What is Bitcoin Mining? The Complete Guide

Bitcoin mining is the act of adding transactions to the ledger, and introducing new coins into circulation. This is everything you need about bitcoin mining.

What is Bitcoin mining?

Bitcoin mining is the foundation that keeps the Bitcoin network functioning and healthy. It's based on a type a governance mechanism called a distributed Proof-of-Work (PoW), which is designed to encourage participation and facilitate Bitcoin network growth, security and decentralization.

Bitcoin mining is the term used to describe bitcoin issuance. It recalls mining gold and minerals. However, there are no caves or deep underground digging. Bitcoin mining is the process of adding new transactions to the Bitcoin timechain, also known as a blockchain.

These seemingly simple operations are possible because of a robust system for computation that operates in compliance with the strict Bitcoin protocol and governance. This allows us to have the stable, decentralized and innovative monetary system that we now know.

This article will explain how this technological and economic structure works. It will also attempt to dispel misconceptions about its energy consumption by providing accurate data and sound reasoning. To learn more about Bitcoin mining, make sure to check out the FAQ section.

Transaction fraud: The solution

Bitcoin mining creates blocks and adds them into the ledger according to predefined rules. Participants must agree that bitcoin balance owners are identified publicly using cryptographic addresses.

The coordination function of the Bitcoin network is performed by miners. This function, in traditional payment systems like banks or other financial institutions, is carried out by trusted intermediaries such as banks.

Bitcoin must be able to stop funds being spent or double-spent by any other person than its owner in order to eliminate the dependence on them.

Digital signatures are a cryptographic invention from the 1970s that prevents unauthorized users from spending money belonging to others. The private-public key pairing is a strong proof that ownership allows only the private key holder access to bitcoins.

Digital signatures do not guarantee that bitcoins received as payments have not been used elsewhere (the double-spending issue).

Satoshi used Adam Back’s hash-based PoW for this purpose. This allows transactions to be ordered chronologically in blocks, and the network to reach agreement on the ledger’s current state by following the longest chain.

This protects the blockchain against attacks because transactions can only be reversed if malicious actors redo all blocks' PoW. It is almost impossible for these actors to catch up, as new blocks are added to the chain every second.

How does bitcoin mining work?

Mining is a huge effort that requires enormous amounts of computation. This can be done using similar systems to data centers. ASIC (application-specific integrated circuit) computers are used to provide computational power for miners. They compete to be first to add the next block of blockchain to their network, issuing new coins, and making it trustworthy.

Mining builds trust by making sure transactions can be confirmed when sufficient computational power has been allocated to the block that holds them. Trust is built when more blocks are added to the chain.

Miners add variable amounts of transactions to a block. Because of their stored data, there is no fixed number of transactions that can be included in a block. Each block can contain one transaction or many thousand. The amount of bitcoin that can be issued is fixed. It decreases over time due to the halving (or halving) event, which occurs every four years.

Bitcoin mining: Why?

Bitcoin, like gold and other minerals, requires hard computation to be issued. This is necessary to ensure Bitcoin's security.

What is the answer? Bitcoin, being digital data in the timechain is susceptible to copying and counterfeiting as well as double-spending. Because mining Bitcoin requires a lot of computational effort and is expensive, malicious actors are more likely to invest in it than to try to compromise it.

Mining is also necessary to issue new bitcoin. Mining would cease, but there would still exist millions of bitcoin and the network would continue to function. The financial incentive that miners receive allows them to complete a system that might otherwise seem like an unfinished project.

A brief history of bitcoin mining

Bitcoin's peer-to-peer network (computers) is what allows it to function. It also relies on user and mining nodes. These nodes form the basis of a payment network that moves trillions in dollars each year worldwide without any coordination from a central entity.

Satoshi Nakamoto introduced Bitcoin in 2009. There was little difference between mining and running a Bitcoin node. Since many of the users could mine bitcoin on the same processors as their nodes, both miners and node operators were considered the same actors in this network.

Bitcoin mining was an amateur job that didn't involve the full-time mining of bitcoins. It flourished alongside the rise in the price of bitcoins and the incentive to mine.

The absence of pre-mined bitcoins, coins issued prior to the project's launch, is one of the key differences between Bitcoin and other cryptocurrencies. Satoshi created the network before anyone could mine bitcoin, so that he couldn't have any advantage over others who wanted to join the system.

He mined the first block of bitcoins, the Genesis block (or block 0), after the network launched on January 3, 2009. Satoshi was the first miner to join the Bitcoin network. He used a typical personal computer to create blocks.

From ASIC to CPU mining

In a mere ten year, the Bitcoin network's hardware has seen rapid technological advancement. Because it decides whether it is financially viable for miners to operate such a business, the mining equipment that generates new bitcoins and adds new transactions to the blockchain plays an important role in the success of the network.

Node operators and miners used similar hardware to perform similar operations in the early days of Bitcoin. These units were called central processing unit (CPUs) during Bitcoin's initial life. It is almost certain that the genesis block was mined using a CPU by a computer.

The CPU controls how computers' commands and instructions are processed and executed. Due to the low competition in Bitcoin's early days of existence, CPU devices could easily handle the small computational power needed to create new blocks or earn mining rewards.

Source: Glassnode

After bitcoin gained in value in 2011, reaching $11 and then $30, the competition to mine bitcoin grew more intense. The graphics processing unit (GPU), was adopted. GPUs were initially designed to run multiple mathematical calculations at once and are faster than CPUs.

Field programmable gate arrays, also known as FPGA, were first used in 2012 to bridge the gap between a fast-programmable processor (FPC) and a dedicated ASIC. ASICs have dominated bitcoin mining since then.

ASICs, or application-specific integrated circuits (ASICs), were first used for bitcoin mining in 2013. These chips are made specifically for a specific application. In Bitcoin, they are only customized to perform SHA256 hashing. They can run several orders of magnitude faster that GPUs. ASIC mining is currently the only viable method of mining bitcoins economically.

The mining process

The steps of mining are as follows:

  1. Bundling and picking transactions broadcast over the peer-to-peer network to create a block
  1. Select the block with the longest blockchain path and insert a hash of the header into the new block.
  1. You will be trying to solve the Proof of Work problem (PoW), for the new block, while simultaneously looking for new blocks from other nodes.

If a solution to the Proof of Work issue is found, the new block is added to local blockchain.

Source: https://drive.google.com/file/d/1_R1hO8719NLSqUpwPha6Ohs98YTi1fU0/view

The proof-ofwork problem

The core of the Bitcoin network is proof of work. Each network participant could alter the blockchain to their advantage without proof of work. PoW is a guarantee that the network will continue to work correctly without a central authority to resolve disputes.

The proof of work mechanism serves two purposes. It ensures that every participant has the same blockchain copy and that funds aren't spent more than once. This is a well-known issue in payment networks that don't have central coordinating entities.

Bitcoin's PoW algorithm uses hash functions. These are one-way mathematical operations that convert a string into a fixed-length number, called a hash. A hash is modified completely by even minor changes, such as a comma.

Bitcoin is based on SHA-256. This outputs a value of 256 bits and was created in 2001 by the National Security Agency. It is therefore considered extremely secure.

The following process is used by miners to search for blocks that are acceptable.

  1. Add 1 to an arbitrary number in a block header, called a nonce.
  1. The hash of the block header resulting from the above operation is what you should use.
  1. If the block header's haveh is lower than a predetermined target number when expressed in numbers, check it.

The network will reject a block whose block header hash is less than its target value. The PoW problem is finding a block that has a sufficient small hash value.

The difficulty adjustment feature

Bitcoin's reward halvings and difficulty adjustment are the core of its programmatic supply system. The Bitcoin network creates one block per ten minutes on average. This feature was chosen by Satoshi to trade off between quick confirmation time and the work lost due to chain splits or invalid blocks.

This can be done by making difficulty adjustments. These adjustments are used to adjust the block hash target value periodically. The rate at which blocks are created will increase as more miners join. The mining difficulty will rise to compensate for the increased rate of block creation, bringing the block creation rate down to the 10-minute average.

Source: Glassnode

Bitcoin nodes calculate a new difficulty for every 2,016 block (typically generated every 2 weeks with each block taking approximately 10 minutes to confirm), based on how long it took to mine the previous 2,016 blocks.

The difficulty of the genesis block was only 1. This means that it could have been mined immediately. Block mining difficulty now stands at 30 trillion, and it is growing. This indicates that the ASICS mining hardware is highly skilled and requires over 30 trillion hashes to find a valid block.

Mining Rewards

To solve the PoW problem, you need a lot more computing power than is available. This can also cost a lot. Bitcoin offers two rewards to encourage miners to invest in mining: a block reward (subsidy), and transaction fees.

Based on Bitcoin's algorithm the block reward is reduced by half every 210,000 blocks (approximately once every four years). At present, it is fixed at 6.25 Bitcoin per block.

Reward halvings guarantee that bitcoin production is stable over the medium term, but exhausts completely over the long-term. This ensures that bitcoin supply will eventually be capped.

Bitcoin is, therefore, often referred to as the "hardest asset" in the world. The gold supply has increased at 1% – 2.2% per year since 1900. There's no guarantee that it will grow or decrease. However, Bitcoin's immutable programmatic supplies are certain to increase and decrease.

The reward will eventually drop completely when the 21 million bitcoins limit is reached in 2140. Block mining will then be paid only by Bitcoin users who pay transaction fees. This is an incentive to block miners to include transactions in blocks.

Source NYDIG, Glassnode


You have two options to participate in bitcoin mining. Either you can mine at your home or hire a company to do the mining. Each option has its advantages and disadvantages. It's important to learn as much as you can about Bitcoin mining.


Although bitcoin mining is heavily dominated by large, well-funded companies that have huge warehouses filled with equipment, it's possible to mine at home. Mining is a highly specialized industry and requires sufficient knowledge, affordable ASICs and a cooling system.

To avoid costly mistakes, ensure you have considered all of the benefits and drawbacks before you commit to mining at your home.

If you are able to tick all the boxes, you may be able to mine bitcoin at home without KYC. You already know that Bitcoin mining is very energy-intensive and generates lots of heat. If you harness this heat, it can be used to heat your house.

Continue reading >> How to mine Bitcoin at Home

There are two options when it comes to mining bitcoin at home: Solo Mining or Pooled Mining.


Solo mining, also known as DIY mining, is where participants use their own mining hardware to search the blocks for blocks without having to join a pool. Solo miners, unlike pooled miners, who share their computational power and resources to mine Bitcoin. They are independent of any other parties to mine.

Solo miners get paid only when they find a block. They also receive any transaction fees. It is not an easy task these days as the odds are against you.

This method of mining was only efficient when the mining difficulty was low enough to make it easy to find new blocks. Recently, however, self-mining has become a hot topic. In Jan 2022, one miner found a valid block with 120 TH. He earned approximately $265K in bitcoin.

Solo or DIY mining of bitcoin is not considered profitable as it is almost impossible to earn the block rewards. However, it can help with your daily expenses, such as heating your home with ASICs. Solo mining is also a great way to interact with non-KYC bitcoin.

You might consider joining a mining pool if you're a solo miner and are having limited success.


Individual miners can pool their mining power to make it work as one giant miner through the process of pooled mining.

Decentralized mining pools are groups that coordinate the hashpower of miners all over the globe. Third parties then manage the pool and share the bitcoin resulting from the pool. Pooled mining allows miners to earn a steady income rather than hoping for a big payday one day.

Miners may find it difficult to choose a Bitcoin pool. There are many options available and pricing is often very opaque. It is best to test several options before you make a decision on a mining pool.

Here are some examples of mining pools:

  • Luxor
  • Foundry
  • Slush Pool
  • Poolin
  • Mara Pool
  • F2Pool

Continue reading: Guide to Pooled Mining


The most profitable and successful Bitcoin mining operations are usually the largest. These sophisticated operators are likely to outperform your small home setup. These companies have a lot more resources than home miners, so it might be worth your while to invest in or buy hashing power from these companies.

You have three options when it comes to mining with a company.

  1. They will sell you mining equipment and have it hosted in their facility.
  2. You can buy a portion of their available hashpower.
  3. Invest in the company.

There are tradeoffs. You will need to provide KYC information, and you will be charged for service fees. You also have no control over how the company is run, making you susceptible to poor decisions by them, potentially putting your investment at stake. Do your research and weigh your options before you invest in a mining company.

Here are some examples of mining companies

  • Iris Energy: Iris Energy, based in British Columbia, Canada is a Bitcoin miner who owns and manages real assets including data center infrastructure powered by renewable energy.
  • Core Scientific: Core Scientific ranks as the largest bitcoin miner in terms of hashrate and total computing power. They have offices in Texas, Georgia and North Carolina.
  • Riot Blockchain: Riot, one of North America's most prominent U.S.-based publicly traded Bitcoin miners is based out of Whinestone or Cosicana plants located in Texas.
  • Blockstream Mining: Blockstream Mining offers enterprise-class Bitcoin mining services for investors and institutions worldwide. Adam Back, a cryptographer who was instrumental in the creation and development of Bitcoin, co-founded them.
  • Hut 8 Mining: With one of the largest inventories of self-mined Bitcoin and publicly-traded companies worldwide, Hut 8 is one of North America's most innovative digital asset miners. They have a mining site in Southern Alberta, and another in North Bay, Ontario.


Is Bitcoin mining legal?

Bitcoin mining is legal in all countries. Some countries have banned bitcoin mining due to their high electricity consumption. The cryptocurrency may be viewed as a threat by the government or its local currency control.

These include Algeria, Nepal and Russia as well as Qatar, Qatar, Colombia, Ecuador, Bolivia, Egypt. Morocco, Ecuador, Pakistan. Bangladesh. China. Dominican Republic. North Macedonia.

Is Bitcoin mining taxable?

Bitcoin mining is a regular business, and therefore is subject to ordinary income tax. Capital gains are also required if bitcoin mined is sold with an increase in value.

Is mining financially viable?

Although bitcoin mining can be profitable, its returns depend on many factors such as electricity costs, ASIC mining device prices, and cooling expenses. A falling bitcoin price could also lead to a reduction in miners' margins.

What is the average salary of bitcoin miners?

Miners earn bitcoin in dollar terms. This is the sum of the current price and the block reward. A miner earning $125,000 per block if he has a block reward of 6.25 Bitcoin and an average price of $20,000, 2022.

Is it hard to mine bitcoin?

Bitcoin mining is becoming more difficult, given that Bitcoin's initial difficulty was 1. To remain competitive, ASICS's mining hardware must perform on average over 30 trillion hashes.

How long does it take for 1 bitcoin to be mined?

Miner 1 bitcoin takes an average of 10 minutes. Currently, however, each bitcoin that is mined will generate 5.25 BTC. Bitcoin is mined when a new block is added to the blockchain. This generates 6.25 BTC per block and takes an average of 10 minutes. By block number 1,050,000, it might be possible to mine just one bitcoin. The block reward is expected at 1.56 BTC. It will still take about 10 minutes to mine the block.

Common myths about Bitcoin energy consumption

#1 "Bitcoin uses dirty, non-renewable energy."

Bitcoin mining is a new market for the electricity industry. It challenges the traditional notion that energy generation should be free from grid restrictions. This new opportunity highlights and encourages global renewables' potential for significant carbon-free power generation.

Bitcoin mining is a key component of a future that has abundant and clean energy. Let's find out how and why.

This is because the Bitcoin network can act in a unique capacity as an energy buyer for such renewables. It facilitates the global transition towards cleaner energy production and storage.

Bitcoin miners are more inclined to mine it because they can find cheaper electricity to make their businesses more competitive and to keep them profitable.

The cost of solar and wind energy is now lower than those for fossil fuels. They are currently at 3-4 cents/kWh and 2-5c/kWh respectively. This contrasts with fossil fuels like coal or natural gas which cost 5-7c/kWh.

Solar and wind energy intermittency can be a major drawback when compared to nuclear power or natural gas. Their energy production is dependent on the sun shining during the day and the wind blowing unpredictablely.

Bitcoin mining offers a viable technological solution that increases transmission and energy storage capacity, overcoming intermittency. New mining facilities are settling in areas where natural resources are abundant, paving the way to carbon-free energy production.

For instance, West Texas has a surplus of solar and wind energy, which has already attracted bitcoin miners to the region to take advantage of this huge opportunity.

Bitcoin miners also have access to hydropower, a fundamental resource that is readily available. Norway is an example of a country where 100% of its electricity comes from renewable energy. This makes it a great location for bitcoin miners, who can enjoy low electricity prices and a climate that allows for proper equipment cooling.

#2 "Bitcoin is a waste of energy."

According to the Cambridge Center for Alternative Finance, Bitcoin consumes approximately 87 Terawatt hours per year. This is equal to 0.55% global electricity production or the annual energy draw for small countries such as Sweden and Malaysia.

This could be a concern for Bitcoin's critics, but overall attention should be focused on carbon emissions and not consumption. This distinction is crucial because Bitcoin could consume all of the world's electricity. However, if it comes entirely from renewables, its effect on carbon emissions will be negligible.

It is easy to calculate Bitcoin electricity consumption by simply looking at the hashrate for the period.

The main problem is to determine carbon emissions from Bitcoin mining. This task can be made more difficult if you don't know the exact energy mix used.

Miners are notoriously reluctant to provide mining data for a variety of reasons. Because Bitcoin nodes are anonymous, we don't often have any data about miners in certain regions. We can only guess their carbon impact using the region's energy resources.

Because of this inaccuracy, estimates of how much bitcoin mining uses renewable energy can vary greatly.

According to the Bitcoin mining council, the world's sustainable electricity mix for mining was 59.5% as of Q2 2022. This figure had increased by about 6% from Q2 2021 to Qu2 2022.

Coinshare published a report in 2019 indicating that 73% Bitcoin's energy consumption was neutral. This is primarily due to the abundance and quality of hydropower found in major mining centers such as Scandinavia and Southwest China.

The CCAF estimates that this figure is closer to 39% in 2020. This suggests that merely considering energy consumption is not a reliable way to determine Bitcoin's carbon emissions.

The debate would be most beneficial if we could decide whether mining bitcoin is a worthwhile activity to use energy on. This is where the discussion can be broadened and heated depending on how much you appreciate Bitcoin's alternative monetary system.

#3 "Bitcoin consumes more energy per transaction than Visa."

As we mentioned, it is important to distinguish between how Bitcoin's energy is generated and used.

Bitcoin critics may mention that Bitcoin's per transaction energy cost is high, particularly when compared to other payment systems transactions.

They don't know what they are doing, which is another reason to attack Bitcoin. Bitcoin's mining process accounts for the majority of its energy consumption. The energy needed to validate transactions once coins are issued is very low.

By dividing the total energy consumed by Bitcoin transactions, many people calculate its total energy consumption. This doesn't give a true picture, as most of the energy used to mine Bitcoins and not for supporting transactions.

One step further, Bitcoin can be claimed to be a final "cash", settlement layer without the need for a trusted party. Popular payment networks like PayPal and Visa do not offer instant irreversible settlements.

Traditional retail payment systems are built upon complex multi-layered structures that can take up to six months to complete a transaction. What about the energy lost during this long time? This is why this comparison cannot be considered valid.

We have the opportunity to make Bitcoin mining a positive aid in reducing CO2 emissions.

There are always new ways to harness natural resources and discover new methods. For example, unlocking ocean energy can benefit up to one billion people around the world with between 2-8 terawatts continuous clean power.

By: Bitcoin Magazine
Title: What is Bitcoin Mining? The Complete Guide
Sourced From: bitcoinmagazine.com/guides/bitcoin-mining
Published Date: Tue, 13 Sep 2022 17:21:27 GMT

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