The essence of Bitcoin mining: its role and mechanism as a transaction verification system

The name Bitcoin is likely familiar to many people. However, when it comes to “mining,” some may imagine it as a complex or specialized task. In reality, mining is not just about creating new coins; it is a fundamental system that supports the overall reliability of the Bitcoin network.

Table of Contents

• Definition of Bitcoin Mining
• Why Mining Supports the Network
• Details of the Cryptocurrency Mining Mechanism
• FAQs and Practical Knowledge
• Summary and Future Outlook

Definition of Bitcoin Mining

What is Mining: What is Actually Being Done

Bitcoin mining refers to the process of verifying that multiple transactions on the blockchain are legitimate and confirming their records in a database. The phrase “digging for Bitcoin” is metaphorical; in reality, it involves checking the authenticity of extensive transaction histories.

Everyday Bitcoin transactions worldwide become valid only after undergoing verification such as:

• Preventing double spending of the same coin
• Validating transaction signatures
• Ensuring the sender’s wallet has sufficient balance

Only transactions that pass this verification are recorded into the blockchain, making them tamper-proof.

Trust Mechanism Eliminating Centralization

Bitcoin does not have a central authority like a bank or corporation. So, who guarantees that all transactions are legitimate? The answer is mining.

Participants worldwide follow the same rules and verify transactions in a decentralized manner, creating a system that does not require trust in any individual or organization. This innovative approach is also why Bitcoin can remain free from political control.

Why Mining Supports the Network

Function as a Transaction Confirmation System

Not all transactions on Bitcoin are confirmed instantly. Multiple transactions are gathered into a mempool (pending transaction area) and become targets for miners’ verification.

Mining process:

1. Collect Transactions: Aggregate multiple pending transactions
2. Verification: Check each transaction against basic cryptocurrency rules
3. Create a Block: Compile verified transactions into a block
4. Add to Chain: Append the new block to the blockchain

Through this process, the entire network shares a single, authoritative history.

Prevention of Tampering via Blockchain Technology

Each block in the blockchain contains the cryptographic hash of the previous block. If someone attempts to alter past data, they would need to rewrite all subsequent blocks from that point onward.

This structure makes tampering with historical records computationally nearly impossible. Continuous verification through mining is the mechanism that ensures this immutability.

Details of the Cryptocurrency Mining Mechanism

Reward System and Economic Incentives

Participants in mining are rewarded for consuming computational resources and electricity. This reward structure is a key incentive mechanism to maintain the security of the Bitcoin network.

Block Reward: Newly issued bitcoins awarded to miners. Currently, 6.25 BTC per block, with periodic reductions

Transaction Fees: Fees collected from all transactions included in a block. As network congestion increases, the relative value of these fees rises

Halving Mechanism

Bitcoin mining rewards are not fixed; they halve approximately every four years (210,000 blocks). This design gradually slows the increase of Bitcoin supply.

It is expected that the total issuance will reach the cap of 21 million BTC around the year 2140. Even after issuance ends, mining is expected to continue solely through transaction fees.

Competitive Environment of Mining

Modern mining involves large-scale companies using advanced ASICs (Application-Specific Integrated Circuits) with high computational power. It is extremely difficult for individuals to profit from mining due to:

• Initial investment of hundreds of thousands to hundreds of millions of yen
• Electricity costs (especially in Japan) squeezing profitability
• Competition with large mining companies
• Need for technical expertise and equipment

Participating in pool mining (where multiple miners collaborate) or mining other cryptocurrencies are realistic options.

FAQs and Practical Knowledge

Mining Income and Tax Treatment

In Japan, income earned from mining is subject to taxation. Particular attention should be paid to:

Income Classification: Mining rewards are generally treated as “miscellaneous income” or “business income” and combined with other income

Recognition Point: The market price of Bitcoin at the moment of mining is recorded as income

Deductible Expenses: Costs such as mining equipment, electricity, and internet fees may be deductible

Tax Filing Obligation: If annual income exceeds 200,000 yen, filing a tax return is legally required

Given the complexity of tax treatment, consulting a tax professional is strongly recommended.

Duration of Bitcoin Mining

Bitcoin mining is projected to continue until around 2140, approximately 120 years from now. However, this timeline is relative and assumes that block generation speed remains an average of 10 minutes.

Even after new issuance ends, transaction verification and recording will be forever necessary. Therefore, the function of mining will continue in various forms as long as the Bitcoin network exists.

Summary and Future Outlook

Bitcoin mining is not just a coin creation mechanism but a complex system that guarantees the reliability of a decentralized network. Its main functions include:

• Ensuring Transaction Authenticity: Verifying that all transactions are legitimate
• Securing Immutable Records: Building an unalterable history
• Maintaining Network Security: Securing through economic incentives
• Controlling Cryptocurrency Supply: Inflation prevention mechanisms

Understanding how Bitcoin mining works clarifies why this cryptocurrency holds value and why it can be trusted in terms of security. This understanding also enables more rational decision-making without overreacting to market price fluctuations.

For those interested in deeper knowledge of cryptocurrencies like Bitcoin, learning through actual trading is an effective method. Starting with small amounts allows you to experience both the theoretical and practical aspects of mining and blockchain technology firsthand.