What is Bitcoin Mining?

What is Bitcoin mining in a nutshell?

To function, traditional currencies require a centralized system that performs checks, validations, and verifications. Bitcoin is no different, yet because of its decentralized status, it employs a different system: mining. Bitcoin mining is, therefore, the process by which transactions are verified and then added to the public ledger. It’s also how the new coin is minted.


The history of Bitcoin mining is linked to the appearance of Bitcoin as a cryptocurrency and the birth of the blockchain network. Based on this, the coin’s public ledger, known as the blockchain, was started on the 3rd of January, 2009, by Bitcoin’s creator, Satoshi Nakamoto. The first example of Bitcoin mining we have is the genesis transaction block, used to pay the pre-set reward of 50 new Bitcoin to its miner, Satoshi.

But can I use my computer to mine Bitcoins? Back in 2009, the first few Bitcoin miners used standard computers running multi-core CPUs to produce coins, at a rate of several dollars per day. Today, things have changed considerably. There are tens of thousands of Bitcoin miners throughout the world, yet the majority of the market share is held by mining farms, which produce hundreds of Bitcoin on a daily basis.

Despite the huge popularity and impact of mining, many of those interested in cryptocurrencies do not know how mining works, how to get involved, and whether mining Bitcoin is still profitable.

How It Works

Knowing how mining works requires an understanding of the technical processes that happen behind the scenes, alongside the methods you can use to get started, yourself.

In a nutshell, Bitcoin mining works in five steps: 1) verify whether transactions are valid, 2) bundle the respective transactions into a block, 3) insert the header of the most recent block into the new block, as a hash, 4) solve the mathematically complex proof-of-work problem, and 5) find a solution and add the block to the public ledger.

The Technicalities

To kick things off, Bitcoin protocol states that the maximum number of Bitcoins to be produced shall not exceed 21 million.

Bitcoin mining software wouldn’t be able to run without nodes. The purpose of nodes is to relay information across the network—as such, one node will send information to the nodes it knows, whereas those will send the data further into the network.

Some of the nodes can be referred to as mining nodes, or miners. Their purpose is somewhat different, as miners group new transactions into blocks, which are then added onto the public ledger. However, the process is somewhat more complicated. To do this, mining nodes are required to solve difficult mathematical puzzles, as the answer must be included in the new block.

By using powerful computers, called mining rigs, Bitcoin miners attempt to guess the mystery solution number and apply a hash function to a combination that includes the data in the block and the guessed number.

The first miner who ends up finding the correct number to a certain block announces the discovery to the network of miners, who move on and attempt to crack the following transaction block. In exchange for the work put in, a block reward is given to the successful miner, which is essentially newly minted coin. At this time, the block reward is of 12.5 BTC, so approximately $82,000.

How many Bitcoins are there left to be mined? Well, at this time, over 17 million Bitcoin has been mined, therefore there are 4 million coins left for miners to discover.


But didn’t you say that in 2009, mining with a standard spec computer would give you a few dollars every day? Why has mining become so expensive and difficult?

The answer to these questions is fairly simple. The difficulty of the puzzle is given by the number of zeroes that must be at the beginning of a hash string. The difficulty can be adjusted as Bitcoin developers see fit. They believe that it should take an average of 10 minutes for each block to be processed in order to keep a steady flow of newly minted coins before the 21 million limit is met. The Bitcoin mining difficulty is further adjusted to keep up with the total power of the network, popularity of mining, price swings, and mining hardware specifications.


Proof-of-work, commonly known as PoW, represents the consensus algorithm associated with the Bitcoin blockchain network. It enables the network to confirm transactions and produce new blocks that are then added to the blockchain. Without the PoW algorithm, Bitcoin and the Bitcoin mining process would be quite different.

PoW is popular for the defence it provides against denial-of-service (DoS) attacks. A successful attack against the Bitcoin network would require large amounts of computational power alongside the ability to carry out complex calculations, hence making BTC mining costs skyrocket.

PoW also sets out governance rules for the Bitcoin network. Basically, with a PoW consensus algorithm, a user’s influence on the network is determined by his computational power, rather than the amount of coins held.

Unfortunately, there are several flaws associated with Bitcoin’s algorithm—it is expensive to run (Bitcoin mining is neither free nor cheap), most of the complex calculations are deemed useless in the grand scheme of things, and it makes 51% attacks possible. For those who do not know, a 51% attack is when a group of users controlling the majority of the network’s mining power start controlling network events, such as generating new blocks, receiving rewards, and preventing other miners from carrying out their tasks.

So far, this has never happened! Yet there are various voices in the cryptocurrency community urging coin communities to adopt other consensus algorithms, such as proof-of-stake.

Getting Started with Mining

So how do you mine Bitcoin? Now that you know how mining works, you might be wondering how to get started! At this moment in time, there are two main mining methods that you can consider: cloud mining and crypto mining rigs. But just a reminder—Bitcoin mining isn’t free.

Crypto Mining Rigs

In the early days of digital currencies, a Bitcoin mining machine represented the only method of becoming a Bitcoin miner. Now, granted the rising difficulty, mining rigs remain viable only for those looking to invest over $1,000 in powerful computers designed specifically for mining cryptocurrency.

If you have a bigger budget and would like to try your hand at building a mining rig, there are several things you should know. First, application-specific integrated circuits, or ASIC miners have taken over the market. And second, a Bitcoin mining computer provides the best results in the industry, as it mines at the highest speed and consumes a lower amount of electricity when compared to other hardware solutions. On the downside, these mining computers can hardly run other computer applications.

During the last couple of years, the value of ASIC miners has constantly risen, as they are getting faster and more efficient, to the point of becoming a Bitcoin generator. When shopping for hardware miners, you’ll have to consider the advertised capacity, expressed in Th/s, alongside the power efficiency and price.

Using a mining rig requires an aptitude for IT, and you will have to deal with Bitcoin mining software, electricity costs, heat, hosting, and maintenance if you choose to manage Bitcoin mining hardware.

However, it is important to point out that hardware mining is only profitable if you solve your own block and get the full reward or join a mining pool. In case you do not have the budget to shell out several thousand bucks for a mining rig capable of independently solving a block, yet you still want to try your hand at hardware mining, there is another viable solution—pool mining. Here, a number of separate individuals attempt to solve blocks by sharing their mining power. Profits are then divided depending on the work performed by each individual.

Cloud Mining

Next in our exploration into what is Bitcoin mining: cloud storage. Also known as cloud hashing, cloud mining is currently the most popular method of mining digital currencies. It is a process that essentially allows customers to purchase a share of the mining capacity offered by data centers. In other words, it allows you to mine without having to worry about maintenance or making big investments in purchasing hardware rigs.

So if you’re wondering how to start Bitcoin mining via the cloud, those who choose to cloud mine require three things: a device with internet access, a Bitcoin wallet, and the rental fee.

Getting started with cloud mining is fairly easy, yet it requires you to do your due diligence. Currently, there are numerous companies offering cloud mining services, therefore picking the right one may be a tad difficult. Because of this, we recommend that you carefully sort through the offers and read the terms of service associated with each company. You’ll find subtle differences in the service offers, fees, and potential profit.

Additionally, there are three forms of cloud Bitcoin mining available: leasing hashing power (most popular), hosted mining (users lease mining hardware in data centers), and virtual hosted mining.

Once you believe that you’ve found the right cloud mining company, you’ll have to register for an account, post a cryptocurrency address, and then wait for your profits. It is recommended that you check your account dashboard fairly often to determine whether any action can be taken to increase your profits.


Is Bitcoin mining profitable? Determining the profitability of your mining operation is highly subjective, and depends on a wide variety of factors. For hardware miners, there are several online mining profitability calculators that can compute an expected return based on your hash rate, electricity cost, and power consumption. Keep in mind that this profit can vary from month to month.

Block rewards are only given if a block solution is found—so regardless of how much hashing power a Bitcoin miner has, they can end up gaining nothing if they mine individually and never find a block. Those involved with mining pools will get more exact approximations, but it’s important to include the pool fee in your calculation as well.

Most cloud mining companies should offer an approximation of monthly profits. Often, the income depends on the amount of hashing power you’re leasing, luck, electricity costs at the data center, power efficiency, and more.

The Future of Mining

We’ve given an answer to the question, What is Bitcoin mining? But what about its future? As mentioned above, there is a 21 million cap on the number of Bitcoin to be put into circulation. Currently, over 17 million has been mined. Additionally, the block reward halves after 210,000 blocks are put on the blockchain, hence the next reward will halve in May 2020, when the reward will be reduced to 6.25 BTC.

With a bit of math, it’s expected that the coin cap will be reached in 2140, a long time from now. This leads us to ask what will happen once the last coin is put into circulation. As the block reward disappears, miners will be incentivized for their work solely via transaction fees.

However, the short-term future of Bitcoin mining is more relevant to this generation, as no one living today will get to see the cap reached. Mining needs to remain profitable in the long run, otherwise, the Bitcoin network will die out due to a lack of mining nodes. When the next block reward halving happens, the Bitcoin price will hopefully adjust to the change to keep mining profitable—otherwise, transaction fees will become more expensive, thus hurting the network.

The network can be adjusted by its developers, as long as there’s consensus in the market. The implementation of SegWit represented an important step in sustaining the Bitcoin network, yet future advancements such as the Lightning Network might be crucial for the survival of the Bitcoin market. As of now, the number of transactions done with Bitcoin is growing at an exponential rate. Nowadays, all sorts of industries are shifting to Bitcoin and it’s easy to find Bitcoin gambling and Bitcoin trading websites and even e-commerce sites have started accepting them. Therefore, the success of the Lightning Network is crucial in the long run.

With these factors in mind, Bitcoin mining is bound to continue in similar terms for the next couple of years, as long as it remains legal to mine for Bitcoins. Therefore, if you’re considering an investment in this market, calculate your budget and consider your options, but profitability is attainable! There are, however, cryptocurrencies that have given up on mining and work via different consensus mechanisms. It is still too early to determine whether this is a good choice long-term, so use your instinct to decide what’s best for yourself.


Based on everything that’s been outlined so far, Bitcoin mining is a complex trend that will continue to be relevant for several decades. There is still room to join the market, as long as you have a good budget, but keep in mind that doing so requires constant involvement from your side as well.

No matter what you choose to do, after reading our article, you’ll have a full answer ready the next time someone asks, how does Bitcoin mining work?