How does Bitcoin mining work?

What is Bitcoin Mining?

Bitcoin mining is the process of generating new bitcoins. However, it is also crucial for the development and maintenance of the blockchain ledger. This is done using highly sophisticated computers that can solve very complex mathematical problems.

Mining cryptocurrency is a tedious, expensive, and only occasionally rewarding job. Mining is attractive to many investors who are interested in cryptocurrency due to the fact that miners get rewarded with crypto tokens. Entrepreneurs see mining as pennies from Heaven, similar to California’s gold prospectors of 1849. If you’re technologically inclined, why not?

Bitcoin mining
Bitcoin mining

Before you decide to invest your time and money in mining equipment, you should read this explanation. This article will be primarily focused on Bitcoin. We’ll use the term “Bitcoin” when referring either to the network or cryptocurrency as a concept, while “bitcoin,” when referring only to individual tokens.

Key  Takeaways 

* Mining can help you earn cryptocurrency without the need to invest any money.
* Bitcoin miners get Bitcoin for verifying transactions. These transactions are added to the Blockchain.
* Mining rewards are given to the first miner to solve a complex hashing puzzle. The probability that a participant will find the solution depends on how much of the network’s total mining power.
* To set up a mining machine, you will need either an ASIC (application-specific integrated circuit) or a GPU (graphics processing device).

A New Gold Rush

Many miners are attracted by the possibility of earning Bitcoin. To own tokens of cryptocurrency, you don’t necessarily have to be a miner. You can buy cryptocurrency using fiat currency. You can trade it on Bitstamp with another crypto (e.g. using Ethereum or NEO for Bitcoin). You can even earn it by shopping on platforms that pay in cryptocurrency or setting up interest-earning accounts.

Also Read: Earn money online without investment for students

Steemit is a cryptocurrency blog platform that is similar to Medium. Users can pay bloggers in a proprietary cryptocurrency called SteEM and reward them for their efforts. The STEEM can then be traded for Bitcoin.

Miners get a Bitcoin reward as an incentive to help them fulfill their primary purpose: to legitimize and supervise Bitcoin transactions to ensure their validity. These responsibilities are distributed among many users around the globe, making Bitcoin a “decentralized” cryptocurrency. It does not depend on any central authority such as a central bank, government, or central bank to regulate it.

How to mine Bitcoins

As auditors, miners get paid. They verify the legitimacy of Bitcoin transactions. Satoshi Nakamoto, Bitcoin’s creator, created this convention to ensure that Bitcoin users are honest. Miners help to avoid double-spending by verifying transactions.

Double spending refers to a situation in which a Bitcoin owner illegally spends the same Bitcoin twice. This is not an issue with physical currency.

If you give someone $20 to buy vodka, it’s gone. You can’t use the $20 bill to purchase lotto tickets next door. Although counterfeit cash is possible, it’s not the same as spending exactly the same dollar twice. However, the digital currency has the potential to be copied and sent to a merchant or other party.

Let’s suppose you had one $20 bill and one $20 counterfeit. If you tried to spend the counterfeit bill as well as the legitimate $20 bill, someone would have to look at the serial numbers of both bills. Thus, one of the bills had to be false. The job of a Bitcoin miner is similar to this: they verify transactions to ensure that no one has attempted to spend the same bitcoin twice.

We’ll discuss this in greater detail below. After miners verify 1 MB (megabytes) of Bitcoin transactions, they are eligible for a reward of a number of bitcoins. (Learn more about the bitcoin reward here). Satoshi Nakamoto set the 1MB limit. This is controversial because some miners feel that the block size should increase to allow for more data. This would mean that transactions could be processed and verified more quickly.

Not everyone who verifies transactions will be paid, but verifying 1MB of them makes a coin miner qualified to earn bitcoin.
One transaction can be as small as 1MB, though this isn’t very common. Or several thousand. It all depends on how many transactions are involved.
“So, after all the work of verifying transactions, it is possible that I may still not receive any bitcoin for it?”
It is true. You must meet two conditions in order to earn bitcoins. The first is a matter of effort, the second is luck.
Verify transactions worth 1MB. This is the hard part.
To be the first to find the correct answer or the closest answer to a numerical problem, you must be a miner. This is known as proof-of-work.
“What does it mean to have the right answer to a numerical problem?”
The good news is that there are no advanced mathematics or computations involved. It may seem like miners solve difficult math problems, but that’s not true. They are trying to find the first miner who can come up with a 64-digit hexadecimal number (a “hash”) that is equal or less than the target hash. It’s essentially guesswork.
The bad news is that it’s guesswork. However, with trillions of possible solutions to each problem, it’s extremely difficult to work. Miners require a lot computing power to solve a problem quickly. You need a high “hash rate” to mine efficiently. This is measured in megahashes (MH/s), gigahashes (GH/s), or terahashes (TH/s).
This is a lot of hashes.
Cryptocompare has a useful calculator that will help you estimate the amount of bitcoin you can mine using your mining rigs’ hash rate.

Mining and Bitcoin Circulation

Mining is not only a way to make money and support the Bitcoin ecosystem but it also serves a vital purpose. It is the only way that new cryptocurrency can be released into circulation. Miners, in other words, “mining” currency. As an example, around 18.5 million bitcoins were in circulation as of November 2020.

Miners are responsible for all the bitcoins created, except the ones that were minted using the genesis block. This block was created by Satoshi Nakamoto, founder of Bitcoin. Bitcoin would not exist without miners. However, it would be usable and would continue to be used. Bitcoin mining will end eventually. According to the Bitcoin Protocol, 21 million bitcoins will be available.

The final bitcoin will not be distributed until the year 2140 due to the fact that the “mining” rate for bitcoin is decreasing over time. However, transactions will still be verified. To maintain the integrity of Bitcoin’s network, miners will continue verifying transactions and will receive fees.

Apart from the immediate Bitcoin payoff, coin miners can also have “voting” power in case changes to the Bitcoin network protocol are made. Miners can therefore have some influence over the decision-making process in matters such as forking.

How much does a miner make?

Every four years, the rewards for Bitcoin mining get reduced by half. Bitcoin was first mined in 2009. One block of bitcoin would earn you 50 BTC. This was reduced to just 25 BTC in 2012 when it was halved. In 2016, the reward was reduced to 12.5 BTC. The reward was halved to 6.25 BTC on May 11, 2020. The price of Bitcoin in November 2020 was $17,900. This means that you would earn $111,875 (6.25% x 17,900) to complete a block.

The Bitcoin Clock keeps you updated in real-time with the exact date and times of these halvings. The market price for Bitcoin has, over its history, closely correlated with the number of coins that have been minted. This has led to scarcity, and the price of Bitcoin has risen in line with it. is one of the many sites that can provide you with real-time information about how many blocks have been mined to date.

What do I need to mine Bitcoins?

Bitcoin was not created in a way that allows individuals to compete with regular computers for blocks. This is because the difficulty of mining Bitcoin Bitcoin changes over time.

The Bitcoin network strives to produce one block every 10 minutes to ensure that the blockchain functions smoothly and can process and verify transactions.

Also Read: How to earn money daily online without investment

But if one million mining machines are competing to solve the same hash problem, it’s likely that they will find a solution quicker than a situation in which only 10 mining machines are trying to solve it. Bitcoin’s algorithm is to adjust the difficulty of mining at approximately every two weeks. It does this by evaluating and adjusting every 2,016 blocks.

To maintain stable block production, there must be more computing power available to mine bitcoins. This means that mining becomes more difficult. The difficulty level drops if there is less computing power. For a better understanding of how much computing power is required, the initial difficulty level for Bitcoin was one when it launched in 2009. It is now more than 13 trillion as of November 2019.

This is all to say that miners need to invest in high-end computer equipment to be competitive in mining. This equipment can cost anywhere from $500 to tens of thousands of dollars. As a low-cost option to build mining operations, some miners, especially Ethereum miners, buy individual graphics cards (GPUs).

Below is an image of a homemade, makeshift mining machine. Graphic cards are rectangular blocks that have whirring fans. The sandwich twist-ties that hold the graphic cards to the pole are visible. This is not the most efficient method of mining, but many miners do it for the challenge and fun.

The “Explain it Like I’m Five” Version

It can be confusing to grasp the intricacies of Bitcoin mining. Let’s take an example of how the hash problems work. I tell my friends I have a number between 1 and 100. I then write it on a piece of paper and seal it with an envelope. My friends don’t have to guess exactly what number it is; they can just guess any number that is smaller or greater than the one I am thinking about. There is no limit on how many guesses they can make.

Let’s suppose I think of the number 19. If Friend A correctly guesses 21, they are out of luck because 21>19 is their disadvantage. If Friend A guesses 16, and Friend C guesses 12, they both theoretically arrive at viable answers because of 1619 and 1219.

Even though B’s answer was closer than the target answer of 19, there is no “extra credit”. Imagine that I ask three friends the question “guess what number” but they don’t know I am asking them. I also don’t think of numbers between 1 and 100. Instead, I am asking millions of potential miners to guess the 64-digit hexadecimal number. It’s not easy to guess the correct answer.

If both B and C answer simultaneously, the ELI5 analogy is broken.

While simultaneous answers are common in Bitcoin terms, in the end, there can only be one winner. Multiple simultaneous answers that are equal or lower than the target number will be accepted by the Bitcoin network. The simple majority (-51%) will determine which miner to honor.

It is usually the miner with the highest amount of work or the one who verifies the most transactions. An “orphan” block is then created when a block loses. Orphan blocks are those which are not added to the Blockchain. Bitcoin is not awarded to miners who solve the hash problem and haven’t verified all transactions.

What is a “64-Digit Hexadecimal number”?

Here’s an example:


The above number has 64 digits. It is easy enough to comprehend so far. You probably noticed that this number does not only consist of numbers but also letters from the alphabet. What is the reason for this?

Let’s look at the word “hexadecimal” to understand the function of these letters in the middle numbers.

You probably know that we use the decimal system. It is base 10. This means that each digit in a multi-digit number can have 10 possible values, from zero to nine.

“Hexadecimal” on the other side means base 16. “Hexadecimal” comes from the Greek words for six and “deca”, from the Greek for 10. Each digit in a hexadecimal system has 16 options. Our numeric system offers only 10 ways to represent numbers (zero to nine). This is why you need to stick letters in, specifically letters A, B, C, D, E, and F.

You don’t need to calculate the 64-digit number (the haveh) if you are mining Bitcoin. I repeat: A hash’s total value is not necessary.

What does “64-digit Hexadecimal Numbers” have to do Bitcoin mining?

Do you remember the ELI5 analogy where I wrote the number 19 on a piece of paper and sealed it in an envelope?

The target hash is a metaphorical undisclosed number found in an envelope.

With their huge computers and hundreds of cooling fans, miners are guessing at the target have. These guesses are made by miners randomly generating as many “nonces”, as fast as they can. Nonce stands for “number used only once” and is key to creating these 64-bit hexadecimal numbers.

A nonce in Bitcoin mining is 32 bits long. This is much smaller than the hash which is 256 bits. The reward for successfully completing a block is 6.25 BTC. Credit is given to the first miner whose hash generates less than or equals the target hash.

You could theoretically achieve the same result by rolling a 16-sided dice 64 times to get random numbers. But why would you want that?

This screenshot, taken from, may help you to quickly put all of this information together. This is a summary of what happened during block #490163’s mining. The nonce which generated the “winning hash” was 731511405. The top image shows the target hash. The term “Relayed By Antpool” refers to the fact that this block was completed and signed by AntPool (more information about mining pools below).

You can see that their contribution to Bitcoin is the confirmation of 1768 transactions for this particular block. You can see all 1768 transactions for this block by going to this page. Scroll down to the heading, “Transactions”.

What are Coin Mining Pools?

Mining rewards are given to the first miner to solve a puzzle. The probability that a participant will find the solution is equal or greater than the share of the total network mining power.

Participants who have a low percentage of mining power have a very slim chance of finding the next block by themselves. A mining card one could buy for just a few thousand dollars would be less than 0.001%. The chances of finding the next block are very low, so it can take a while before a miner finds one.

And the difficulty of finding blocks is even more difficult. The miner might never be able to recoup their investment. Mining pools are the solution to this problem.

Mining pools are operated by third parties and coordinate groups of miners. Miners can receive a steady stream of bitcoin by working together and sharing the payouts between all participants. Statistics on some of the mining pools can be seen on
“I have done the math. Forget mining. Are there other ways to make money from cryptocurrency?

As mentioned above, the easiest way to acquire Bitcoin is to simply buy it on one of the many exchanges. Alternately you could also use the “pickaxe strategy”. This strategy is based upon the old wisdom that the smartest investment during the California gold rush of 1849 was not to mine for gold but to make pickaxes for mining.

You can invest in pickaxe-making companies to modernize the situation. A company that makes equipment for Bitcoin mining would be the pickaxe equivalent. For example, you might look into companies that manufacture ASICs or GPUs.

Is Bitcoin Mining Legal?

Your geographic location is the most important factor in determining whether Bitcoin mining is legal. Bitcoin’s existence can jeopardize the dominance and control of fiat currencies in the financial markets. Bitcoin is therefore illegal in certain countries.

Bitcoin mining and ownership are legal in many countries. Some examples of places where it is illegal are Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan.4 Overall, Bitcoin use and mining are legal across much of the globe.

Mining has its risks

Mining has both regulatory and financial risks. Bitcoin mining and all mining is subject to financial risk. You could spend hundreds of thousands of dollars on mining equipment and not see any return. This risk can be minimized by joining a mining pool. You should consider reconsidering mining if you live in an area where it is banned. Before you invest in mining equipment, it is a good idea to research the regulations and sentiments of your country.

The increased energy consumption of the computers that run the mining algorithms is another potential danger from Bitcoin mining. ASIC chips have a higher efficiency than microchips, but the network’s growth is far more rapid than technological advancements. There are therefore concerns about the impact of Bitcoin mining on the environment and its carbon footprint.

However, there are ways to reduce this negative externality. These include using carbon offset credits and looking for cleaner, greener energy sources for mining operations, such as solar or geothermal. Switching to less energy-intensive consensus mechanisms like proof-of-stake (PoS), which Ethereum is planning to do, is another strategy; however, PoS comes with its own set of drawbacks and inefficiencies.

Also Read: Bitcoin History: A Beginner’s Guide to the World’s First Cryptocurrency


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