How Are Bitcoins Mined?

Bitcoin mining is the process by which new bitcoins are entered into circulation. Continue reading this article to know how bitcoins are mined.

Bitcoin is a decentralized digital currency that was first introduced in January 2009. It is based on the ideas presented in a white paper by the enigmatic and pseudonymous Satoshi Nakamoto. The person or people who invented the technology is still unknown. Bitcoin promises lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, is run by a decentralized authority.

Bitcoin is classified as a type of cryptocurrency because it employs cryptography to ensure its security. There are no physical bitcoins; only balances are kept on a public ledger that everyone can see (although each record is encrypted).

A massive amount of computing power is used to verify all Bitcoin transactions, a process known as “mining.” Bitcoin is not issued or guaranteed by any banks or governments, nor is it valuable as a commodity. Even though it is not legal tender in most parts of the world, Bitcoin is extremely popular and has sparked the creation of hundreds of other cryptocurrencies known as altcoins. When Bitcoin is traded, it is commonly abbreviated as BTC.

Now that bitcoin has been introduced, we’ll proceed with mining bitcoin. Continue reading this article to know all there is about Mining bitcoins.

Understanding Bitcoin

The Bitcoin system consists  of a network of computers (also known as “nodes” or “miners”) that all run Bitcoin’s code and store its blockchain. A blockchain can be viewed metaphorically as a collection of blocks. Each block contains a set of transactions. No one can cheat the system because all of the blockchain computers have the same list of blocks and transactions and can see these new blocks as they’re filled with recent Bitcoin transactions.

Whether or not they run a Bitcoin “node,” anyone can see these transactions in real-time. To commit a heinous crime, a bad actor would need to control 51% of the computing power that makes up Bitcoin. As of mid-November 2021, Bitcoin had approximately 13,768 full nodes, and this number is growing, making such an attack extremely unlikely.

However, if an attack were to occur, Bitcoin miners—the people who participate in the Bitcoin network with their computers—would most likely split off to a new blockchain, rendering the bad actor’s effort to carry out the attack futile.

Bitcoin token balances are maintained using public and private “keys,” which are long strings of numbers and letters linked by the mathematical encryption algorithm that generates them. The public key (similar to a bank account number) serves as the address made public, and others can send Bitcoin.

The private key (similar to an ATM PIN) is meant to be kept confidential only to authorize Bitcoin transactions. Bitcoin keys are not to be confused with a Bitcoin wallet, a physical or digital device that facilitates Bitcoin trading and allows users to track coin ownership. The term “wallet” is misleading because Bitcoin’s decentralized nature means it is never stored “in” a wallet but instead distributed on a blockchain.

What Is Bitcoin Mining?

Bitcoin mining is the process by which new bitcoins enter circulation; it is also how recent transactions are confirmed by the network and a critical component of the blockchain ledger’s maintenance and development. “Mining” is done with sophisticated hardware that solves a very complex computational math problem. The first computer to solve the issue receives the next block of bitcoins, and the process is repeated.

Cryptocurrency mining is time-consuming, expensive, and only occasionally profitable. Nonetheless, mining has a magnetic appeal for many cryptocurrency investors because miners are rewarded with crypto tokens for their efforts. This could be because, like California gold prospectors in 1849, entrepreneurs see mining as a source of pennies from heaven. And why not, if you’re technologically inclined?

The Bitcoin reward that miners receive is an incentive that motivates people to help with the primary goal of mining: legitimizing and monitoring Bitcoin transactions to ensure their validity. Bitcoin is a “decentralized” cryptocurrency or one that does not rely on any central authority, such as a central bank or government, to oversee its regulation because these responsibilities are distributed among many users worldwide. However, before you invest the time and money, read this explanation to see if mining is genuinely for you.

Why Bitcoin needs miners

The term “mining” in blockchain refers to the computational work that nodes in the network perform in the hopes of earning new tokens. In reality, miners are being compensated for their work as auditors. They are in charge of determining the legitimacy of Bitcoin transactions. This convention was devised by Bitcoin’s founder, Satoshi Nakamoto, to keep Bitcoin users honest. Miners help to prevent the “double-spending problem” by verifying transactions.

This isn’t an issue with physical currency: once you hand someone a $20 bill to buy a bottle of vodka, you no longer have it, so there’s no risk of using that same $20 bill to buy lottery tickets next door. While counterfeit money is possibly being produced, it is not the same as spending the same dollar twice. However, with digital currency, the holder could copy the digital token and send it to a merchant or another party while keeping the original.

Assume you have one genuine $20 bill and one counterfeit $20 account. If you tried to spend both the real and fake bills, someone who looked at the serial numbers of both bills would notice that they were the same number, indicating that one of them had to be a forgery. A blockchain miner does something similar: they check transactions to ensure that users haven’t illegitimately attempted to spend the same bitcoin twice.

Why mine Bitcoin?

Mining serves an essential function in lining miners’ pockets and supporting the Bitcoin ecosystem: it is the only way to release new cryptocurrency into circulation. Miners, in other words, are essentially “minting” currency. For example, there were approximately 18.93 million bitcoins in circulation as of January 2022, out of 21 million.

Aside from the coins created by the genesis block (the very first block, which founder Satoshi Nakamoto created), all bitcoins were created by miners. In the absence of miners, Bitcoin as a network would continue to exist and be usable, but no new bitcoin would be made.

However, because the rate at which bitcoin is “mined” decreases over time, the final bitcoin will not be circulated until around 2140. This is not to say that transactions will no longer be verified. Miners will continue to verify transactions and be compensated for their efforts to maintain the network’s integrity.

To earn new bitcoins, you must be the first miner to solve a numerical problem with the correct, or closest, answer. This is also known as proof of work (PoW). To start mining, you must first engage in this proof-of-work activity to solve the puzzle. There is no advanced math or computation involved. You may have heard that miners solve complicated mathematical problems—this is correct, but not because the math is complex. They attempt to be the first miner to generate a 64-digit hexadecimal number (a “hash”) less than or equal to the target hash. It’s all based on guesswork.

It is a matter of guesswork or randomness, but it is challenging to work with the total number of possible guesses for each of these problems in the trillions. And the number of possible solutions grows as more miners join the mining network (known as the mining difficulty). Miners require a large amount of computing power to solve a problem first.

History of Bitcoin Mining

Two developments have contributed to the current evolution and composition of bitcoin mining. The first is the creation of custom bitcoin mining machines. Because bitcoin mining is essentially guesswork, getting the correct answer before another miner has almost entirely to do with how fast your computer can generate hashes. Desktop computers with standard CPUs dominated bitcoin mining in the early days. However, as the algorithm’s difficulty level increased over time, it became more challenging to discover transactions on the cryptocurrency’s network. According to some estimates, finding a valid block at the early 2015 difficulty level would have taken “several thousand years on average” using CPUs.

Miners discovered that graphics cards, also known as graphics processing units (GPUs), were more effective and faster at mining over time. However, they used a lot of power for individual hardware systems that weren’t needed for cryptocurrency mining. Field-programmable gate arrays (FPGAs), a type of GPU, were an improvement, but they had the same flaws as GPUs.

Miners now use custom mining machines known as ASIC miners, which are outfitted with specialized chips for faster and more efficient bitcoin mining. They range in price from a few hundred to tens of thousands of dollars. Bitcoin mining is so competitive that it can only profitably use the most recent ASICs.

Energy consumption costs exceed the revenue generated using desktop computers, GPUs, or older ASIC models. Even if you have the most recent computer, one computer is rarely enough to compete with mining pools—groups of miners who pool their computing power and split the mined bitcoin among themselves.

Bitcoin forks have also impacted the composition of the bitcoin miner network. One block of transactions is verified roughly every 10 minutes due to 1 in 16 trillion odds, scaling difficulty levels, and the massive network of users verifying transactions. However, consider that 10 minutes is a goal, not a rule.

The Bitcoin network can currently process slightly less than four transactions per second, with transactions being logged in the blockchain every ten minutes. On the other hand, Visa can process approximately 65,000 transactions per second. However, as the network of Bitcoin users grows, the number of transactions made in 10 minutes will eventually outnumber the number of transactions that can be processed in 10 minutes. Waiting times for transactions will begin at that point and will continue to increase unless the Bitcoin protocol is changed.

Scaling refers to the problem at the heart of the Bitcoin protocol. Though most bitcoin miners agree that something must be done to address scaling, there is less agreement on how to do it.

Developers have proposed creating a secondary “off-chain” layer of Bitcoin to allow for faster transactions that the blockchain can later verify or increase the number of transactions that each block can store. The first solution would make transactions quicker and cheaper for miners because there would be fewer data to verify per block. The second would deal with scaling by increasing the block size to process more information every 10 minutes.

In July 2017, bitcoin miners and mining companies representing roughly 80% to 90% of the network’s computing power voted to include a program to reduce the amount of data required to verify each block.

A segregated witness, or SegWit, is the program that miners voted to include in the Bitcoin protocol. This term combines the words segregated, which means separate, and witness, which refers to the signatures on a Bitcoin transaction. The term “segregated witness” means separating transaction signatures from a block and attaching them as an extended block. Though adding a single program to the Bitcoin protocol may not appear to be much of a solution, it has been estimated that signature data accounts for up to 65 percent of the data processed in each block of transactions.

In August 2017, less than a month later, a group of miners and developers initiated a hard fork, leaving the Bitcoin network to create a new currency based on the same codebase as Bitcoin. Although this group agreed that there was a need for a scaling solution, they were concerned that implementing SegWit technology would not fully address the scaling issue.

Instead, they chose the second option to increase the number of transactions that each block can store. The resulting currency, Bitcoin Cash, increased the block size to 8MB to speed up the verification process and allow for a daily transaction rate of around 2 million. On November 10, 2021, Bitcoin Cash was worth about $712, compared to $66,500 for Bitcoin.

How does Bitcoin Mining work?

Unlike a centralized physical bank, Bitcoin functions as a decentralized banking ledger, a transaction record maintained in multiple locations simultaneously and updated by network contributors. The blockchain is the name given to this record. The blockchain is kept up to date by adding new data blocks to it, which contain information about Bitcoin transactions.

To add a new block of transactions to the chain, miners must compute the correct random numbers that solve a complex equation generated by the blockchain system. When they do, a set of rules written into the Bitcoin code rewards the miner with a certain amount of Bitcoin. In a nutshell, this is the mining process, but it gets more complicated.

Fast processing means more guesses at the correct solution to the blockchain’s equation and a better chance of finding the right answer. The catch is that miners must be the first to arrive at the answer or not receive the reward, even if they continue to contribute computing power to the network.

When a miner discovers the solution, a group of transactions (or blocks) is added to the ledger. The miner who solved the equation receives Bitcoin and any fees for transactions added to the blockchain ledger. The process is red until someone solves the following equation and adds the next block.

How much a miner earns

Every four years, the rewards for Bitcoin mining are cut in half. When bitcoin was first mined in 2009, mining a single block yielded 50 BTC. In 2012, this was cut in half to 25 BTC. By 2016, this had been cut in half again, to 12.5 BTC. The reward will be cut in half again on May 11, 2020, to 6.25 BTC.

If the price of Bitcoin in January 2022 were around $42,500 per bitcoin, you’d have earned $265,625 (6.25 x 42,500) for completing a block. It may not appear to be an insufficient incentive to solve the complex hash problem described above.

You can consult the Bitcoin Clock, which updates this information in real-time, to keep track of when these halvings will occur. Surprisingly, the market price of Bitcoin has historically tended to correlate closely with the decrease in the number of new coins entered into circulation. This lower inflation rate increased scarcity, and historically, prices have risen in tandem.

Profitability in today’s environment

For some people, Bitcoin mining can still make sense and be profitable. Although competitive ASICs cost anywhere from a few hundred dollars to around $10,000, equipment is more easily obtained. Some machines have adapted to remain competitive. Some hardware, for example, allows users to change settings to reduce energy requirements, lowering overall costs. Before investing in fixed-cost equipment, prospective miners should conduct a cost-benefit analysis to determine their break-even point. This calculation requires the following variables:

  • Cost of power: What is the cost of your electricity? Remember that rates vary according to season, time of day, and other factors. You can find this information on your electric bill (measured in kWh). Electricity is required to run computations on mining systems, cool them,m and keep them from overheating.
  • Efficiency: This value is determined by the difficulty level and the number of calculations performed by your mining system to solve the puzzle. In a nutshell, it is the amount of power that your system consumes (in watts).
  • Time: How much time do you expect to spend mining? Most individual miners run their systems for extended periods, even 24 hours if they can afford the bills, to increase their chances of finding a block.
  • Bitcoin value: The current value of bitcoin is the return on investment of your mining expenses. How much is a bitcoin worth in US dollars or another official currency?

There are several web-based profitability calculators available, such as the one provided by CryptoCompare, for would-be miners to analyze the cost-benefit equation of Bitcoin mining. Profitability calculators vary slightly in complexity, with some being more complex than others.

Run your analysis several times, each time using a different price level for the cost of power and the value of bitcoins.

Change the difficulty level to see how it affects the analysis. Determine the price point at which Bitcoin mining becomes profitable for you—this is your break-even price. In November 2021, for example, the price of bitcoin was hovering around $55,000. Miners are currently rewarded around $344,000 for completing a hash, based on the current reward of 6.25 BTC for a completed block. Of course, because the price of bitcoin fluctuates so much, this reward figure is subject to change.

What you need to mine bitcoins

Individuals may have been able to compete for blocks with a regular at-home personal computer early in Bitcoin’s history, but this is no longer the case. This is because the difficulty of mining Bitcoin varies over time.

The Bitcoin network aims to produce one block every 10 minutes or so to ensure the smooth operation of the blockchain and its ability to process and verify transactions. However, if one million mining rigs compete to solve the hash problem, they will likely arrive at a solution faster than if only ten mining rigs work on the same problem. As a result, Bitcoin is designed to evaluate and adjust mining difficulty every 2,016 blocks or roughly every two weeks.

When there is more computing power collectively working on mining for bitcoins, the difficulty level of mining increases to maintain a stable rate of block production. When computing power is reduced, the difficulty level decreases. A personal computer mining for bitcoin will almost certainly find nothing at today’s network size.

Mining Hardware

To mine competitively, miners must now invest in powerful computer equipment such as a GPU (graphics processing unit) or, more realistically, an application-specific integrated circuit (ASIC). These can cost anywhere from $500 to tens of thousands of dollars. Individual graphics cards (GPUs) are purchased by some miners, particularly Ethereum miners, as a low-cost way to assemble mining operations.

ASIC machines are now almost entirely used in Bitcoin mining hardware. ASIC stands for application-specific integrated chip, and the ASICs used here do only one thing: mine for bitcoins. Today’s ASICs are orders of magnitude more potent than CPUs or GPUs, and new chips are developed and deployed every few months, gaining both hashing power and energy efficiency. Today’s miners can generate nearly 200 TH/s while using only 27.5 joules per tera-hash.

What are Mining Pools?

Mining rewards are paid to the miner who first discovers the puzzle’s solution. The probability that a participant will be the one to find the answer is proportional to their share of the network’s total mining power.

Participants with only a tiny portion of the mining power have a very slim chance of discovering the next block on their own. For example, a mining card costing a couple of thousand dollars would represent less than 0.001% of the network’s mining power. With such a low chance of finding the next block, it could be long before that miner finds one, and the increasing difficulty makes matters worse.

Mining pools are third-party organizations that coordinate groups of miners. Miners can get a steady flow of bitcoin from the day they activate their miners by working together in a pool and sharing the payouts among all participants. has statistics on some of the mining pools.

A Pickaxe strategy for Bitcoin mining

As previously stated, the simplest way to obtain Bitcoin is to purchase it on one of the numerous exchanges simply. Alternatively, you can employ the “pickaxe strategy.” This is based on the adage that during the 1849 California gold rush, the wise investment was to make pickaxes rather than pan for gold.

Invest in the companies that make those pickaxes, to put it another way. In cryptocurrency, the pickaxe equivalent would be a company that manufactures Bitcoin mining equipment. Instead, you could look into companies that manufacture ASICs or GPUs.

Downsides of mining

Mining risks are frequently financial and regulatory. As previously stated, Bitcoin mining, and mining in general, is a financial risk because one could invest hundreds or thousands of dollars in mining equipment only to see no return on their investment.

However, by joining mining pools, this risk can be reduced. If you are thinking about mining but live in an area where it is prohibited, you should think twice. Before investing in mining equipment, it is also a good idea to research your country’s regulations and general sentiment toward cryptocurrency.

Another potential risk associated with the growth of Bitcoin mining (and other proof-of-work systems) is the increased energy consumption required by the computer systems running the mining algorithms. While ASIC chip microchip efficiency has significantly increased, network growth is outpacing technological progress. As a result, there are concerns about Bitcoin mining’s environmental impact and carbon footprint.

However, efforts are underway to mitigate this negative externality by pursuing cleaner and greener energy sources for mining operations (such as geothermal or solar) and utilizing carbon offset credits. Another strategy is to use less energy-intensive consensus mechanisms, such as proof-of-stake (PoS), which Ethereum has adopted. However, PoS has its own set of drawbacks and inefficiencies, such as incentivizing coin hoarding rather than coin use and the risk of centralization of consensus control.

Mining is used as a metaphor for introducing new bitcoins into the system because it requires (computational) work in the same way that mining for gold or silver does. Of course, the tokens discovered by miners are purely virtual and exist only within the Bitcoin blockchain’s digital ledger.

Why do Bitcoins need to be mined?

Because they are entirely digital records, there is a possibility of copying, counterfeiting, or spending the same coin twice. Mining solves these issues by making it extremely costly and resource-intensive to attempt to do one of these things or otherwise “hack” the network. Indeed, joining the web as a miner is far more cost-effective than trying to undermine it.

What do you mean mining confirms transactions?

In addition to introducing a new BTC into circulation, mining plays a vital role in confirming and validating recent transactions on the Bitcoin blockchain. This is significant because there is no central authority determining which transactions are valid and not, such as a bank, court, government, or anything else. Instead, the mining process achieves a decentralized consensus (PoW) through proof-of-work.

Why does Mining use so much electricity?

In the early days of Bitcoin, anyone with a PC or laptop could simply run a mining program. However, as the network grew in size and more people became interested in mining, the difficulty of the mining algorithm increased. This is due to the Bitcoin code’s goal of finding a new block every ten minutes on average. 1 With more miners involved, the chances of someone solving the correct hash faster increases, so the difficulty is increased to restore the 10-minute goal. Consider adding thousands, if not millions, more times of mining power to the network. That’s a lot of new machines using up energy.

Why does Cryptocurrency mining require energy?

The high energy consumption of crypto mining is a feature, not a flaw. Mining for Bitcoin or another proof-of-work (PoW) cryptocurrency, like mining for physical gold, is designed to consume a significant amount of energy. The requirements for both expensive hardware and a large amount of electricity to power that hardware create entry barriers, making it extremely difficult (though not impossible) for a small group of miners to take control of an entire crypto network.

Cryptocurrency supporters believe that this decentralized structure has many advantages over centralized currency systems because cryptocurrency networks can operate without the assistance of a trusted intermediary such as a central bank.

Rather than any centralized authority, Miners use massive amounts of computational power to operate and secure a cryptocurrency network.

Environmental impacts of cryptocurrency mining

According to Digiconomist, Bitcoin mining emits approximately 96 million tones of CO2 per year, equivalent to the emissions produced by some smaller countries. Mining for Ethereum generates over 47 million tones of CO2 emissions per year.

According to researchers at the University of Cambridge, most Bitcoin mining—approximately 35% in 2021—takes place in the United States. The combustion of fossil fuels generates most electricity in the United States. Kazakhstan, another country that derives most of its energy from fossil fuels, follows the United States in accounting for 18% of the world’s Bitcoin mining. As a result, most Bitcoin mining is done in two countries that rely heavily on fossil fuels.


Mining for cryptocurrencies also generates significant electronic waste, as mining hardware becomes obsolete quickly. This is especially true for ASIC miners, specialized machines designed to mine the most popular cryptocurrencies. Every year, the Bitcoin network generates approximately 30 thousand tonnes of electronic waste, according to Digiconomist.

Is Bitcoin mining legal?

The legality of Bitcoin mining is entirely dependent on your geographical location. The concept of Bitcoin can undermine fiat currency dominance and government control over financial markets. As a result, Bitcoin is completely illegal in some jurisdictions.

Bitcoin ownership and mining are legal in a growing number of countries. Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan were among the countries where it was illegal, according to a 2018 report. Overall, Bitcoin use and mining are still legal in most parts of the world.

Does crypto mining damage Your GPU/computer?

Because blockchain mining requires a lot of resources, it can put a lot of strain on your GPU or other mining hardware. It is not uncommon for GPUs to blow up or mining rigs to burst into flames. However, it is generally safe to keep your rigs running at a moderate speed and with enough power supplied.

Can you mine Bitcoin on your iPhone?

No. Bitcoin mining today necessitates massive amounts of computing power and electricity to compete. Running a miner on a mobile device will almost certainly yield no earnings, even if it is part of a mining pool.


Now that you’ve gone through the article, you must be well-informed about bitcoin mining. To reiterate, Bitcoin “mining” is essential for validating and confirming new transactions to the blockchain and preventing bad actors from double-spending. It is also how new bitcoins are added to the system. The task entails producing “proof-of-work” (PoW), inherently energy-intensive, based on a complex puzzle. On the other hand, this energy is embodied in the value of bitcoins and the Bitcoin system, and it is what keeps this decentralized system stable, secure, and trustworthy.

Bitcoin mining is a time-consuming and energy-intensive process in which customized mining systems compete to solve mathematical puzzles. The miner who solves the puzzle first receives bitcoin. The bitcoin mining process also confirms and verifies transactions on the cryptocurrency’s network.

Individual miners using desktop computers played a role in the early days of cryptocurrency. Still, the bitcoin mining ecosystem is now dominated by large mining companies that run mining pools spread across many geographies. Bitcoin mining is also contentious because it consumes enormous amounts of energy. With increased awareness of climate change, several miners have relocated operations to areas where renewable energy sources generate electricity.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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