3. An Overview of Cryptocurrency
The Bitcoin Creation Process
Bitcoin is a token with a fixed supply. Only 21 million BTC will ever exist, and they are getting distributed into the network at a fixed rate. There is currently ~19 million in circulation, with the rest still not available on the network.
New Bitcoin is added to the network through a process called mining which, as mentioned earlier, really just means operating the Bitcoin network in exchange for an incentive. This incentive is called a block reward, which is newly minted Bitcoin that is rewarded to the miner and added into circulation. As of June 2024, each new block added to the network mints 3.125 Bitcoin, and with a rate of mining one block approximately every 10 minutes, it means that approximately 450 new Bitcoin are added to the network every day.
The block reward wasn’t always 3.125 Bitcoin, however. Every four years, Bitcoin undergoes an event called halving, with the most recent one occurring in April 2024. The halving occurs as a way to turn Bitcoin into a deflationary asset by cutting the block reward in half. This means that from May 2020 (the last halving date) up until April 2024, the block reward was 6.25 Bitcoin. The first halving occurred in November of 2012, when the block reward got halved from 50 Bitcoin per block to 25.
Mining Bitcoin is extremely compute intensive as it requires a computer to solve a complex cryptographic hash in order to receive the block reward. Therefore, there is a direct correlation between how much compute power a miner has and the amount of Bitcoin they will mine. Companies such as Marathon Digital, CleanSpark, and Phoenix Group have become prominent Bitcoin miners by building warehouses full of computers to more effectively mine this asset and as a result have achieved market caps of $5 billion, $3.2 billion, and $2.7 billion respectively as of June 2024.
Source: ChatGPT
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