What is Bitcoin mining and how does it work?

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What is Bitcoin mining and how does it work?

Mining is the process through which Bitcoin transactions are added to the blockchain, once verified. The goal of miners is to find valid solutions to complex mathematical problems. Miners who solve these puzzles will be rewarded with transaction fees and new bitcoins.

What is Bitcoin mining and how does it work?
What is Bitcoin mining and how does it work?

Previously, Bitcoin users were able to join the mining race using their personal computers. Currently, profitable mining requires the use of highly specialized mining rigs. Because solo mining is difficult, many miners choose to join a mining pool to increase their chances of receiving block rewards, which will then be proportionally shared among pool members.


Bitcoin mining ensures that the blockchain is updated with legitimate transactions. It was a unique solution to create trust in an environment of distrust at the time. In this sense, mining is at the core of Bitcoin’s security model.

The idea of ​​mining and getting BTC back is a good-sounding deal. Participating in mining doesn’t always require owning a physical machine although the era of mining with computer CPUs is long gone. Let’s briefly discuss how Bitcoin mining works before you can decide if mining is for you.

About Bitcoin Mining

Users need to wait for other network users (nodes) to verify and confirm its validity when creating a new Bitcoin transaction. Miners will collect new, pending transactions and group them into a candidate block (a new, unvalidated block).

The miner’s goal is to find a valid block hash for their candidate block. A block hash is a string of letters and numbers that functions as a unique ID for each block. For example:


Miners need to collect the block hash of the previous block, a nonce, and the data of their candidate block. Then send it all through a hash to generate a new block hash.

However, the miner must come up with a code that – combined with all the data – will generate a block hash that starts with a certain number of zeros. The number of numbers does not change with the mining difficulty. A valid block hash proves that a miner has done the work required to validate their candidate block (hence a Proof of Work).

The miner can only change the nonce. That’s what mining rigs do after collecting pending transactions and creating their candidate block. During intensive trial and error, miners continuously change the nonce and hash the combined data over and over again until they find a solution to that block (i.e. a hash that starts with a an undetermined number of numbers).

Miners can validate their candidate block and collect bitcoin rewards as soon as a valid hash is found. This is also the time when the blockchain transactions contained in that block go from pending to confirmed.

How much does a Bitcoin miner earn?

Each new block gives the respective miner a block reward, which consists of newly created bitcoins (block allowance) plus transaction fees. Since the block reward is roughly generated from the block subsidy, most people call it a block reward (no fees).

When it comes to Bitcoin, the block subsidy started at 50 BTC in 2009 and is being halved every 210,000 blocks (about four years). In 2012, these halving events caused the mining reward to drop to 25 BTC, then to 12.5 BTC in 2016, and finally to 6.25 BTC in 2020. The next halving event is expected to happen in 2024. The block reward is bringing miners around $300,000 per block as of May 2021.

However, when evaluating mining equipment and profitability, there are many factors to consider. The speed at which a mining rig can generate random nodes and test them is an important metric to test. This number is called the hash rate and is very important to the success of a Bitcoin miner. The larger the hash rate, the faster you will be able to test these random inputs.

Another important thing is the energy consumption of a mining rig. If you spend more money on electricity than you earn mining, then the profitability will be gone.

How to start Bitcoin mining

Anyone can join the mining race because Bitcoin is decentralized and open source. Previously, you could use your personal computer to mine new blocks. But as mining difficulty increases, you now need more powerful machines (more on this below).

You can still theoretically try to mine bitcoins with your personal computer, but the chances of finding a valid hash are practically zero. Calculating the hash is relatively fast, but calculating

Calculating the hash is relatively fast, but computing large numbers of random inputs takes longer. So you need specialized hardware before trying to become a profitable miner.

What Bitcoin mining equipment should I use?

You can try cryptocurrency mining using a CPU, GPU, FPGA or ASIC machine (we’ll look at these in a moment). Some altcoins can still be mined with GPU tokens. An FPGA machine can also be an option depending on the mining algorithm, electricity cost, and difficulty. But ASIC mining rigs are considered the most efficient.

CPU (central processing unit)

The CPU acts as a general-purpose chip and is responsible for distributing instructions across different parts of the computer. ​CPUs are no longer efficient at mining cryptocurrencies.

GPU (graphics processing unit)

GPUs can serve different purposes. However, they are basically used to process the graphics and output them to the screen. They can break complex tasks into many smaller tasks to increase performance. Some altcoins can be mined with GPU, but efficiency depends on mining algorithm and difficulty.

FPGA (field programmable gate array)

FPGAs can be programmed and reprogrammed to serve different applications and functions. They are more customizable and more affordable than ASICs but less efficient for Bitcoin mining.

ASIC (application-specific integrated circuit)

ASIC stands for integrated circuits, which are application-specific. That means these computers are designed for a single purpose. ASIC mining rigs are entirely dedicated to cryptocurrency mining. ASICs are more expensive and less customizable than FPGAs, but their energy consumption and hash rate make them the most efficient choice for Bitcoin mining.

Mining group

The chances of manually mining a block are extremely low. Joining a cryptocurrency mining pool instead allows you to combine your computing power with other miners. When the pool successfully mines a block, each miner gets a share of the bitcoins mined. The overall reward is proportional to the mining power you provide.

How to join a Bitcoin mining pool?

You will have to configure your software to cooperate with other miners when joining a pool using local hardware. This process usually involves registering an account and connecting to a mining pool server.

Binance Pool is a good place to start mining BTC and other SHA-256 based coins if you have a mining rig. Your mining system will automatically switch between BCH, BTC, and BSV to maximize your profits, paid in BTC.

You can see how much profit you can get on the Binance Pool page. BTC earnings are paid daily to your Bitcoin wallet.

Cloud Mining

You can also join a cloud mining farm, leaving the hardware and software to the farm owner if you want to avoid the more technical steps. Cloud mining usually involves you paying someone else to mine on your behalf. The farm owner will then share the profits with you. However, this option contains a lot of risk, as there is no guarantee that you will get a return on your investment. Many cloud mining services turn out to be scams. So be careful.

Closing thoughts

You can’t fundamentally misunderstand how Bitcoin mining works. With the right combination of hardware and software, anyone can start mining and contribute to the safety of the Bitcoin network. When you realize that mining is not for you, you can still contribute by running a Bitcoin node.

The initial investment for profitable mining is very high. However, there are also many risks involved. Your profits will also depend on market conditions and external factors such as hardware improvements and energy prices. Before spending any money on a mining rig, make sure to do your research.

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