Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain. The verification process involves compiling recent trades into blocks and trying to solve a computationally difficult puzzle. This puzzle can only be solved with brute force; it takes millions of tries per second to get one correct answer.
If you’ve ever wondered how bitcoin mining works, this post will tell you everything you need to know!
What Is Bitcoin Mining?
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger.
It is performed using very sophisticated computers that solve extremely complex computational math problems.
Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens.
Source: Investopedia.com
Bitcoin mining serves as a key way to fund the network and incentivize people to participate in it. It is also what keeps bitcoin safe, secure and immutable by preventing anyone from tampering with transactions and records of ownership.
Mining bitcoins can be profitable if you have access to appropriate hardware for this process – but it’s not easy money!
How to Mine Bitcoins
Miners are getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions.
This convention is meant to keep Bitcoin users honest and was conceived by Bitcoin’s founder, Satoshi Nakamoto. By verifying transactions, miners are helping to prevent the “double-spending problem.”
Double spending is a scenario in which a Bitcoin owner illicitly spends the same bitcoin twice. With physical currency, this isn’t an issue: once you hand someone a $20 bill to buy a bottle of vodka, you no longer have it, so there’s no danger you could use that same $20 bill to buy lotto tickets next door.
While there is the possibility of counterfeit cash being made, it is not exactly the same as literally spending the same dollar twice.
With digital currency, however, as the Investopedia dictionary explains, “there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original.”
Source: Investopedia.com
For a person to mine bitcoins they need to have a computer with good hardware. In order for people/computers to mine bitcoins, the mining software uses their processing power which is measured in hashes per second, to solve complicated mathematical problems which are actually the process of confirming bitcoin transactions.
These transactions get added into a public ledger called a blockchain which is available for everyone to see but without any information identifying the people involved. If done correctly, this would be profitable if you have the proper equipment.

Mining and Bitcoin Circulation
In addition to lining the pockets of miners and supporting the Bitcoin ecosystem, mining serves another vital purpose: It is the only way to release new cryptocurrency into circulation.
In other words, miners are basically “minting” currency. For example, as of Nov. 2020, there were around 18.5 million bitcoins in circulation.
Aside from the coins minted via the genesis block (the very first block, which was created by founder Satoshi Nakamoto), every single one of those bitcoins came into being because of miners.
In the absence of miners, Bitcoin as a network would still exist and be usable, but there would never be any additional bitcoin.
There will eventually come a time when Bitcoin mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21 million.
However, because the rate of bitcoin “mined” is reduced over time, the final bitcoin won’t be circulated until around the year 2140. This does not mean that transactions will cease to be verified.
Miners will continue to verify transactions and will be paid in fees for doing so in order to keep the integrity of Bitcoin’s network.
Aside from the short-term Bitcoin payoff, being a coin miner can give you “voting” power when changes are proposed in the Bitcoin network protocol.
In other words, miners have a degree of influence on the decision-making process on such matters as forking.
Source: Investopedia.com
Bitcoin’s design works in such a way that each block contains a record of all transactions made in the previous ten minutes. If there are no transactions, the miners can’t mine any new bitcoins.
This means that if miners stop mining, the currency will become deflationary. It also means that all of the transactions made in those ten minutes won’t show up on the blockchain (supposedly), rendering bitcoin useless as a currency.
The problem with this is, of course, that miners need to make money. If they can’t do it with mining, they’ll just move on to another cryptocurrency or even back to fiat, and the network will wither and die.
How Much a Miner Earns
The rewards for Bitcoin mining are reduced by half every four years. When bitcoin was first mined in 2009, mining one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC.
On May 11, 2020, the reward halved again to 6.25 BTC. In November of 2020, the price of Bitcoin was about $17,900 per bitcoin, which means you’d earn $111,875 (6.25 x 17,900) for completing a block.
Source: Invespedia.com
With the price of Bitcoin constantly fluctuating, it’s hard to predict how much you’ll earn by mining. But with all those fluctuations comes opportunity.
If you see a dip in the value of bitcoin, that might be an opportunity for someone like yourself who has some time and energy to capitalize on this change and make more money!
Mining is still profitable if we look at the amount of bitcoins mined per day (1,400) and divide that number by blocks found each day (6). That’s about 2.5 BTC worth of coins mined every single day!
Considering today’s exchange rate ($8,000), miners are earning $16 USD per block they find – not too shabby! So what does this mean?
What Do I Need to Mine Bitcoins?
Although early on in Bitcoin’s history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.
In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. However, if there are one million mining rigs competing to solve the hash problem, they’ll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2,016 blocks, or roughly every two weeks.
When there is more computing power collectively working to mine for bitcoins, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. To get a sense of just how much computing power is involved, when Bitcoin launched in 2009 the initial difficulty level was one. As of Nov. 2019, it is more than 13 trillion.
All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU (graphics processing unit) or, more realistically, an application-specific integrated circuit (ASIC). These can run from $500 to the tens of thousands. Some miners—particularly Ethereum miners—buy individual graphics cards (GPUs) as a low-cost way to cobble together mining operations.
The photo below is a makeshift, homemade mining machine. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards to the metal pole. This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the money.
Source: Investopedia.com
Mining can be a lucrative business opportunity, but it’s not for the faint of heart. The price to invest in equipment is high and so are the costs associated with electricity usage. But if you have an appetite for risk-taking or enjoy being on the cutting edge of technology, mining might just be your thing!
What Are Coin Mining Pools?
Mining rewards are paid to the miner who discovers a solution to the puzzle first, and the probability that a participant will be the one to discover the solution is equal to the portion of the total mining power on the network.
Participants with a small percentage of the mining power stand a very small chance of discovering the next block on their own. For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0.001% of the network’s mining power.
With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse. The miner may never recoup their investment. The answer to this problem is mining pools.
Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners can get a steady flow of bitcoin starting the day they activate their miners. Statistics on some of the mining pools can be seen on Blockchain.info.
Source: Investopedia.com
In other word, “Mining pools” is the mechanism of grouping the efforts of mining hardware to increase the chances of generating a bitcoin block and receiving its rewards.
This process is called “mining pool” because all participants receive small parts from each generated block.
The benefits are shared between members who contributed their computational power for common good.
Is Bitcoin Mining Legal?
Yes, Bitcoin mining is legal in most countries. However, there are still a few countries where it is illegal to mine Bitcoins. Almost all countries have some sort of restrictions in place when it comes to which websites their citizens can visit and what content they can view on the web. However, even though Bitcoin has been gaining popularity worldwide and is slowly becoming mainstream, most countries do not have policies in place to deal with cryptocurrencies.
For example, here in Canada we’re protected under Canadian Anti-Money Laundering Laws (CAMLA) which means that all Canadian Bitcoin exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). While they can’t control what you do with your Bitcoins, they must follow strict policies designed to prevent money laundering.
On the other hand, there are countries like Russia which will arrest and charge anyone caught using Bitcoin as “an unlicensed money transfer agent”. So tread cautiously if you live in one of these 5 Countries Where Using Bitcoin is Illegal or regulated.
Why does mining use so much electricity?
Due to the digital nature of cryptocurrencies like bitcoin, they can be mined by computers solving mathematical equations on a distributed computer network open to anyone on the internet. The more processing power (or hash rate) you contribute then the greater your share on any new coins generated through mining. Of course this requires a hefty investment in terms of hardware and electricity, as miners need to ensure that they have at least some sort of advantage over other mining nodes.
This has led to a race between miners by constantly trying to one up each other with investments in more powerful computers as well as joining mining pools for increased efficiency. In the early days, it was possible to mine bitcoins alone and earn large sums of money. However, as the competition increased, it required more hardware power to make a decent income. As such most miners now join pools for more consistent payouts throughout the year.
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