around using mathematical computing power to unlock new coins.
In the world of Bitcoin, there are no banks issuing currency; it relies entirely on miners using computers to solve complex mathematical problems to produce Bitcoin.
The key to mining lies in "guessing numbers": miners must fill a block with a random number (Nonce) and then compute hash values at high speed until the result meets the difficulty level set by the entire network.
This process is akin to guessing a unique correct number among 100 million possibilities; it all depends on computational power.
Once someone guesses correctly, they can "pin" the new block onto the blockchain and receive a Bitcoin reward (currently approximately 6.25 BTC per block).
At this point, other miners pause their calculations to validate whether this block is legitimate; once confirmed, they continue mining for the next block.
Does that sound tedious? However, it’s precisely this "thankless" mechanism that keeps the Bitcoin network decentralized and secure.
But you might be curious: how many Bitcoins are left unmined? The estimated figure is around 19.4 million as of 2025.
The remaining fewer than 1.6 million will be mined by 2140 — one reason why Bitcoin is referred to as "digital gold": its total supply is limited, making it increasingly harder to mine over time.
(Source: Freepik)
What Are the Current Trends in Mining?
The era of Bitcoin mining being a simple matter of “just clicking on a computer to earn coins” is long gone.
Do you remember the early days of Bitcoin? Satoshi Nakamoto mined the first block using a regular computer CPU, and back then, mining was like “scooping gold out of a river with a spoon”—easy but with limited rewards.
However, as the price of Bitcoin surged, more and more people entered the fray, leading to an explosive growth in demand for computational power.
Miners continuously upgraded their equipment, initially replacing CPUs with graphics cards (GPUs), and now we’ve moved on to even more advanced ASIC miners.
Today’s mining landscape is no longer a game for individual players; it has become dominated by professional mining farms—this reflects the reality of the computational power competition.
Existence of Energy Dilemma
With so many machines running at full speed, just how much electricity are we talking about?
For 2024, it is anticipated that the annual energy consumption for Bitcoin mining will reach 150 terawatt-hours, surpassing the total electricity usage of Argentina.
This not only raises environmental concerns but also puts pressure on miners since electricity is also a cost.
Today’s technological upgrades aim to address this issue; for instance, using liquid cooling technology instead of traditional fan cooling can improve efficiency by over 30%, effectively reducing electricity resource usage.
How Does Mining Affect Coin Prices?
(Source: Freepik)
Cost as the "Invisible Floor" of Price
What are the costs associated with mining a Bitcoin?
Let’s assume one mining rig, accounting for equipment depreciation, electricity costs (0.5 Yuan per kWh), labor, and other expenses—totaling around $15,000.
If the coin price drops to 10,000, many miners will operate at a loss. In this situation, they would shut down their rigs to cut losses, leading to a decrease in overall network computational power.
As computational power declines, the mining difficulty will also adjust downward (the Bitcoin algorithm automatically regulates this), increasing the probability for remaining miners to successfully mine coins until supply and demand reach equilibrium.
Thus, you will notice that coin prices rarely stay below the cost line for extended periods because the mechanism of "miners exiting - reduced supply - price recovery" acts like an automatic adjustment system.
Halving Events
Bitcoin’s production is halved every four years.
After the fourth halving in 2024, block rewards will drop from 6.25 BTC to 3.125 BTC, with an annual new supply of around 525,000 coins—this is half compared to the previous cycle.
Historical data shows that each time there is a halving event, coin prices typically surge due to market speculation driven by scarcity.
What is Hash Rate?
The hash rate refers to how many hash calculations all miners on the network can perform per second.
The higher this number, the stronger the computational power participating in mining; thus making the network more secure and improving transaction processing speed.
During a bull market for cryptocurrencies, hash rates tend to be high; various technological upgrades or regulatory constraints can also affect hash rate levels.
What is the Relationship Between Hash Rate and Coin Price?
When hash rates increase, it indicates that the crypto network is more secure and investors have confidence in it—leading them to buy actively.
Conversely, if hash rates are too low and concerns about asset security arise, investors naturally choose to sell off their holdings, resulting in a corresponding drop in prices.
What is the Importance of Circulating Supply for Bitcoin?
We know that the fixed supply of Bitcoin is capped at 21 million coins, and this limited quantity establishes its scarcity.
This scarcity gives Bitcoin a value property similar to that of gold, providing investors with a relatively stable and reliable means of storing value.
How Does Supply and Demand Affect Bitcoin Prices?
Supply Side
On the supply side, while the total amount of Bitcoin is fixed, the speed at which new coins are produced changes constantly due to mining difficulty and halving events.
As mentioned earlier, the halving event occurring every four years sharply reduces new coin production; this reduction in supply combined with miners holding onto their assets can lead to skyrocketing Bitcoin prices.
Demand Side
When changes on the supply side (such as a large number of holders selling their Bitcoins) outpace growth in demand, Bitcoin's price may decrease.
The entry of new investors and the expansion of use cases for Bitcoin are key drivers behind demand growth.
As Bitcoin's visibility continues to increase and its market acceptance gradually improves, more investors are beginning to pay attention to and invest in Bitcoin.
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(Source: Freepik)
What is the Policy Environment for Bitcoin?
Currently, different countries have varying attitudes towards Bitcoin, and these stances are likely to change.
In the United States, Bitcoin's legal status presents a complex and diverse landscape.
From a federal perspective, Bitcoin has not been explicitly defined as a legal tender, yet it has not been completely banned either.
In 2014, the U.S. Commodity Futures Trading Commission (CFTC) recognized Bitcoin as a commodity, which enabled it to be traded on futures exchanges.
In China, Bitcoin is outright banned; ICOs were prohibited in 2017, and by 2021 mining and trading were also banned, resulting in the shutdown of all domestic exchanges.
Europe's approach to regulating Bitcoin is comparatively lenient and is currently characterized by exploration and gradual enhancement.
In 2023, the European Union passed the Markets in Crypto-Assets Regulation (MiCA), which is the world’s first comprehensive regulatory framework for cryptocurrencies and will be fully implemented in 2024.
This relatively lenient environment has attracted major players like Binance and Coinbase to establish their headquarters in Europe.
Why Are Countries So Concerned About a "Virtual Currency"?
The primary reason lies in its low financial stability; significant price volatility is detrimental to financial system stability.
Additionally, to prevent financial crimes—such as money laundering or funding terrorism—Bitcoin's anonymity and convenient cross-border transaction characteristics make it easy for criminals to exploit it as a means of transferring funds for illegal activities such as smuggling or drug trafficking.
How Do Policies Impact Bitcoin Prices?
Policy impacts on the Bitcoin market can be quite significant.
For example, China's complete ban on Bitcoin mining activities in May 2021 had far-reaching effects.
At that time, China accounted for a substantial share of global Bitcoin hash power; thus, the implementation of this ban led to many Chinese miners being forced to shut down their operations and withdraw their computational power from the network.
As a result, within just seven days, Bitcoin plummeted from 55,000 to 30,000 due to panic selling—miners needed to sell coins to recoup losses while investors feared other countries would follow suit with similar bans.
The indirect effects of policy changes on Bitcoin prices should not be overlooked either.
Policy changes can influence investor confidence and market expectations—thereby indirectly affecting supply-demand dynamics and price trends for Bitcoin.
