Bitcoin is a decentralized network. No single entity is trusted to update the blockchain.1 Instead, a subset of network participants, called miners, collectively take on this responsibility. This isn’t to say that miners run the network. Bitcoin’s history proves that they don’t.2 Instead, you can think of miners as security guards who are paid by the network for their labor.
Miners secure the network so that the same bitcoin can’t be spent multiple times by the same user. They do so by ordering the network’s transactions into blocks, or batches of transactions, which is akin to time-stamping them.
For providing this valuable service, miners are incentivized to bring computing power to the network with new bitcoins. Miners receive 6.25 new bitcoins3 — as of May 11, 2020 — for each block they add to the blockchain plus the associated fees from the transactions within that block.
Bitcoin’s pseudonymous creator Satoshi Nakamoto understood the temptation miners would have to break the rules to enrich themselves. So to discourage malicious behavior, he designed a system where miners have skin in the game.
Adding blocks comes at a cost. In what is known as “proof-of-work,” miners have to make an incredible number of simple computations to have a chance at winning a block (it is a competition, after all). Running so many calculations requires real-world energy consumption, and lots of it. In this way, mining connects the physical and digital worlds. A miner who would try to submit a block with invalid transactions does so at their peril. Other network participants would reject an invalid block, thereby wasting the miner’s own time and money in the process.
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Bitcoin was explicitly designed for today’s market environment, and it delivered strong performance in the first quarter of 2023. Bitcoin ended the quarter above $28,000 and up 72% YTD, making it bitcoin’s best performing quarter since 1Q21.
We take a look at the first quarter of 2023 and the news that shaped it as well as important events in the future.
Bitcoin ended 2022 down over 60%, which ranks as bitcoin’s second worst performing calendar year since the asset began trading in 2009.
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