The bitcoin speculation frenzy reached a fever pitch at the end of 2017, and along with interest in the cryptocurrency, people are learning more about the technology behind it—and the electricity required to keep it up.

Bitcoin mining “guzzles energy,” Wired declares. The process “uses more electricity than Iceland,” Digital Trends says. It “consumes more electricity a year than Ireland,” warns The Guardian.

Forget for a moment the sudden mass alarm over how much electricity bitcoin mining uses—for a layperson, the very fact that it requires electricity to mine a digital asset may be confusing. Here’s how it all works.

How does bitcoin mining work?

Bitcoin runs on blockchain, a public, permanent, decentralized ledger where all bitcoin transactions are recorded in bundles of multiple transactions, called “blocks.” The blocks are added to the chain (hence “blockchain”) by “miners” who mine, or verify, the blocks.

Mining requires large, expensive machines that compete to solve complicated math problems in real time. The computations get continuously harder, and so the machines are getting more advanced to keep up, and more expensive as a result. The best ones cost thousands of dollars.

Mining doesn’t require the human being to physically sit and solve those formulas—you can plug it in, download the proper mining software, and let it run; the machine does the work.

As the machines race to do their computations, they burn through a lot of electrical power, make a lot of noise, and generate a lot of heat—enough to heat your house in the winter. (Notice how this custom rig comes with seven fans.)

A bitcoin-mining supercomputer (Marko Ahtisaari/Flickr) More

The process is called “mining” because, like the mining of a physical resource such as oil or gold, there is a finite supply: the amount of bitcoins is capped at 21 million. When a miner verifies a block, they receive a tiny amount of new bitcoins as a reward, and that is the only way new bitcoins are created; they cannot be duplicated. So far, 16.8 million bitcoins have been mined, and at the current rate we won’t hit the 21 million cap for over 100 years.

The amount of bitcoin that miners receive as reward also gets halved every four years. That last happened in 2016 and has happened just twice in bitcoin’s history. The current reward is 12.5 bitcoins per block mined.

Thus the increasing amount of power required to mine cryptocurrency is by design: there’s more competition than ever to mine blocks, so the process needs to be competitive to keep the number of newly created bitcoins constant. As more miners join the network, the difficulty of mining increases.

If bitcoin mining is a gold rush, then China, where the majority of bitcoin mining pools are located, is California. And the companies that make the mining equipment are the ones supplying the picks and shovels.

The largest seller of mining equipment is Bitmain, a semiconductor company in China that makes ASIC (application-specific integrated circuit) microchips; its cofounder Jihan Wu is a popular figure in the bitcoin world. (Check out Bitmain’s latest mining device, the Antminer S9, which sells for $7,000 USD.) AMD and Nvidia have also benefited from the bitcoin boom, since their graphics cards are used in mining rigs.

Bitmain Antminer S9 device (Bitmain) More