What is Bitcoin Mining?

Bitcoin Mining Guide
Bitcoin Mining Guide

It seems fiercely wild!! Is it just a gamble? Well, it is much more than that! Keep reading to understand the world of Bitcoin mining!

“Bitcoin is a remarkable cryptographic achievement. The ability to create something which is not duplicable in the digital world has enormous value. Lots of people will build businesses on top of that.” –Nassim Taleb, Statistician, a former trader, and risk analyst. Miners solve computational problems and chain the blocks of transactions together forming the Blockchain, that is the main purpose of mining. For this, they are rewarded with new coins and fees.

What is a Bitcoin?

Bitcoin is one of the major cryptocurrency and it is not regulated by any central authority. It is backed by millions of computers around the world called “nodes”. This network of all the computers performs the function same as Visa and MasterCard with slight differences. Besides, nodes store the information about the previous transactions and help to verify the authenticity of transactions. In contrast to central Authorities, Bitcoin nodes are spread all around the world and they record transaction data in the public ledger that can be accessed by anyone at any time.

What is Bitcoin Mining?

  • Bitcoin mining is done by high-performance computers that can solve complex computational problems. BTC mining has a dual advantage as firstly, new coins are produced when computers solve these complex math problems and secondly, Bitcoin miners make the Bitcoin payment network reliable and secured by doing verification of the Bitcoin transactions just to make sure.

  • As the other digital currency and transactions are backed by a central authority like MasterCard, Visa, etc., the Bitcoins are backed by the Bitcoin miners that record transactions and validate the accuracy. Bitcoin miners have a worldwide network.
  • In Bitcoin mining, a miner who owns a node on the network will try to solve a block that contains the latest transaction data in it, using cryptographic hash functions, which are also called as hash rate. A hash function takes data and translates it into a string of letters and numbers. Hash allows you to input as much data as you want. Hash functions only work one-way. Once the miners solve the Bitcoin block using cryptographic hash functions, they broadcast the solution to the rest of the network and are rewarded with a number of Bitcoins.

Know different ways to obtain Bitcoins!

There are three important ways of obtaining Bitcoins –

    1. Buying them through an exchange
    2. Accepting as a form of payment for goods and services
    3. Mining new coins
  • Mining can be described as a process of adding the transaction records to Bitcoin’s public ledger which is described as the Blockchain.

  • Blockchain is needed so that each transaction could be confirmed and every user of the network will be able to access this public ledger. It can also be used to differentiate between legitimate Bitcoin transactions to avoid re-spending the money which has already been spent on it.

  • Blockchain can be described as a chain of blocks which shows the list of transactions that are made during a specific period. When a set of transactions is generated, miners forward it through a process. Moreover, they apply a complex formula to the information already there in the block, eventually turning it into a shorter and a random sequence of number and letters called “Hash”.

Parts of Bitcoin Mining

  • Issuing new Bitcoins
  • Confirming Bitcoin transactions
  • Security

In fact, Bitcoin is a four-sided network effect. There are four constituencies that participate in expanding the value of Bitcoin as a consequence of their own self-interested participation. Those constituencies are (1) consumers who pay with Bitcoin, (2) merchants who accept Bitcoin, (3) “miners” who run the computers that process and validate all the transactions and enable the distributed trust network to exist, and (4) developers and entrepreneurs who are building new products and services with and on top of Bitcoin.” –Marc Andreessen, an American entrepreneur, investor, and software engineer.

Features of Bitcoin Mining

  • In Bitcoin Mining, new transactions are sent to the miners in the Bitcoin network. Miners collect these transactions and organize them into a new block of transactions arranged in the order in which they are received. Proof of work is created by miners through programs. This shows what the Bitcoin miners have invested in computing power to validate, process and complete a block of transactions. Once a miner finds the solution to the complex cryptographic problem, they broadcast their completed block plus the solution to all the miners in the network to demonstrate the proof of work.

  • For the new block to be accepted by all miners on the network, it must contain valid transaction data and proof of work that the Bitcoins contained in the new block have not been previously spent. The whole process of mining starts all over again but with new Bitcoins transaction and proof of work on the next block.
  • Since every block is using the hash rate of the previous block, this effectively creates a chain of blocks and so it is referred to as Blockchain. The Blockchain relies on the help of miners to verify and validate transactions and in doing so, miners are rewarded with Bitcoins.
  • Initially, the number of Bitcoins reward per one block was set to 50 BTC. That halved to 25 BTC in late 2012 and halved again to 12.5 BTC in 2016. Miner receives 12.5 Bitcoins as a one block reward in writing. Mining Bitcoin in the contemporary scenario requires much more computing power and investment in Bitcoin mining hardware like Application-specific integrated circuit (ASIC) mining rigs.
  • However, to make mining a profitable venture, miners will need to set up their mining centers in a cool climate and have access to cheap electricity. No one really knows the number of Bitcoin miners in the Bitcoin network.
  • The mining process will become more difficult and these days miners don’t mine alone, they pool their resources together and mine Bitcoin through mining pools.

What is mining bitcoin?

what is mining bitcoin?
what is mining bitcoin?

Most of the mining is done in huge warehouses where there is cheap electricity. It includes the following steps:

Step 1: Buy ASIC miner

ASIC miners are specialized computers that are mainly used for mining Bitcoins. With the evolution of technology, it is not simply possible to mine Bitcoins through a home desktop. This will lead to money wastage and no earning. In such case, you can look for free bitcoin mining sites that can make work easy for you.

Step 2: Select a Mining Pool

You need to select a mining pool to share your hash rate with the pool.

Step 3: Buy Bitcoin Mining Software

This software allows you to join your mining hardware to the desired pool. After this, you will have to create a Bitcoin wallet.

Step 4: Make it Legal

You can write your expenses like electricity and mining hardware etc. to legalize your mining process.

Step 5: Make your Bitcoin mining competitive!

Researching and understanding the market, you can book good profit in mining. You can book double the profit if the Bitcoin price increases by two. By using a calculator, you can make the mining competitive!

Find Complete Process of Bitcoin Mining

  • The Bitcoin miners have to come up with the right hash and simultaneously they should be the first to do it to withstand the competition. It is a gamble, it is guessing the right answer before another miner knows how fast your computer can produce hashes. Earlier, Bitcoin mining was done on normal desktops. But, with the evolution of technology, miners found out that graphic cards that were previously used for video games were more beneficial and efficient at mining than normal desktops, which reduces mining difficulty.

  • In the modern world, Bitcoin mining is performed on ASICs, usually in thermally-regulated data-centers with access to low-cost electricity. It has become widespread and is highly competitive, that it can only be done beneficially with the most up-to-date ASICs. When using traditional desktop computers, GPUs, or old models of ASICs, the cost of energy consumption becomes more than the revenue generated.

  • One computer is not enough to compete with the “mining pools.” A very large number of blocks are mined efficiently by pools than by individual miners. The idea is simple, miners group together to increase their mining power through mining pools. Once the pool manages to win the competition, the block reward is distributed between the pool members depending upon their contribution. In this way, even small miners can join the competition and earn Bitcoins as a part of the reward.

Find about Scaling!

  • The Bitcoin network can route about seven transactions per second, with transactions logging in the Blockchain every 10 minutes. With the number of users continuing to grow, the number of transactions every 10 minutes will gradually exceed the number of transactions that can be processed in 10 minutes.

  • This issue is called scaling. There can be 2 major solutions for scaling. Firstly, to decrease the amount of data needed to verify each block and secondly, to increase the number of transactions that each block can store. This way, the transactions will become faster and cheaper and by allowing more information to be processed the scaling problem will be addressed.

  • Bitcoin mining companies support a program that would decrease the amount of data needed to verify each block. This program is called a segregated witness or SegWit meaning separating and witness signatures on Bitcoin transactions. This will address the scaling problem to some extent. The mining companies also found out an alternative solution for scaling in the form of Bitcoin Cash.

What is Bitcoin Halving?

  • For every 210,000 number of blocks that are mined for every four years, the Bitcoin miners receive a reward for processing the transactions which are cut into half. Also, this is cut into half the rate in which the new coins are released into circulation. It is one of the ways used by Bitcoin as a form of artificial inflation which halves every four years until all the Bitcoin is released into circulation.

  • This mining system will continue till 2140, and at this point, the miners will be rewarded with the transaction fees for processing the transaction, which is paid by the network of users. Further, these fees ensure that the miners will have the incentive to mine and it helps them to keep the network going. The competition for these fees will cause the miners to sustain after the halvings are completed.

  • The halving of Bitcoin is significant because it marks the next step in introducing the Bitcoin’s limited supply. Currently, there are several millions of Bitcoins in circulation, which just leaves only a few to be released through the mining rewards.

  • The reward for every block in the blockchain mined was 50 bitcoins in 2009. After its first halving, it was reduced to 25 then to 12 5 bitcoins and in May 2020, it was 6.25 Bitcoins per block. Simply put, this shows that Bitcoin is cut into half every four years based on the scarcity. Theoretically, the halving of Bitcoin every 4 years could drive its price higher.

Why is halving done?

Let us see a few pointers regarding why this halving is carried out –

  • The creators of Bitcoin designed this digital currency as a deflationary currency just like gold. Its value increases over time and when it decreases, it becomes limited over some time. When the Bitcoins become scarce, its demand increases with time, which can be used as a hedge against inflation.
  • To make sure of the smooth and easy functioning of the blockchain, and taking into account the ability to verify and process each transaction, the Bitcoin network aims to produce one block every 10 minutes.
  • In case if there are a million mining rigs that are competing to solve the hash problem, they might quickly solve the 10 mining rigs that are working on the same problem. For this reason, the creators of Bitcoin have designed it to evaluate and to comprehend the difficulty of mining for every 2016 block, or every two weeks.

Block Reward

  • The main purpose of mining is to serve the Bitcoin community thereby confirming each transaction and ensure that every one of the transactions is legitimate. Besides, they compete with each other by using the software specifically written to mine blocks. when a new block is sealed off, which implies that a miner who has created successfully a correct hash sequence, gets a reward.

  • Besides those who are using mining devices to search for new blocks are rewarded for their work through the block rewards. Several cryptocurrencies do have a similar process for rewarding miners the blocks of the corresponding blockchain. The winning miner claims the reward by adding it as the first transaction in the blockchain.

  • In the beginning, every Bitcoin block reward was 50 BTC worth, later the block reward was halved after every 210, 000 blocks that take around four years to complete. In 2019 February, one block reward was 12.5 BTC.

Transaction fees on Block Reward

When a block is discovered by a miner, they can reward themselves with a specific number of Bitcoins which is agreed by everyone on the network. Recently this reward is 25 Bitcoins and this value will be halved every 210 000 blocks. Also, the miner is rewarded with the fees that are paid by the users for their transactions. This fee is paid as an incentive for the miner for including the transaction in the block. In the future, when the new Bitcoin miners are creating new blocks, this transaction fee will make up as a percentage of mining income.

What is the role of miners in Bitcoin Mining?

Find miners role in Bitcoin Mining
Find miners role in Bitcoin Mining
  • Anyone can become a miner by using software with specialized hardware. This mining software checks for transactions broadcasted in the peer-to-peer network and performs a suitable task to confirm and process these transactions. They undertake this work because they earn from each transaction fees that are paid by the users for transaction processing and for the newly created Bitcoins that are issued as per the formula.
  • For confirming the new transactions, they should be included in a block simultaneously with mathematical proof-of-work. This proof-of-work is very difficult to generate since there is no way for creating them other than by using billions of calculations a second. It requires the person who mine to carry out these calculations before the blocks are accepted by the users and before they are to be rewarded.
  • Since more people are starting to mine, there is much difficulty to find valid blocks. It is increased automatically by the users to make sure that the average time for finding a block remains or equal to 10 minutes. Consequently, we can say that mining is a very competitive business where no miner or individual can take control of what is added in the blockchain.
  • Moreover, the proof of concept is designed to depend on the previous block to force a chronological order into the blockchain which makes it very difficult to reverse the previous transactions, because this process requires recalculation of the proof of work of all the subsequent blocks.
  • When the two blocks are discovered at the same time, the miners work for the first block they receive and later they move to the longest chain of blocks when the next block is found. This permits the mining to be more secure and maintain a global agreement based on the processing power.
  • People who mine Bitcoin will not be able to increase their reward or they can process any fraudulent transactions which might corrupt the Bitcoin network. This is because the Bitcoin nodes would automatically reject any block which contains invalid data as per the rules specified by the Bitcoin protocol. As a result, the Bitcoin network remains safe and secure throughout the process.

How does mining can be used to secure Bitcoin?

Mining can be compared to that of the equivalent of a lottery which makes it difficult for anyone to add, view blocks of the transactions consecutively into the blockchain. This in turn protects the network neutrality by not allowing any individual from getting the mining power to block the specific transaction. It also prevents any user from replacing any part of the blockchain which might be used to defraud users. Mining makes it more difficult for reversing a past transaction which requires the rewriting of the blocks following the transaction.

Bitcoin Network Difficulty

  • Bitcoin mining network difficulty can be described as a measure of finding how difficult it is to find a new block when it is easiest. Further, it is recalculated for every 2016 blocks to the value that the earlier 2016 blocks might have been generated in exactly two weeks if everyone had been mining at this difficulty. This in turn will yield one block every 10 minutes on an average.
  • When more people join the mining community, the block creation rate will go up. When the rate of block generation increases, there will be a difficulty to compensate which will decrease the rate of block creation back downwards.
  • Any of the blocks that are released by malicious miners that do not meet the required difficulty target will be rejected simply by everyone on the network and it is worthless.

Throwing light on some facts of Bitcoin Mining

Bitcoin is backed by electricity:- Bitcoin’s supply limit is preserved in digital form. The value of Bitcoin is backed by its code running on computing hardware powered by electricity. In the modern competitive scenario, mining can be profitable by gathering a great insight and deep knowledge of Bitcoin, using most modern ASIC mining hardware, and ensuring low electricity costs. If the miners are constantly connected to cheap geothermal or hydro-electric power, they can gain a competitive advantage like in China.

Excess heat from Bitcoin mining:- It generates a lot of heat so mining should be done in a cool climate. There are intelligent Bitcoin miners who can capture the heat and use this heat productively like reusing heat in data centers. Multiple companies are merging mining and heating into smart devices, to benefit both industries.

Bitcoin mining doesn’t require raw material:- It doesn’t need other resources that are necessary for a fiat system. For e.g. printer papers, transport cars, ink, other resources, cost of infrastructure and many more.

Worthwhile:- It helps citizens in a legal way to avoid inflation by bypassing government restrictions.

Bitcoin mining is worth the energy cost:- Using the internet surely marks the beginning of super technological transformation which is worth the energy cost.

Wrap up

To conclude, we can say that Bitcoin mining is an intensive process, but the users can make use of it by considering joining a pool rather than working as an individual miner. One of the most important points is that, if the miner does not reside in a region that offers cheap electricity, they might end up spending more money on high electricity bills every month. Regardless of having access to cheap electricity, then mining is not the most effective way to earn Bitcoins. Bitcoin mining is the process of updating the Blockchain, it is done by extremely powerful computers known as ASICs that compete against other miners. The first miner gets to update the Blockchain and receive a reward of new Bitcoins, presently the reward is 12 5 bitcoins. You need to do a lot of research and invest in equipment, cooling, and storage to make it profitable. The mining calculator can surely help you record your profitability.


1. What is Bitcoin Mining?

Bitcoin mining can be carried out even by a beginner and the basic requirements are to have the software and specialized hardware. The software that is required to mine is simple to use and it is open-source which means it is free to download and run. A prospective miner should have a bitcoin wallet and an encrypted online bank account to hold the bitcoins that are earned.

2. What is Bitcoin?

Bitcoin is one of the major digital currencies and a network that enables the formation of a new payment system and it is one of the leading digital currencies. It is initially addressed as a decentralized peer-to-peer payment network that is powered by its users, without having any central authority or a middle man. Coming to the user perspective, Bitcoin can be compared just like cash that can be used for internet transactions. It can also be seen as the most prominent bookkeeping system that is there in existence currently.

3. How long does it take to mine 1 Bitcoin?

Irrespective of the number of miners, it takes around 10 minutes to mine 1 Bitcoin. At 10 minutes (600 seconds), everything being equal it takes around 72,000 GW or 72 Terawatts of power to mine a single Bitcoin by using the average power that is provided by ASIC.

4. What does a Bitcoin miner do?

Bitcoin miners offer security and they confirm the Bitcoin transactions. The role of miners is to process every Bitcoin transaction and to secure the network. They achieve this by solving a mathematical problem that permits them to chain the blocks of transactions by using blockchain.

5. What are transaction fees?

Apart from getting block rewards through mining the second source of revenue for the people who mine Bitcoin is the transaction fees. This is done when there is a need to transfer BTC to others. Each transaction is recorded on the blockchain, which is copied to each mining machine. Bitcoin does not rely on any Central Bank to keep the records; it is the miner’s job to keep the records and they get a share of fees as a reward.

6. What happens when all bitcoins are mined?

Considering all the bitcoins have been mined, they will not receive any block rewards because there are no requirements of new coins to be generated. They can earn only from the fees that are to be collected from every transaction that is confirmed. They can continue securing the Bitcoin network and they can earn from the transaction fees.

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