Bitcoin Creation: How New Bitcoins Are Minted & Distributed

How are New Bitcoins Created?

Bitcoins are created from bitcoin mining (adding transactions to a public ledger). An algorithm controls mining difficulty and total coin creation (21 million).

Because coins are created and distributed via a controlled algorithm (as opposed to a central bank), the bitcoin system avoids inflation of the currency and ensures as steady flow of new coins.

FACT: Over time less and less new coins will be rewarded as mining rewards as Bitcoin goes through incremental halvings.

FACT: The mining reward system is like a lottery, many will try to crack a cryptographic puzzle to add a block of transactions by dedicating computing power to the task. Of everyone who tries, only one account will be awarded new Bitcoins.

Bitcoins are Digital Representations of Currency

Bitcoins themselves aren’t tangible things that you can hold or use in real life; they are digital representations of currency on a balance sheet (i.e. a public ledger; i.e. a blockchain).

Thus, new coins coming into existence equates to numbers being added to a balance sheet.

Once a new batch of coins is created, a record of the existence of those coins is added to the public ledger and associated with the account (i.e. a public address) that found the block and was awarded the mining reward.

Those new coins go into circulation when the entity who got the mining reward sells or uses them.

Bottomline on Where do Bitcoins come from? When a “block” is added to a “blockchain,” new Bitcoins are created. When a miner cracks an algorithm to record a block of transactions to a public ledger called a blockchain, they have a chance of being rewarded with newly minted coins. Thus, in short, Bitcoins are created via mining process, where mining is solving codes to add transactions to the public ledger (aka blockchain). This system results in a predictable fixed increase of the money supply and helps to secure the Bitcoin system (as the more people verifying the ledger and trying to add blocks, the better the chance the ledger is correct and the harder it is for one bad actor to tamper with).