How are bitcoin created?

Bitcoin has had a banner start to the year.

Less than 2 months after breaking the $20k barrier for the first time, the digital currency more than doubled in price, hitting a high of $48,297 this week.

Every time bitcoin is proclaimed to be dead, it seems to surge back, buoyed by bullish investors, favorable legislation, and tech titans’ tweets.

At this point, nearly everyone has heard of bitcoin. But many folks still don’t quite understand how the currency is created.

It’s not printed like cash. It’s not a physical object like a gold bar. It’s not stored on a piece of plastic like a debit card. It just exists somewhere in a vast digital expanse until it’s excavated into circulation by a so-called bitcoin miner.

In this illustrated guide, we’ll cover the following:

How bitcoin is created (a process called mining)
How the economics of mining have changed over time
The effects this process has on power consumption

The digital miner

To help explain all of this, we’d like to introduce you to a man named Willy “Wild Eyes” Tibbs.

Wild Eyes made a fortune in the California Gold Rush in 1849. Now — 170 years later — he’s back from the grave for his next prospecting adventure.

Zachary Crockett / The Hustle

Wild Eyes has heard that there are riches to be made in mining a newfangled digital resource called bitcoin.

As he sees it, bitcoin shares a few similarities with gold:

There’s a finite supply: As dictated by bitcoin’s creator, there can only ever be 21m total coins.
They must be mined: The only way to release new bitcoin into circulation is through the efforts of digital excavators.

Wild Eyes digs a little deeper and finds out that bitcoin was created in the wake of the financial crisis in 2008 by an elusive pioneer (or group of pioneers) under the alias of Satoshi Nakamoto.

Nakamoto’s mission was to create a decentralized currency system that wasn’t beholden to middlemen. Among it’s touted benefits:

It’s democratic: Unlike paper money, where a single central authority like a bank manages a record of all transactions, bitcoin is minted, circulated, and audited by thousands of users.
It’s harder to manipulate: Government agencies can’t intercede by doing things like increasing volume or fiddling with interest rates.
It’s global: Someone in Tennessee can instantaneously trade bitcoin with someone across the globe in Tokyo at a low cost.

The backbone of this concept is a distributed network called the blockchain, where a record of all bitcoin transactions is stored.

Now, for an old-school argonaut like Wild Eyes, this is a tad complicated.