What is Bitcoin Mining

What is Bitcoin Mining? All you Need to Know

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Miners keep the blockchain consistent, complete, and unalterable by consistently grouping newly broadcast transactions into a block, which is then broadcast to the network and validated by recipient nodes. In this article, you’ll learn what is bitcoin mining and everything you need to know about mining Bitcoin.

What is Bitcoin Mining?

Bitcoin mining is the process of creating new bitcoins and putting them into circulation. Mining is accomplished through the use of sophisticated hardware that solves extremely complex computational mathematical problems. It is a continuous loop, which means that the first node to solve the problem receives the reward, and the process begins again.

Miners are individuals who are involved in the mining process. The term “mining” refers to the fact that, like all natural resources, there are a limited number of Bitcoins available. The total supply of Bitcoin, which is 21 million bitcoins, is the maximum amount that can be created or mined.

LEARN MORE: Bitcoin Explained! All you Need to Know about Bitcoin

Miners set up high-powered sophisticated computers to compete to be the first to validate a series of transactions known as a block and add the block to the blockchain. After that, they are paid transaction fees and 6.25 BTC per block for their efforts if they solve the block and correctly add it to the Blockchain.

So, the more powerful a miner’s equipment, the better his chances of verifying the next block. Bitcoin mining is primarily accomplished:

  • To put new coins into circulation and validate existing transactions.
  • To prevent counterfeiting and double-spending.
  • Maintain the ledger in a decentralized manner.

How Bitcoin Mining Works

Before a miner can begin the process of minting Bitcoins, they must first set up their own rigs in terms of powerful computer resources and other specific tools for efficiently solving complex puzzles. For efficient and effective mining, they would require graphics processing units (GPUs) with advanced graphic cards, field programmable gate arrays (FPGAs), or application-specific integrated circuits (ASICs) as mining hardware.

Aside from powerful hardware, miners require specific software such as CG miner, XMR miner, and multiminer. Much of this software is available for free download and is compatible with both Windows and Mac computers. Once the software is connected to the required hardware, you are ready to begin Bitcoin mining.

The miner would also need an e-wallet to store their Bitcoin rewards. A bitcoin wallet is a digital location that allows you to store, transfer, and accept Bitcoin or other cryptocurrencies.

Miners can choose between mining alone and mining in a pool. Mining pools were created because mining alone is very expensive and requires a lot of resources. A mining pool is a group of miners who band together to deal with the increasing difficulty of mining. If a block is verified in a pool, each miner receives a portion of the block reward.

Mining Bitcoins in a pool with shared computation power also encourages efficient mining with lower mining difficulty to solve a block. This also encourages small miners to participate in order to have a chance of earning Bitcoin, even though they will only receive a portion of the reward because it is shared amongst all pool members.

Once the setup is complete and a miner has decided whether to use pool mining or solo mining, the miner must solve complex mathematical hash puzzles to validate transactions on the Bitcoin blockchain network.

When transactions are initiated in the Bitcoin network, the mining software generates the cryptographic hash for each transaction, which is required to generate a block using the encryption SHA-256, which is a one-way function that converts any text into a string of 256 bits. This process of grouping is known as a Merkle tree or hash tree, and each leaf node represents a block’s hash, while non-leaf nodes have the hash of their child nodes.

Furthermore, all of the blocks are linked together by a “linked list” that points to memory addresses of previous and subsequent blocks, each of which contains the relevant transaction data.

Once the Merkle tree has been generated, the transaction data is administered and organized into blocks with their own addresses using the proof-of-work (PoW) algorithm. To be a validated block, it must contain PoW, which ensures that blocks are mined at a specific speed while preserving the block’s integrity.

As the proofing of these transactions is done, the block is added to the Bitcoin network and gets ready to be mined. The miners use this information further to crack a hash puzzle in order to verify a transaction. All the miners are indulged in the race of finding the hash for a specified target after analyzing the difficulty level. 

This ‘complex specific target’ refers to finding a 64-digit hexadecimal number, called a hash which looks like this:


As a result, each block has its own hash, which is always a 64-digit number. The network determines the specific target hash after every 2,016 blocks. The goal is to keep the mining difficulty high enough that a block is mined every 10 minutes. The bitcoin mining difficulty measures how difficult it is to find a hash that is less than the target value. Furthermore, the hash rate specifies how many guesses a miner’s computer can make per second. 

The miner’s attention is constantly drawn to the string of numbers appended to the hashed contents of the previous block. If the new hash is less than or equal to the target hash, the solution is accepted. The remaining miners and Bitcoin security nodes verify whether or not the block is correct. If the block is correct, it is added to the official Bitcoin blockchain network.

And whoever solves it first as a miner (whether alone or in a pool) wins the block reward, which is currently halved to 6.25 BTC per block, and is able to authorize the transaction on the blockchain.

LEARN MORE: Bitcoin Halving Explained! Why it is Important

Bitcoin Mining company

Here’s a list of some of the top bitcoin mining companies:

Riot Blockchain, Inc. (NASDAQ:RIOT)

Market Cap: $1.01 billion

Riot Blockchain, Inc. (NASDAQ:RIOT) is a Bitcoin mining company that also operates data centers and sells electrical products. The headquarters of Riot Blockchain are in Castle Rock, Colorado.

Last year, the company increased its Bitcoin balance sheet by 353%, to 4,884 bitcoins. In addition, the company plans to deploy 116,150 Antminer application-specific integrated circuits (ASICs) by January 2023, for a total power capacity of 370 megawatts.

Marathon Digital Holdings, Inc. (NASDAQ:MARA)

Market Cap: $897.35 million

Marathon Digital Holdings, Inc. (NASDAQ:MARA) is a company based in Las Vegas, Nevada that was founded in 2010. The firm mines Bitcoin and also operates a blockchain platform. Marathon Digital Holdings mined 616 bitcoins in the third quarter of 2022, and the company has produced 2,582 bitcoins to date.

Hut 8 Mining Corp. (NASDAQ:HUT)

Market Cap: $467.56 million

Hut 8 Mining Corp. is a Canadian company that operates large-scale Bitcoin mining operations. The company is headquartered in Toronto, Canada.

Hut 8 Mining Corp. operates three mines. Two of these are in Alberta, while the other is in Ontario. During the third quarter of this year, the company mined 982 bitcoins, representing an 8.5% annual increase driven by hash rate efficiency and facility expansion.

Canaan Inc. (NASDAQ:CAN)

Market Cap: 466.54 million

Canaan Inc. (NASDAQ:CAN) is a Chinese company that manufactures, designs, and sells bitcoin mining hardware. The company is headquartered in Beijing, People’s Republic of China. Canaan Inc. (NASDAQ:CAN) sells Bitcoin mining machines such as the A1366, which has a hash rate of 130 TH/s and consumes 3250 watts of power.

During the third quarter of 2022, the company sold 3.5 million TH/s of computing power, a significant decrease from the second and previous quarters.

Cipher Mining Inc. (NASDAQ:CIFR)

Market Cap: $274.78 million

Cipher Mining Inc. (NASDAQ:CIFR) is a Bitcoin mining company based in the United States that was founded in 2021. The company is headquartered in New York, New York, in the United States.

Cipher Mining Inc. mined 196 bitcoins in the third quarter of 2022, and the company hopes to achieve a hash rate of 7 EH/s by early 2023. In November 2022, the company began operations in its Odessa data center, and its four data centers aim to increase capacity to 267 megawatts by early 2023.

Why Bitcoin Mining requires GPU

Originally, cryptocurrency mining was done with a central processing unit (CPU). However, the CPU mining process was rendered inefficient due to its limited processing speed and high power consumption.

GPU mining, on the other hand, provided numerous advantages over CPU mining. A standard GPU, such as a Radeon HD 5970, could process 3,200 32-bit instructions per clock, which was 800 times faster than a CPU that could only execute 4 32-bit instructions per clock.

This property of the GPU makes them suitable and superior for cryptocurrency mining, as the mining process necessitates greater efficiency in performing similar types of repetitive computations. The mining device repeatedly attempts to decode the various hashes, with only one digit changing in each attempt.

GPUs also have a large number of Arithmetic Logic Units (ALU), which are in charge of performing mathematical computations. Because of these ALUs, the GPU can perform more calculations, resulting in higher output for the crypto-mining process.

Why Bitcoin Mining needs Electricity?

In short, electricity is what powers the sophisticated machines used to participate in Bitcoin mining. So multiple miners are using electricity in competition for rewards.

In the early days of Bitcoin, anyone could run a mining program from their PC or laptop. However, as the network grew in size and more people became interested in mining, the mining algorithm became more difficult to implement. This is because the Bitcoin code aims to find a new block every 10 minutes on average.

With more miners involved, the chances of someone solving the right hash faster increase, as does the difficulty of restoring the 10-minute goal. Imagine now if thousands, or even millions more times that mining power joined the network. That’s a lot of new machines consuming energy.

Why Bitcoin Mining is bad for the Environment?

Bitcoin mining has serious environmental consequences due to the energy-intensive process by which bitcoins are created. Despite advancements in alternative sources of cryptocurrency generation, Bitcoin mining shows no signs of slowing down. In January 2022, the electricity used to mine Bitcoin was 10.95 TWh.

Climate change has been exacerbated by these electricity consumptions. This is due to the fact that bitcoins are mined using electricity generated in part by gas and coal-fired power plants. When coal and natural gas are burned, they emit greenhouse gases (CO2, CH4, etc.) that heat the earth and change the climate.

Bitcoin mining is estimated to account for 0.1% of global greenhouse gas emissions. Another negative environmental impact is air pollution from coal-fired electricity generation, as well as e-waste from bitcoin mining equipment’s short life expectancy.

However, some parts of the cryptocurrency industry are moving away from proof of work due to environmental concerns. Ethereum, the market’s second most traded cryptocurrency, has switched from a proof of work (PoW) to a proof of stake (PoS) model.

Bottom Line

Bitcoin “mining” is essential for validating and confirming new transactions on the blockchain and preventing bad actors from double-spending. It is also the method by which new bitcoins are added to the system.

The task entails producing proof of work (PoW), which is inherently energy-intensive, based on a complex puzzle. This energy, on the other hand, is embodied in the value of bitcoins and the Bitcoin system, and it is responsible for keeping this decentralized system stable, secure, and trustworthy.


Bitcoin mining takes place in areas where energy is plentiful and inexpensive. For example, China accounts for 65% of the current hash rate because coal power is cheap, hydro and wind power are plentiful, and locally manufactured mining hardware is cost-effective and easy to deliver.
Miners! Bitcoin mining is a complex computational and technological process that is used to validate bitcoin transactions on the Bitcoin network. It is similar to validating a block on the blockchain network and receiving payment in Bitcoin.
Individual investors should avoid Bitcoin mining because it can be a lucrative way to make money with Bitcoin. Because of the required computing power, the initial and ongoing costs can far outweigh the mining rewards earned.
Yes! There will be no more new bitcoins created once all 21 million have been mined.
You certainly can. Joining a pool, on the other hand, is a much more profitable way to mine Bitcoin, especially since the difficulty increases with each coin awarded.
NiceHash provides cloud mining services, allowing you to pay for hash power while mining in the cloud. Nicehash allows you to mine in pools or solo; all you have to do is buy Bitcoin mining software, then choose whether you want to mine solo or in pools, and you're ready to go.

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