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What is Bitcoin Mining? How does Bitcoin Mining work?

Bitcoin mining is the process of creating new Bitcoins. Is Bitcoin mining profitable and legal? How does Bitcoin Mining work? Learn more here.
Published Aug 11 2021
Updated Jun 14 2024
17 min read
bitcoin mining

What is Bitcoin mining?

Bitcoin mining is the process of creating new Bitcoins by solving extremely computational puzzles that verify the legitimacy of Bitcoin transactions and to enter new bitcoins into circulation. The miner receives a predefined amount of Bitcoin when a Bitcoin is successfully mined.

what is bitcoin mining

Learn more: Everything you should know about Bitcoin


Why mine Bitcoin?

Is Bitcoin mining profitable?

Bitcoin mining profitability is determined by a number of factors, including the cost and kind of hardware, energy costs, and the price of Bitcoin. Government laws, taxes, and subsidies, as well as environmental conditions such as temperature, can all have an impact on profitability.

For example, according to a 2019 research from the Congressional Research Service, one ASIC can consume the same amount of electricity as half a million PlayStation 3 systems.

asic miner
ASIC miner

*ASIC: An application-specific integrated circuit chip customized for a particular use.

Bitcoin miners only get paid when they mine a block, hence the rewards are atomic and unpredictably distributed. Mining costs, on the other hand, are consistent and predictable.

If a person is mining with a low hash rate, the chances of mining a block are extremely low. A small miner, for example, could go months without making any money.

Mining pools exist to address the disparity between fixed costs and variable earnings. Individuals can share their resources, expand their capabilities, pool their hash rate and earnings in mining pools.

When a tiny miner joins a mining pool, they will be paid whenever another miner in the pool discovers a block. This payment will be proportional to how much hash rate they provided to the pool. Because of the fluctuation of Bitcoin's price, it's tough to tell how much you're working for.

Is Bitcoin mining legal?

The legality of Bitcoin mining is totally dependent on your location. The notion of Bitcoin may pose a threat to fiat currency dominance and government control of financial markets. As a result, Bitcoin is entirely banned in several jurisdictions.

Bitcoin mining and ownership are allowed in a growing number of countries. Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan were among the countries where it was outlawed, according to a 2018 report. Bangladesh, China, the Dominican Republic, North Macedonia, Qatar, and Vietnam have all prohibited Bitcoin mining since 2018.

Overall, Bitcoin mining and use are legal in most parts of the world.

How does Bitcoin mining work?

Mining (blockchain mining in particular) takes advantage of economic incentives to provide a secure and accurate method of data organizing. Third parties who order transactions are decentralized, and they are compensated for good behavior. Any misbehavior, on the other hand, leads to a loss of economic resources, at least as long as the majority of people are honest.

This result is obtained in Bitcoin mining by constructing a series of blocks that can be mathematically demonstrated to have been stacked in the correct sequence with a specific amount of resource commitment. The method is based on the mathematical features of a cryptographic hash, which is a standardized method of encoding data.

Technically, anyone with a computer can mine Bitcoins, but the industry has gotten so competitive over the years that miners often require expensive hardware and low-cost electricity to profit from Bitcoin mining.

Miners that attempt but fail to solve these functions use expensive energy but earn no Bitcoin rewards for their efforts. Miners currently receive 6.25 Bitcoins for mining a single block, which is equivalent to a single page in the blockchain ledger. The transaction fees paid within that block are also distributed to the miners.

Miners' earnings decline by half every four years, starting in 2024, when they will earn 3.125 Bitcoins per block. Miners also receive all the transaction fees paid within that block. The amount that miners earn decreases by half at four-year intervals so that starting in 2024, they will earn 3.125 Bitcoins per block.

When a proper solution to the function is discovered, a block of verified transactions is added to the blockchain, and the process begins again for the following block of transactions. The Bitcoin algorithm is programmed to change the difficulty of math problems every 10 minutes to keep the rate of new block formation constant.

Bitcoin miners compete to solve incredibly complicated math problems that necessitate the use of high-end computers and massive amounts of electricity in order to properly add a block. Application-specific integrated circuits, or ASICs, are the computer hardware necessary, and they can cost upwards of $10,000. Environmentalists have criticized ASICs for consuming a large amount of electricity, which has harmed miners' profitability.

If a miner successfully adds a block to the blockchain, they will be rewarded with 6.25 bitcoins. Every four years, or every 210,000 blocks, the incentive value is lowered in half. Bitcoin was trading at roughly $43,000 in January 2022, making 6.25 bitcoins worth nearly $270,000.

However, bitcoin's price has been extremely fluctuating, making it difficult or impossible for miners to predict how much their payout will be worth when they receive it.

Risks of Bitcoin mining

In addition to the financial risk of not generating a profit, there are technical hazards involved with maintaining high-power devices such as ASICs and many other below:

Price Volatility

Since its inception in 2009, the price of Bitcoin has fluctuated dramatically. Bitcoin has traded for less than $30,000 and approximately $69,000 in the last year. Miners can't tell if their payout will outweigh the high costs of mining because of this instability.


Only a few governments have embraced cryptocurrencies such as Bitcoin, and many more are suspicious of them since they operate outside of government supervision. Governments could restrict Bitcoin or cryptocurrency mining entirely, the same as China did in 2021, claiming financial dangers and increasing speculative trading as justifications.

Mining equipment damage

To avoid the mining equipment's components being burned out owing to overheating, proper ventilation is necessary. The miner's full electricity usage is dissipated as heat into its surroundings, and a single ASIC is likely to be the most powerful device in your home or business.

That means that when Bitcoin mining, you must carefully evaluate the limitations of your electrical grid. The energy network in your home is rated up to a certain amount of power, and each plug has its own rating. Excessive use of those limits could lead to frequent outages or electrical fires. Consult a professional to see if your electrical setup is suitable for mining.

To keep the mining devices healthy, they must be maintained against dust and other external conditions on a regular basis. While failures are uncommon, ASICs might fail sooner than predicted if they are not properly maintained.

While individual ASICs may fail, the most serious threat to their profitability is the possibility of them becoming obsolete. Older devices will gradually be displaced by more efficient miners.

Expensive cost

Mining can be prohibitively expensive for the average person. Individual miners must first purchase mining equipment that can cost more than $10,000. Even if they choose to join a mining pool, miners must have access to low-cost energy and broadband internet.

Carbon Footprint

As of September 2021, Bitcoin mining consumed 91 terawatt-hours of electricity annually, which is more than Finland’s share. For now, much of that electricity is generated from fossil fuels such as coal and natural gas, making Bitcoin mining a significant contributor to global climate change.

How to become a Bitcoin miner

Set up a Bitcoin Wallet

The first step a potential Bitcoin miner should take before beginning the mining process is to create a Bitcoin wallet. This wallet will hold any Bitcoin you earn from your mining efforts. A wallet is a safe online account where you may store, send, and receive Bitcoin and other cryptocurrencies. Coinbase, Trezor, and Exodus are just a few of the cryptocurrency wallets accessible.

Miners can keep anything in their wallet, from a single Satoshi to hundreds of thousands of BTCs. Before installing any free mining software on a device, miners must generate a wallet address using their email address.

Bitcoin mining hardware/ software

The Bitcoin mining process is controlled by the mining hardware. Bitcoin mining software is required to link you to the distributed Blockchain network and your Bitcoin mining pool if you are connected to a network of mining pools.

The miners receive the program's work, complete it, and then return the data to the software. The mining program sends the data back to the Blockchain network as well as the Bitcoin mining pool.

Almost any operating system, including Windows, Linux, and OSX, can run many free Bitcoin mining apps. Some of the apps can even be tweaked to run on small, low-cost computers like the Raspberry Pi. You can port such software with a few adjustments depending on your mining setup.

The Bitcoin mining program also records the input and output of the Blockchain, as well as providing statistics on the miner's temperature, hash rate, fan speed, and average speed.

There are a variety of free Bitcoin mining software options available, each with its own set of advantages and disadvantages. As a result, in order to secure the safety of your mining device, you must undertake thorough study on various mining software.

Computer equipment

The hardware is the most cost-prohibitive part of Bitcoin mining. To successfully mine Bitcoin, you'll need a powerful computer that consumes a lot of electricity. It's not uncommon for the gear to cost upwards of $10,000.

How to mine Bitcoin with mining rig in 5 steps

Step 1: Assess your Bitcoin mining operation's profitability and viability. When it comes to mining Bitcoin, there are two primary variables to consider.

  • The hardware: Obtaining Bitcoin mining hardware can be difficult due to the high demand for these computers. ASICs, or "Application Specific Integrated Circuits," are the computers that mine Bitcoin. You can get them from a variety of online stores or directly from the manufacturer.
  • It was the electricity. The amount you pay to run your miners determines the profitability of your mining operation. Even older Bitcoin mining rigs can be successful if you can get electricity for a low enough price. Use a mining profitability calculator to estimate whether or not your setup will be profitable before you start.

Step 2: Purchase your Bitcoin mining equipment. A provider might sell you used or new Bitcoin mining "rigs". When purchasing any gear, there are two things to keep in mind.

  • Locality: What country will the mining rigs be transported from? You might get a terrific deal on the machines, but you'll have to pay a lot to have them delivered to you. Consider all of your options and strike the perfect balance.
  • Condition of the miners: Used miners are a great alternative for individuals or small enterprises who are just starting. Rather than spending top dollar for a new miner, you can have a similar experience with a secondhand miner. If you're buying used, be sure the rigs are from a reliable vendor.

Step 3: Get Bitcoin mining software on your computer. After you've set up your Bitcoin mining setup, you'll need to download the software that will connect you to the Bitcoin blockchain. The software assigns tasks to miners and searches for blocks to add to the network. NiceHash Miner is one of several free software tools that may be used to mine Bitcoin.

Step 4: Entails finding and joining a Bitcoin mining pool. Individual miners find it difficult to compete with massive mining farms supported by mining corporations. Bitcoin mining pools are one solution. Individual miners can pool their computing resources and compete as a group. Fees must be paid to the pool's operator, and rewards are slightly smaller, however using a mining pool guarantees more constant rewards.

Step 5: Begin mining. You're ready to start mining Bitcoin now that you've chosen a pool. Connect your mining hardware to a power source, use your selected software to connect to the Bitcoin blockchain, enter your Bitcoin address where your earnings will be deposited, and you're ready to go.

How to mine Bitcoin online & free

To be a potential Bitcoin miner, you must have the following items before you can start mining for free Bitcoins.

First and foremost, you must download a Bitcoin wallet and create an account to save your earnings. You'll need an encrypted online bank account to transmit your earnings after you've created your wallet account.

Second, you'll need free mining software installed on your smartphone. After downloading and installing free Bitcoin mining software, you must configure it and link your Bitcoin mining account to your Bitcoin wallet.

  • Set up a Bitcoin wallet.
  • Download Free Bitcoin Mining Software: EasyMiner, BTCMiner, MinePeon, BFGMiner, CGMiner, 50Miner,...
  • Join a Bitcoin Mining Pool.

Some informations you have to know when mining Bitcoin

Bitcoin mining difficulty

Bitcoin mining difficulty, as the name implies, refers to the difficulty of mining new Bitcoin blocks.

Because the Bitcoin network is entirely decentralized and not controlled by a single entity, Satoshi Nakamoto's algorithm is hard-coded into the source code. This algorithm changes the difficulty of the mining process based on the number of miners in the network to ensure that blocks are discovered at a consistent rate.

The bitcoin mining process is critical to the network's security and legitimacy, as well as its native cryptocurrency, bitcoin (BTC). Bitcoin's consensus system, or the system of agreement employed by bitcoin to ensure that all distributed participants establish accord on new data entering the blockchain, is built around mining. The network is totally based on a decentralized transaction validation procedure, in which anyone in the world can take on the task of certifying new transactions and adding them to the blockchain in a chronological order via new blocks.

The entire procedure – known as proof-of-work – entails a computer-intensive effort that needs would-be validators to use their machines to construct a winning fixed-length code before anybody else.

The theory is that by requiring validators to use some type of energy in order to discover new blocks, potential bad actors will be discouraged from joining the network and attempting to pollute the blockchain with invalid transactions.

Miners have switched over the years to using specialized computing equipment called application-specific integrated circuit (ASIC) miners, which are capable of generating over one quintillion random codes per second, an exponentially higher number of guesses than any regular laptop is capable of producing per second, to increase their odds of winning.

In order to maintain a consistent generation of validated blocks for the blockchain, the difficulty rate associated with mining Bitcoin varies and changes generally every two weeks. The higher the difficulty, the less likely it is for a single miner to solve the hash problem and earn bitcoins. In essence, it takes about 10 minutes for one miner from the entire network to develop a winning code and gain the opportunity to propose a new block of bitcoin transactions for inclusion in the blockchain.

The program intervenes to maintain this frequency by increasing or decreasing the difficulty of mining bitcoin. The difficulty of mining bitcoin increases if there is an inflow of miners or mining rigs. In the event that the number of miners trying to find new blocks decreases, the protocol lowers the mining difficulty to make it easier for the surviving miners to find new blocks. The bitcoin network's mining difficulty is changed by increasing or decreasing the number of zeros in the target hash.

The designation provided to the specific hash (fixed-length code) that all miners are attempting to beat is known as the target hash.

Various formulas are used to calculate the difficulty of bitcoin mining. The most common one is: Difficulty Level = Difficulty Target/Current Target.

  • The Difficulty Target is a hexadecimal representation of the target hash's mining difficulty, which is 1.
  • The current target, on the other hand, is the hash of the most recent block of transactions. When you split the two numbers, you get a whole number, which represents the difficulty level of mining bitcoin.

If the answer is 24 trillion, for example, a miner will have to generate around 24 trillion hashes before he can identify the winning hash. Of course, miners can strike it rich and discover it with a lot fewer guesses.

Bitcoin mining pool

Individuals can join a mining pool, which is a group of miners who work together and share the earnings, to compete against the mining mega centers. This can speed up the mining process while also lowering the difficulty, making it more profitable. As the difficulty and cost of mining have risen, more and more individual miners have chosen to join a pool.

Although the overall reward falls due to the fact that it is shared among numerous participants, mining pools have a significantly better probability of actually solving a hashing problem first and obtaining a payment in the first place due to their combined processing power.

The two most often utilized Bitcoin mining pool payout types are briefly outlined below:

  • Proportional Mining: Miners receive payouts proportional to the amount of effort they put in to find a block in a proportional mining payment technique. The reward amount is also determined by whether or not the pool discovers a block. As a result, miners will get nothing unless they discover a block. If they uncover numerous blocks, on the other hand, they will maximize their gains. This method of payment is advantageous as the price of bitcoin rises. Even if the difficulty level rises in lockstep, the payment from growing bitcoin prices ensures that the miner profits.
  • Pay-Per-Share Method: The pay-per-share mechanism, as its name implies, distributes payouts based on the pool's total mining power. A proportionate mining system is the polar opposite of this. A miner's share is determined by an equitable allocation of the pool's rewards, not by their labor. Regardless of whether the pool finds a block, a miner receives their reward. This payment mechanism is ideally suited for periods when bitcoin prices are low since it provides a flat charge, which translates to a steady revenue for miners during lean times.

As the bitcoin ecosystem has grown, a new sort of payment method has emerged to address the disadvantages of both payment methods. A pay-per-share model, for example, can eliminate the motivation for miners to find blocks entirely because a dividend is guaranteed. During bad markets or when bitcoin incentives drop, proportional mining is troublesome.

As a result, many miners have shifted their resources across mining pools based on payout type and bitcoin price. In reaction to the diminishing returns of bitcoin, some mining pools have adjusted their rewards strategy between the two payout types.

Bitcoin mining cost

The cost of profitable Bitcoin mining equipment has risen significantly as a result of greater competition. Mining rigs have had to get more powerful as massive mining farms drive up demand and dominate the Bitcoin mining industry, raising the price. ASIC miners can cost as little as $500, but a professionally built mining setup can cost up to $15,000. Recouping your initial investment is likely to take more than a year.

After installing a Bitcoin mining gear, it must be powered. Electricity should be cheap, but if a Bitcoin mining setup is running 24 hours a day, the expenditures can quickly add up. The cost of power varies by region within your own country.

Every miner must mine Bitcoin through a Bitcoin mining pool in order to have a chance of making a profit. Joining a Bitcoin mining pool, on the other hand, comes at a cost. For use of the network, each pool's operator will charge a percentage. These pool fees, which normally range from 0.1 to 2.5 percent, are deducted from the Bitcoins mined.

The fee charged when selling any Bitcoin is the final expense to consider. If a user wants to sell all of the Bitcoin they've mined, they'll have to pay a charge to the cryptocurrency exchange or broker that facilitated the transaction. These costs will vary between exchanges and may be modest, but they should still be considered when calculating the total cost.

Bitcoin mining taxes

It's crucial to keep in mind the potential impact of taxes on Bitcoin mining. As cryptocurrencies' prices have skyrocketed in recent years, the IRS has been attempting to crack down on their owners and traders. The following are the most important tax implications for Bitcoin mining.

  • If you run a Bitcoin mining firm, you may be able to deduct some of your expenses for tax purposes. The amount of bitcoin you make would be your revenue. However, if mining is your pastime, you won't be able to deduct your expenses.
  • Mined bitcoin is income: If you're successful in mining bitcoin or other cryptocurrencies, you'll be taxed on the fair market value of the currencies at the time of receipt.
  • Gains in capital: If you sell bitcoins for a higher price than when you bought them, you've made a capital gain, which is taxed the same way traditional assets like stocks and bonds are.

For additional information, see Bankrate's cryptocurrency taxation guide, which covers the fundamental tax rules for Bitcoin, Ethereum, and other cryptocurrencies.

Bitcoin Mining FAQs

How long does it take to mine 1 Bitcoin?

The time it takes to mine one Bitcoin is determined by several factors:

  • The Bitcoin network's current block reward.
  • The number of transactions in each block, as well as the fees paid on each one.
  • The size of the mining operation's mining equipment.

In general, it will take more and longer to mine 1 BTC as time passes.

What purpose does Bitcoin mining serve?

Mining guarantees that only genuine transactions are verified in a cryptocurrency's blockchain. The process of providing a solid settlement mechanism to a cryptocurrency network is known as mining.

Computer owners who allocate their processing power to the peer-to-peer network are known as "miners" of cryptocurrencies like Bitcoin.

A Bitcoin miner requires two things: mining hardware and electricity, similar to gold miners who use picks and shovels to extract gold.

Miners are computer owners who give their computational power and energy to a cryptocurrency network based on "proof-of-work" such as Bitcoin. As a reward for validating a new block for the blockchain, the first miner receives a share of the currency that is mined. A block reward is the name for this type of remuneration.

Does Bitcoin mining damage my GPU/Computer?

Blockchain mining can drain your GPU or other mining hardware because it consumes a lot of resources. Mining rigs have been known to catch fire and GPUs have been known to blow apart.

However, it is usually safe to run your devices at a decent speed and with sufficient power.

Can I mine cryptocurrencies other than Bitcoin?

Yes, there are many other Proof-of-Work cryptocurrencies that can be mined, and most of them are more accessible to the average enthusiast than Bitcoin. Dogecoin and Litecoin are 2 examples of digital assets that can be mined.

Will Bitcoin mining become less profitable or more difficult in the future?

Yes. Every 210,000 blocks, or roughly every 4 years, the number of Bitcoins generated every block is cut in half. The present number of BTC issued per block is 6.25, but this quantity is expected to half around 2024.

How much power do I need to mine Bitcoin?

The amount of computing power required to mine Bitcoin varies according to the mining process. The more miners there are, the more electricity is needed to keep them running. Additional elements like ventilation and cooling can significantly increase the amount of energy required to run a mining operation.

How do beginners mine Bitcoin?

Beginners can mine Bitcoin by purchasing used mining equipment or just instructing their computer to mine. While neither example is likely to be successful, the experiment will provide a basic knowledge of how mining works to the novice.

Which mining machines are commonly used to mine Bitcoin?

Custom mining equipment known as Application-Specific Integrated Circuits (ASICs) are used to mine cryptocurrencies.

How do mining pools pay miners in their pool?

Pay-per-share and proportional mining are the two most prevalent compensation systems for mining pools. A third way of compensation is a hybrid of the two.


To sum up, this is everything about Bitcoin Mining as well as its features. I hope that you find this article helpful, and it has supported you along the process of experiencing the Bitcoin mining.