Bitcoin Mining

What Exactly Is Bitcoin Mining?

The technique of creating new bitcoin through solving problems is known as bitcoin mining. It is made up of computing systems outfitted with specialized chips that compete to solve mathematical riddles. The first bitcoin miner, as these computers are known, to solve the riddle wins Bitcoin. The mining process also checks and verifies transactions on the bitcoin network.

For a brief time following its inception, Bitcoin was mined on desktop computers equipped with standard central processing units (CPU). However, the procedure was incredibly slow. Now, massive mining pools distributed over various geographies are used to generate bitcoin. Bitcoin miners pool mining rigs that consume large amounts of electricity in order to mine the cryptocurrency.

Bitcoin mining is considered harmful to the environment in areas where electricity is generated using fossil fuels. As a result, several bitcoin miners have relocated their operations to locations with renewable energy sources in order to lessen Bitcoin’s influence on climate change.

Important Takeaways

  • The technique of creating new bitcoin by solving a computer challenge is known as bitcoin mining.
  • Bitcoin mining is required to keep the record of transactions on which Bitcoin is built up to date.
  • Miners have gotten quite skilled in recent years, employing complicated technology to speed up mining operations.
  • Bitcoin mining has sparked debate because it is not considered environmentally friendly.

Just like gold is extracted from the earth using massive instruments and equipment, bitcoin mining employs large systems resembling data centers. To create new coins, these computers tackle mathematical riddles provided by Bitcoin’s algorithm.

Bitcoin miners make the cryptocurrency’s network more trustworthy by confirming transaction information by solving computing math problems. They validate one megabyte (MB) of transactions, which is the size of a single block. These transactions can theoretically be as tiny as one, but are more commonly many thousand in number, depending on how much data each transaction stores. The goal of confirming Bitcoin transaction data is to prevent double-spending. Counterfeiting is always an issue with printed money. However, when you purchase $20 at a store, that bill is usually in the hands of the clerk. It’s a different story with digital currency.

Because digital information can be easily replicated, there is a possibility that a spender will make a copy of their bitcoin and give it to another person while keeping the original.

Bitcoin transactions are compiled into blocks, which are then added to a database known as the blockchain. Full nodes on the Bitcoin network keep a record of the blockchain and validate transactions that occur on it. Bitcoin miners download the complete blockchain history and compile valid transactions into a block. The miner earns a block reward if the block of assembled transactions is approved and verified by other miners.

On May 11, 2020, Bitcoin successfully halved its mining reward—from 12.5 to 6.25—for the third time.

Every 210,000 blocks, the block reward is half (or roughly every four years). It was 50 in 2009. In 2013, the award amount was reduced to 25, then in 2016, it was reduced to 12.5. The reward was reduced to 6.25 at Bitcoin’s most recent halving event.

Transaction fees are another motivation for bitcoin miners to participate in the process. Miners receive fees from any transactions contained in the block of transactions in addition to prizes. Miners will be paid with fees for processing transactions that network users will pay as Bitcoin reaches its intended limit of 21 million (about 2140). These fees ensure that miners continue to have an incentive to mine and maintain the network operational. The assumption is that competition for these fees will keep them low when the halves events are over.

What Exactly Is the Bitcoin Mining Math Problem?

At the heart of bitcoin mining is a mathematical puzzle that miners must solve in order to receive bitcoin rewards. The puzzle is known as proof of work (PoW), and it refers to the computational labor performed by miners in order to mine bitcoin. While it is frequently thought to as hard, the mining puzzle is actually quite simple and can be described as guesswork.

In SHA256, Bitcoin’s PoW algorithm, miners attempt to generate a 64-digit hexadecimal number called a hash that is less than or equal to a target hash. A miner’s systems employ significant brute force in the form of multiple processing units stacked together and spit out hashes at varying rates—megahashes per second (MH/s), gigahashes per second (GH/s), or terahashes per second (TH/s)—depending on the unit, guessing all possible 64-digit combinations until they arrive at a solution. Systems that correctly guess a number that is less than or equal to the hash are rewarded with bitcoin.

READ ALSO:   The benefits and risks of using Bitcoin for foreign exchange transactions

Here’s an example to demonstrate the procedure. Assume I ask my pals to estimate a number between 1 and 100 that I have come up with and put down on a piece of paper. My buddies do not have to predict the precise number; they simply have to be the first to guess a figure that is less than or equal to mine.

If I think of the number 19 and a friend thinks of the number 21, they lose because 21 is bigger than 19. However, if one friend gets 16 and another guesses 18, the latter wins because 18 is closer to 19 than 16. The Bitcoin mining math issue is, in essence, the identical situation described above, but with 64-digit hexadecimal numbers and hundreds of processing devices.

What Exactly Is Mining Difficulty?

Mining difficulty is a word that appears frequently in bitcoin mining literature. The difficulty of solving the arithmetic challenge and generating bitcoin is referred to as mining difficulty. The difficulty of mining affects the rate at which bitcoin are generated.

Mining difficulty is reset every 2,016 blocks, or roughly every two weeks. The next difficulty level is determined by how efficient miners were in the previous cycle. It is also influenced by the number of new miners that have joined the Bitcoin network, as this raises the hash rate, or the amount of processing power used to mine the cryptocurrency. As the price of bitcoin rose in 2013 and 2014, more miners joined the network, and the average time to discover a block of transactions reduced from 10 minutes to 9 minutes.

However, the inverse can also be true. That is, the more miners competing for a solution, the more complicated the problem becomes. When computational power is removed from the network, the difficulty decreases, making mining easier.

The mining difficulty level in August 2020 was more than 16 trillion. That means, the probability of a computer producing a hash that is less than the target is 1 in 16 trillion. To put that in context, you are approximately 44,500 times more likely to win the Powerball jackpot with a single lottery ticket than you are to correctly guess the hash on the first try.

What Are the Economic Consequences of Bitcoin Mining?

At the end of the day, bitcoin mining is a commercial endeavor. Profits from its output—bitcoin—are determined by the amount invested in its inputs.

Bitcoin mining has three major costs:

  • Electricity: This is the power that keeps your mining systems running 24 hours a day, seven days a week. It can add up to a sizable bill. According to some estimates, power accounts for up to 90% of bitcoin mining costs. When you consider that the process utilizes as much electricity as certain countries, the expenditures might add up quickly.
  • Systems for mining: Desktop PCs and standard gaming systems, contrary to popular belief, are not suitable or efficient for bitcoin mining. The process can lead such systems to overheat and cause bandwidth difficulties on a home network. The key infrastructure investment for bitcoin miners is Application Specific Integrated Chip (ASIC) devices, which are tailored equipment for bitcoin mining. The cost of such equipment might range between $4,000 and $12,000. Even with such exorbitant expenses, a single ASIC-equipped device produces less than one bitcoin. Bitcoin miners combine thousands of ASIC systems into mining pools that work 24 hours a day, seven days a week to generate the 64-digit hexadecimal number required to solve a hash puzzle.


Network infrastructure: Network speeds have no discernible impact on the bitcoin mining process. However, it is critical to have an internet connection that is available 24 hours a day, seven days a week. There should also be latency from nearby mining pools on the connection. Dedicated networks eliminate external dependencies and keep latency to a minimum. Going offline does not necessarily halt the synchronization of transactions. However, it can make the procedure time-consuming and, in some cases, error-prone once the connection is restored.

For miners to benefit from their enterprise, the total costs for these three inputs should be less than the output—in this case, the bitcoin price. Given the increasing price of bitcoin, the prospect of minting your own money may appear appealing.

El Salvador legalized bitcoin on June 9, 2021. It is the first country in the world to do so. The cryptocurrency can be used in any transaction that the business accepts. El Salvador’s primary currency remains the US dollar.

READ ALSO:   Litecoin

Regardless of what Bitcoin supporters tell you, mining the cryptocurrency is not a pastime. It is a costly undertaking with a high failure rate. As seen in the section on mining difficulty, there is no certainty that you will earn bitcoin rewards even if you spend a significant amount of money and work. Combining mining rigs to run a small bitcoin mining business could provide a solution. Even such enterprises, though, are vulnerable to the cryptocurrency’s unpredictable values. If the cryptocurrency’s price falls, like it occurred in 2018, it becomes unprofitable to run bitcoin mining systems, forcing tiny miners out of business. The fact that the quantity of bitcoins granted to miners decreases every four years makes the activity even less appealing.

Due to the significant difficulties in the economics of mining bitcoin, the activity is currently dominated by huge mining corporations with operations on various continents. Antpool, the world’s largest bitcoin mining company, operates mining pools in a number of nations. Many bitcoin mining companies have also gone public, but at relatively low prices.

How Much Power Is Used in the Bitcoin Mining Process?

For the majority of Bitcoin’s short history, mining has been an energy-intensive activity. Bitcoin mining was centered in China in the decade following its inception, a country that relies on fossil fuels like coal to generate the majority of its electricity. Not unexpectedly, the high energy costs of bitcoin mining have grabbed the attention of climate change advocates, who blame the practice for increased emissions. According to some estimations, the mining process for cryptocurrencies consumes as much electricity as entire countries. However, proponents of bitcoin have presented papers claiming that the cryptocurrency is primarily fueled by renewable energy sources. More information about the debate can be found here.

It’s important to realize that these analyses are based on conjectures and self-reported data from mining pools. For example, a Coinshares study from 2019 includes various assumptions about miner power sources in their assessment of the bitcoin mining ecosystem. The Cambridge Center for Alternative Finance created a map of bitcoin mining locations in July 2021 using data from four bitcoin mining operators—, PoolIn, ViaBTC, and foundry—but it does not contain numbers from AntPool, the world’s largest mining pool operator. As a result, assessing the conclusions of these investigations is challenging.

However, as the world shifts toward renewable energy sources to power itself, bitcoin mining may become a green industry, generating the majority of its power from renewable sources.

Bitcoin Mining History

Two developments have contributed to the current evolution and composition of bitcoin mining. The first is the creation of specialized bitcoin mining rigs. Because bitcoin mining is largely guesswork, getting the correct answer before another miner has almost entirely to do with how fast your machine can generate hashes. Desktop computers with standard CPUs dominated bitcoin mining in the early days. However, when the algorithm’s difficulty level climbed over time, it became more difficult to discover transactions on the cryptocurrency’s network. According to some estimations, finding a valid block at the early-2015 difficulty level would have taken “several thousand years on average” utilizing CPUs.

Miners discovered that graphics cards, commonly known as Graphics Processing Units (GPUs), were more effective and faster at mining over time. However, they consumed a lot of power for individual computers that were utilized for gear that was not truly required for cryptocurrency mining. Field Programmable Gate Arrays (FPGAs), a form of GPU, were an advance, although they had the same limitations as GPUs.

Miners now employ bespoke mining equipment known as ASIC miners, which are outfitted with specialized chips for quicker and more efficient bitcoin mining. They range in price from a few hundred to tens of thousands of dollars. Bitcoin mining is now so competitive that only the most advanced ASICs can be used profitably. The expense of energy usage actually outweighs the money generated when using desktop computers, GPUs, or earlier types of ASICs. Even if you have the most recent computer, one machine is rarely enough to compete with mining pools—groups of miners that pool their processing power and distribute the mined bitcoin among participants.

Bitcoin forks have also had an impact on the composition of the bitcoin mining network. One block of transactions is verified around every 10 minutes due to 1 in 16 trillion odds, scaling difficulty levels, and the huge network of users validating transactions. However, keep in mind that 10 minutes is a goal, not a rule.

As of August 2020, the Bitcoin network handled just under four transactions per second, with transactions logged in the blockchain every ten minutes. Visa, on the other hand, can process approximately 65,000 transactions per second. However, as the network of Bitcoin users grows, the number of transactions done in 10 minutes will eventually outnumber the number of transactions that can be completed in 10 minutes. Waiting periods for transactions will begin at that point and will continue to increase until the Bitcoin protocol is changed.

READ ALSO:   Merkel root (cryptocurrency)

Scaling refers to the problem at the heart of the Bitcoin protocol. Though most bitcoin miners agree that something must be done to address scalability, there is less agreement on how to achieve it. To overcome the scale issue, two key solutions have been presented. Developers have proposed either building a separate “off-chain” layer of Bitcoin to allow for speedier transactions that can subsequently be confirmed by the blockchain, or boosting the number of transactions that each block can record. The first solution would make transactions faster and cheaper for miners since there would be less data to verify per block. The second would deal with scaling by raising block size to allow for more information to be processed every 10 minutes.

In July 2017, bitcoin miners and mining companies representing around 80% to 90% of the network’s computer power voted to include a program that would reduce the amount of data required to verify each block.

A Segregated Witness, or SegWit, is the software that miners voted to include in the Bitcoin protocol. This name is a combination of the words segregated, which means distinct, and witness, which refers to the signatures on a Bitcoin transaction. The term “segregated witness” refers to the process of separating transaction signatures from a block and attaching them as an extended block. Though adding a single program to the Bitcoin protocol may not appear to be much of a solution, it has been estimated that signature data accounts for up to 65 percent of the data processed in each block of transactions.

In August 2017, less than a month later, a group of miners and engineers staged a hard fork, leaving the Bitcoin network to create a new currency based on the same software as Bitcoin. Although this group believed that there was a need for a scaling solution, they were concerned that implementing SegWit technology would not entirely address the scaling issue.

Instead, they chose the second option, which is to increase the number of transactions that each block can store. The new currency, known as Bitcoin Cash, raised the block size to 8 MB in order to speed up the verification process and allow for a daily transaction pace of roughly 2 million. On November 10, 2021, Bitcoin Cash was worth about $712, compared to $66,500 for Bitcoin.

In conclusion

Bitcoin mining is a time-consuming and energy-intensive process in which customized mining equipment compete to solve mathematical challenges. The miner who solves the challenge first receives bitcoin. The bitcoin mining process also checks and verifies transactions on the cryptocurrency’s network.

Individual miners utilizing desktop PCs had a role in the early days of the cryptocurrency, but the bitcoin mining ecosystem is now dominated by huge mining businesses that manage mining pools distributed over many continents. Bitcoin mining is particularly contentious since it consumes enormous quantities of energy. With increased awareness of climate change, numerous miners have relocated operations to areas where renewable energy sources are used to generate electricity.

Questions and Answers

What exactly is bitcoin mining?

Bitcoin mining is the process of creating bitcoin. It is made up of mining systems competing against one another to solve a mathematical challenge and win bitcoin as a reward.

What is the aim of bitcoin mining?

Bitcoin mining has two functions:

It produces bitcoin.
It validates and trusts transactions on the cryptocurrency’s network.

What are the primary costs of bitcoin mining?

The three most significant costs for bitcoin mining are:

  • Infrastructure for the Electricity Network
  • Infrastructure for mining

Is it worthwhile to mine bitcoin?

Contrary to popular belief, bitcoin mining is an expensive pastime with no guarantees of success. You will need to invest in costly devices, keep them running 24 hours a day, and pay exorbitant electricity bills. Even yet, there is no guarantee that you will make money with bitcoin.

Is bitcoin mining environmentally friendly?

Climate change campaigners have attacked Bitcoin mining’s energy use as proof that the cryptocurrency is not environmentally benign. It is thought that the bitcoin mining process consumes as much electricity as entire countries. Bitcoin mining is predicted to become more environmentally friendly as the world shifts toward renewable energy sources.

Share your love