What Is Mining Coin?

What Is Mining Coin?

Cryptocurrency mining is the work that ensures a cryptocurrency’s transactions are verified and recorded in a ledger known as a blockchain. Without it, cryptocurrency transactions would be susceptible to double spending and other security vulnerabilities. This work is done by “miners” that are rewarded with transaction fees and new cryptocurrency for their efforts.

In a nutshell, when someone spends a cryptocurrency, the wallet addresses and amounts are entered into a block on the blockchain along with proof of ownership (or proof of stake). Then, this information is put through a mathematical process called hashing. The result is a long number, comprised of 64 hexadecimal digits. Miners compete to find a hash that is lower than the target hash, and once they do, their computer earns a reward—the coin mined is added to the blockchain along with the hash.

Aside from preventing double-spending, the main function of mining is to guarantee that everyone agrees on the balances associated with addresses in the blockchain. This is important because, unlike flat currencies such as the United States dollar or the euro, cryptocurrencies do not have a central bank that manages them and maintains their consensus. Instead, a distributed network manages this through peer-to-peer trust and mining (and other mechanisms) that make sure the system meets several conditions:

For a cryptocurrency to be secure, it must satisfy three conditions: authenticity, nonrepudiation, and immutability. This is where mining comes in: miners check to ensure that a coin’s owner actually owns the coins by checking for the correct private key, that the amount of the coin being transferred matches the public key, and that the coin has been correctly signed by the owner.

This is a labor-intensive task that takes hours or days on average to verify a single block of transactions. For this reason, the total cryptocurrency mining energy used over a period of time has a correlated relationship to its price.

When the value of a coin rises, so do its energy costs. Consequently, the profitability of mining a particular currency can change dramatically over short periods of time.

In the case of BTC, a high SCC value leads to high estimated climate damages per coin mined—a clear signal that this activity is unsustainable. In fact, at multiple points over 2016-2021, per coin BTC mining was “underwater,” meaning that the damage per coin mined exceeded its market price for an appreciable amount of time.

This analysis uses an SCC value of $100 t-1 CO2e as our starting point to estimate BTC mining climate damages, adjusting for changes in energy prices and the resulting electricity usage. Using these estimates, we found that BTC mining is responsible for emissions equal to about 113 tonnes of CO2e per coin mined from January 2016 through June 2018—an increase of 126 times over the same period in 2021 (Fig. 2A).

For a more detailed analysis of this calculation, see our full report. Interested in learning more? Subscribe to Our Free Weekly Briefing.