How does Bitcoin mining work, and why will there only be 21 million bitcoin?

What miners do

Mining means spending computing power to process transactions, secure the network and keep everyone in step.¹ A miner collects waiting transactions into a block, then searches for the proof of work from Lesson 1.^4,1

There is no shortcut. The only way to find a valid proof is to try an immense number of guesses.¹ In the early days a home computer could do it. Today, only specialised hardware is cost-effective.¹

Ten minutes, on average

As more miners join, the network makes valid blocks harder to find. That keeps the average time between blocks at about 10 minutes.¹ Every 2,016 blocks, the network checks how long those blocks took. The target is two weeks.²

If the blocks came faster than two weeks, difficulty goes up. If they came slower, it goes down.² Single blocks still vary: one can arrive much sooner or much later than 10 minutes.¹

The reward

The first transaction in every block is special. It is called the coinbase transaction, and it pays the miner.^2,4

The reward has two parts: the block subsidy, which is brand-new bitcoin, and the fees from every transaction in the block.² The whitepaper explains why: with no central authority to issue coins, this is how new coins get into circulation.⁴

A miner can't spend this reward straight away. It must wait at least 100 blocks, in case its block ends up off the main chain.²

When two miners win at once

Sometimes two blocks are found at the same moment. Miners build on the first one they receive, then switch to whichever chain grows longer first.¹

Once a transaction is in a block, every block added after it makes it harder to reverse. These are called confirmations, and each user decides how many are enough.¹

Why only 21 million

Only 21 million bitcoin will ever be created.¹ Nakamoto set this out when releasing the software in 2009: "Total circulation will be 21,000,000 coins."⁵

The schedule's real total is a little lower: almost 2,099,999,997,690,000 satoshis, which is just under 21 million bitcoin.³

Nobody can simply decide to make more.⁶ Every node rejects anything that breaks the rules it follows.¹ In Bitcoin Core's code, a block that pays its miner more than the subsidy plus fees is rejected with the message "coinbase pays too much".⁷

Satoshis

One bitcoin splits into 100,000,000 smaller units called satoshis, or sats.¹ The name honours Bitcoin's creator.⁸ So the cap doesn't stop small payments: bitcoin can be divided to eight decimal places.¹

Can miners cheat?

Someone who controls half of all mining power could block or reverse recent transactions.¹ They still couldn't create coins out of nothing, or take money that was never theirs, because honest nodes reject invalid transactions. At most, they could try to take back money they had recently spent.⁴