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What Is Bitcoin Mining and How Does It Work?

Mining Bitcoin is unpredictable, a huge investment but it has a big potential in the digital field of technologies. The growth of Bitcoin and other cryptocurrencies has really captured the world’s attention and there is barely a bar, bus, or café that is not buzzing with assumption and opinions as the hype continue to make the price higher and higher.

The cryptocurrency industry is rather new, but it is expanding at a really fast past and offers a valuable experience that we can learn from. If you already know a bit about cryptocurrencies and trading, then you have probably heard this sentence before:

“A year in the cryptocurrency market is like 10 years on the stock exchange (or more)”.

There is definitely some truth to it as the cryptocurrency markets are in a fast pace forward as it only takes a few hours for cryptocurrencies to increase in value, which can take years for trading companies to achieve.

There are many amusing bitcoin stories from the cryptocurrency industry, which we can learn from for example the story about the Long Island Iced Tea Company. The company changed its name into Long Island Iced Tea blockchain Company, without having any plans on practicing blockchain technology but their stocks increased by more than 400% in a single day.

Another story is about an anonymous person, thus a really generous investor who made a multi-million Bitcoin charity called the Pineapple Fund. This person donated 5057 Bitcoins, to help charities like The Open Medicine Foundation, charities for water that help people in East Africa, and much more.

Nowadays, Bitcoin is a topic in many conversations. You have probably heard a lot of financial experts saying it is important to keep an eye and close attention to the technology behind the well-known Bitcoin

Some believe the technology behind has the potential to change the future including our lives, more than just the impact on our financial portfolios. Even skeptical people see some value in the Bitcoin technology

Well, it all sounds really great, but what exactly does it mean? Here is all you need to know about Bitcoin, Mining, and how it works.

What is Bitcoin?

Bitcoin is a digital currency, which was created and announced in January 2009. It came from the ideas said in a whitepaper by a mysterious person written under a false name, Satoshi Nakamoto.

The anonymous person, who essentially is the one who created the technology, is still unknown. Bitcoin promise to make a lower transaction fee compared to the traditional online payment systems and not like any other government-issued currencies, Bitcoin will be operating with a decentralized authority.

Bitcoin is a cryptocurrency. It is not possible to find a physical Bitcoin, as they are only on balances held in a public archive, which everyone has access to. Bitcoin transactions are proved by a large number of computer mechanisms. Bitcoins are not provided to you through governments or banks, as well as Bitcoins value as a service.

Despite that, Bitcoin is still really trendy and has caused the beginning of a lot of other cryptocurrencies that are collectively referred to as altcoins. Bitcoin is also seen in a shorter version as “BTC.”

Another way to explain Bitcoin is through gold mining. Bitcoins are kept in protocols and gold is kept underground. Bitcoin has not been brought into the light, just as the gold has not been dug up. 

Bitcoin protocols require a maximum of 21 million Bitcoins. Miners bring Bitcoins into the light, just a few at a time. When miners are done mining all the coins, there will not be any coins coming out, unless Bitcoin protocols have been changed to allow a larger amount of supply. Miners are paid within a transaction fee as they are creating blocks of legal transactions and to put them in the blockchain.

What is Bitcoin Mining?

Bitcoin mining is the process where new Bitcoins are entering the circulation process; at the same time, it is also an important element to maintain and develop the blockchain archive. It is accomplished by using precise and high-tech computers, which can solve complex computational math complications.

Cryptocurrency mining is demanding, expensive, and not always rewarding. However, mining has an appealing effect on many investors who are interested in cryptocurrency, which might be because of the miners getting rewarded by crypto tokens for their work. Some entrepreneurial types might see mining as money from heaven, and if you have great knowledge of technology, then why not do it?

Moreover, before you start to invest lots of time and equipment, then you really need to read and do some research to know whether mining is something to pursue.

How Does Bitcoin Mining Work?

Mining will always start with the blockchain. It is an online archive that registers all transactions within a network. Further explained, it is like a group of approved transactions named a “block.” The blocks are connected to each other to create a “chain,” therefore the term is called a “blockchain.

In the Bitcoin network, a miner is adding individual blocks to the blockchain by doing complex mathematical problems. This involves a lot of computational and electrical power. All the miners are in competition with each other to add the blocks, and the miner who solves the problem first will add the block into the blockchain, as well as approve the transaction. The lucky miner will receive a prize of 6.25 Bitcoins.

The received prize rate is cut in half every 210,000 blocks, which is about every four years. The process is named “halving”, and is an algorithm that is obligatory to ensure a kind of predictability. Furthermore, it will also introduce a constant amount of new Bitcoins into the current supply, which eliminates concerns about inflation.

Because of the fundamental difficulties within mining Bitcoins, there need to be a number of guidelines when it comes to the exact mining process.

What Is Bitcoin Mining and How Does It Work?
Source: Pixabay

History Behind Bitcoin Mining

Let me take you back to 2009. It is possible that the first valuation of Bitcoins did not come from a huge company, thus it came more likely from a hungry man named Lazlo Hanyecz in May 2010, who was posting in a Bitcointalk’s forum with the subject “Pizza for Bitcoins?”:

“I’ll pay 10,000 Bitcoins for a couple of pizzas” he wrote.

At some point, there was a person who took him up on the offer. Lazlo Hanyecz ended up eating a pizza that eight years later was worth 8.6 million dollars.

In October 2010 the code for mining Bitcoin with Graphics Processing Units (GPU) was released to the public. As the difficulties of mining increased, the need for better and more dedicated hardware did as well. GPUs were ready for that task.

Mining Bitcoin on only one GPU did not require a lot of technical skills. Almost everyone with more than a hundred bucks was able to do it and the need for advanced computer technology was low enough to make it meaningful. However, that was quickly changing as the cryptocurrency began to catch the interest of the communities, which started to have some great ideas on different mining hardware and how to make it better.

Now there was suddenly a way for everyone to make money, just by using the amazing cryptography and blockchain. Except the difficulties of mining continued to increase, and so did the power requirements, which soon would be too challenging for the average hobbyist to make any money from mining. In June 2011 the field-programmable gate arrays (FPGAs) became the biggest challenge, as it was a more advanced technology than used before.

Mining started to scale up when FPGAs were adjusted for the purpose of making it more advanced. The primary change to the hardware was that it required three times less power compared to GPU setups, which effectively completed the same assignments. For a brief moment, cryptocurrency and FPGAs were some of the best things that have occurred in years.

It was not easy to be an independent miner in 2011, as the modified mining systems got more and more advanced. All the miners who enjoyed the GPU setup would always know that something better would soon come along. FPGAs were a contribution to the Application-Specific Integrated Circuit (ASIC) systems and that was the time Bitcoin went from a hobby to an industry. FPGA required modification after a while, but ASIC is created for the exact use of mining cryptocurrency, which is why ASIC miners are still the remaining standard to use.

It is difficult to predict the future of Bitcoin, but there is definitely plenty of mining to do. You can mine without even having to invest lots of money in warehouse space and advanced hardware. See how to get started next.

What Is Bitcoin Mining and How Does It Work?
Source: Pixabay

How to Start Mining Bitcoin

Though it is really difficult and almost never profitable, Bitcoin mining is still possible. The best results will probably happen if you connect with a mining pool thus below can be taken into Bitcoin mining:

  1. Calculate success rate: Main expenses will include the cost of electricity and mining hardware. Your income will depend on the value of Bitcoin, which is unpredictable.
  2. Get the right mining hardware: When the first calculations are made, then expect to use anything from hundreds to thousands of dollars on the right mining hardware.
  3. Choose mining software: Next step is that you will need a platform on which you can access the blockchain and do your mining. There are lots of good Bitcoin mining software that you can choose from.
  4. Installation of the Bitcoin wallet: When your Bitcoins are mined, then you need to have a storage place for them, which is termed a Bitcoin wallet. It is a digital wallet that lets you keep all Bitcoins in “the cloud”, thus be careful as it is also a common target for cybercriminals. If you have an offline wallet to store your Bitcoins it will be disconnected from the Internet and extra security will be offered.
  5. Access a mining pool: Join a mining pool and you will have the highest chance of being successful when it comes to Bitcoin mining.
  6. 1, 2, 3 start! Once you have completed the previous steps, you are ready to start with Bitcoin mining. The business will be a bit passive but all your equipment should have a regular check to make sure everything is working in the right way.

Mining and Bitcoin Circulation

When it comes to supporting the Bitcoin ecosystem, miners serve an extra important purpose: Mining is the only method to release new cryptocurrency into transaction and circulation.

That said miners are the fundament for mining the currency an example, was in November 2020 when about 18.5 million Bitcoins were in circulation. Besides mining coins through the original block, which is the first block that was created by the founder of Bitcoin, Satoshi Nakamoto.

All of those Bitcoins came to exist just because of the miners. If miners did not exist then Bitcoin would not have a network, nor exist and never be used. At one point, there will probably be a time without Bitcoin miners; in the Bitcoin Protocol it says that the absolute number of Bitcoins will be topped at 21 million.

However, because the rate of mining Bitcoin might be reduced, then the last Bitcoin will not be in circulation until 2140. It will not mean that all transactions of Bitcoins will stop being proved. Miners will always continue to prove the transactions including paid in fees for their accomplishment, as well as keep the honor of the network.

Other than the temporary Bitcoin payment, as a miner, you are also allowed the power of voting when changes are suggested in the Bitcoin network protocol. In that way, miners have some kind of influence on which decisions the network needs to make in the processes.

What Is Bitcoin Mining and How Does It Work?
Source: Pixabay

Mining Pools

The Bitcoin mining pools came as a tool to handle the issue of the increasing difficulty within mining. A couple of miners put their computer power together so they could mine Bitcoin together. If they collectively solve a block with success, all the miners in the pool will be given Bitcoins in the amount of computing power they contributed to the mining process.  

There are low odds of only one miner receiving a block reward, but the odds will suddenly increase when you get together in the pools. Mining pools might be necessary to become a success when mining Bitcoins.

Risks of Mining 

The risks of mining are often the financial risk and how it is regulated. Bitcoin mining and mining, in general, is a big financial risk to take. A person can go through a lot of effort to pursue hundreds of dollars worth of mining gear, just to have no return on the effort or made investments. On the other hand, joining mining pools can make it a smaller risk.

Are you strongly considering mining then it might be a good idea to make some research on the regulations in your country, including the general reaction towards cryptocurrency before you invest in any mining equipment?

Another possible risk from the increase of Bitcoin mining and other systems as well as the huge amount of energy that will be required from running a computer mining algorithm system. The efficiency of the microchip has increased a lot when it comes to ASIC, and the growth of the Bitcoin network is beating the technological progress itself. As a result, there are concerns about the environmental impact and carbon footprint of Bitcoin mining.

However, there are efforts made to look for clean and green energy sources for mining operations, like geothermal or solar cells, to utilize carbon offset credits. Changing the technical systems into lesser energy-consuming mechanisms, like proof-of-stake (PoS), which the Bitcoin network is trying to do, will be another strategy; even though PoS will come with its own set of risks and disadvantages.

Pros and Cons of Bitcoin Mining

Mining Bitcoin is not that difficult. You just need to keep the computer running for a couple of days, and then you will go to the nearest Lamborghini store as a millionaire. Unfortunately, it does not work like that. Thus, there are still positive sides to mining Bitcoin. Make sure you know all the advantages and disadvantages before starting mining Bitcoin.


  • Make more money: Money is definitely a motivation for a lot of people. When mining Bitcoin you have the potential to earn a great amount of money.
  • It is getting less expensive: Bitcoin mining dropped by 15 percent at the start of December 2018, which was almost the biggest drop in Bitcoin history. The drop was because a large number of miners stopped. Fewer miners means less hash power, which less hash power means that Bitcoin will adapt and reduce the effort of creating new blocks. Bitcoin mining suddenly became more profitable.
  • Cloud Mining: The growth of cloud mining is also a positive thing. It lets you mine crypto without using expensive hardware and electricity costs. Instead of buying some new equipment, cloud mining suggests another way so users can rent hardware in remote data centers.
  • Hardware maintains value: Are you not interested in cloud mining, then you have to buy some new hardware. The positive here is that hardware maintains its value. If Bitcoin were going down tomorrow, then you will still be able to sell your hardware for a good amount of money.
  • Help Bitcoin grow: Miners play a huge role in the Bitcoin network. Well, if miners were not here the value of Bitcoins would go to zero. If you believe in Bitcoin and want it to be more popular then starting mining is a good way to contribute to long-term success.


  • The complexity: To get started on mining Bitcoin is not easy. Even people that have great knowledge about blockchains find themselves confused. You will at least need a coin wallet, mining software, membership in a mining pool, an account with a crypto exchange, a customized mining computer, a GPU or an ASIC chip, and cooling equipment. Getting that up and running smoothly is not an easy task.
  • Electricity Costs: Mining Bitcoin is an expensive electricity process. People are saying that mining has started to have a negative effect on the environment. It’s not hard to figure it out. In 2018 statistics showed that Bitcoin uses more energy than Bangladesh; it is power for five million US households a year.
  • Hardware Costs: Mining Bitcoins needs an extraordinary collection of high-end hardware. There are different hardware approaches, but you will definitely need a good budget.
  • Scams: There are a lot of scams in the Bitcoin world, which can have an effect on the mining industry. People choosing cloud-mining companies are maybe at more risk. There is no guideline on fake companies or organizers, who all want to have your subscription fees and Bitcoins. Make sure that it is a well-established company before starting cloud mining.
  • You can lose money: Nowadays, we are strong believers in Bitcoin, but our confident opinions do not mean long-term success. The last couple of years has shown us that prices on Bitcoins are very unstable. When the price goes down it affects mining profit a lot. A big drop in the prices together with the high costs of hardware and electricity might mean that you are paying more money on Bitcoin mining than you are receiving.
What Is Bitcoin Mining and How Does It Work?
Source: Pixabay

Last Words

We are living in an interesting time. People are investing time, effort, and energy into mining virtual Bitcoins. In my opinion, it is just a natural part of technological development. If something was weird yesterday, then it is probably normal tomorrow.

When people started to mine gold centuries ago, it seemed silly at that time because gold would not help when people were hungry. Back then they were not aware that gold would provide a large amount of food supply.

We have generated a system that allows the exchange of all goods. Who says that our system does not have space for digital currency? As it is right now, the entire financial system is transferring into a digital field anyway. As an example; what kind of payments do you actually use? Credit card or real cash? People are not using cash anymore.

The digital world is increasing and Bitcoin has a really interesting part to play. Is it the first real-world currency? Is it a digital version of gold? However, there is no doubt that miners are a crucial part of this system.