What is Bitcoin mining and how does it work?

What is Bitcoin mining and how does it work?

Have you ever wondered where Bitcoin comes from? If so, you are in the right place. While BTC has forever changed the financial industry, there are still many questions surrounding it. 

Very often, people have a hard time understanding where Bitcoin comes from, or how this process works at all. 

The process by which new Bitcoins are entered into circulation is called Bitcoin mining. But, this is not the only thing that BTC mining does. In fact, it also confirms new transactions and tends to be one of the most critical components of maintaining the blockchain ledger. 

But, what is Bitcoin mining, and how exactly does it work? That is what we are going to discover in today’s guide. So, follow along, and let’s see how BTC mining works.


5 Things You Should Know About Bitcoin Mining

  • Bitcoin mining is the process used to enter new Bitcoins into the market
  • Bitcoin mining is also used to confirm new transactions
  • To perform mining, individuals need to have sophisticated hardware which is capable of solving very complex math problems
  • The more people start mining, the harder and more energy-consuming it becomes
  • Recent years have brought numerous conversations about BTC mining and its impact on the environment

Bitcoin Mining Explained in Simple Terms

Bitcoin is by far the largest and most popular cryptocurrency globally. Almost everyone has at least once heard about it, and the number of people who own this digital asset is growing day by day. 

Bitcoin, much like almost all crypto assets, runs on a decentralized computer network. This network is sometimes also referred to as a distributed ledger, which is used to track transactions of cryptocurrencies. 

Every single time a computer is used to verify or process the transactions, a new Bitcoin is created. This process is called mining in the crypto industry. Every time a network of computers mines BTC and participates in the process of transaction, they receive Bitcoins as payment for the activity. 

Much like many other crypto assets, Bitcoin is also powered by blockchain technology. This is a decentralized ledger and is one of the main parts of the decentralized world. The blockchain is created by different approved transactions, after this block is formed, it becomes a part of the chain. This is where the name - blockchain - comes from. When you are mining Bitcoin, you are adding new blocks to the chain.

In order to earn a new Bitcoin, the miner needs to be the first one who gets the right answer to the problem. This process is known in the crypto industry as the proof of work, PoW. Simply put, mining is the process of becoming someone who engages in the proof-of-work activity and finds the answer to the puzzle presented to you. 

Why is mining needed?

While many understand what mining is and how is it done, they struggle to understand why it is needed at all. To understand why mining in crypto is needed, it is important to understand that this process is simply a metaphor that describes the work that individuals put forward to earn a new token. 

Miners in the crypto industry are very much like auditors, who are doing the work to ensure the transactions of BTC are legitimate. Thanks to verifying, the miners are basically working towards ensuring that double-spending never occurs in the market. Double spending is something that many experts have been talking about. 

This is a process where an owner of BTC tries to spend the same asset twice. When talking about fiat money, this issue is something to never worry about. You can't spend the same $20 bill twice. In terms of digital assets, there is a possibility of someone simply copying the digital token and sending it to others. Thanks to mining, such processes are fought against.

So, to wrap it up, mining is needed for several reasons. The most important ones are the fact that mining produces new Bitcoins, processes the transactions, and ensures that there are no double-spending issues.

Becoming a Miner - What Will You Need?

Becoming a miner is a goal that many strive for. Once, it was not too hard to become a miner. Anyone with a computer could mine Bitcoin, and it was not too energy-consuming. But, things have changed dramatically over the years. 

Becoming a miner is considered to be quite hard today. At first, everyone who had a personal computer was able to mine BTC. But, as many people started to mine it, the harder it has become. In order to make sure that the blockchain functions in a smooth and correct manner, the BTC network ensures that a new block is produced every 10 minutes. 

But, when there are millions of miners trying to complete and solve the problem, it is very likely that someone will do it much faster. Because of this, Bitcoin ensures that it evaluates the difficulty of mining roughly every two weeks, or in 2,106 blocks, to be exact. 

In order to ensure that block production is maintained, the difficulty of mining increases every time the number of miners increases.

In order to become a miner, you will need to have sophisticated hardware. This means that you will need to have very powerful computer equipment. Many miners are using an application-specific integrated circuit, ASIC. These cost quite a lot, but many miners believe that this investment is worth the rewards.

How much can you earn?

If you look at the data of how much Bitcoin miners are able to earn over the years, you can see that the reward for mining is reduced by half roughly every four years. When the BTC was first mined in 2009, mining one block would earn the individual as much as 50 Bitcoins. After three years, in 2012, the number was down to 25 BTC. 

In 2016, it was just 12.5, since 2020, it is 6.25, and it will probably become 3.125 somewhere in 2024. However, things are not all that simple. Remember that, when you decide to become a miner, you will need to spend a lot of money on technology that is able to mine. 

This will cost you a lot, and this is not the only cost you will have to worry about. You will also be required to use energy for mining activities, which further increases the price of mining.

In 2020, each block would give you 6.25 BTC, the price of each was about $40,000. It means that you could earn almost a quarter of a million dollars by completing one block.

But nowadays, ever since so many miners joined the Bitcoin mining operations, it is very unlikely for individual miners to make any money. There are investors who have built so-called mining farms, which are big facilities with millions of dollars worth of equipment. Competing against these giants is practically impossible and because of that people started to join mining pools, where different miners use specific Bitcoin mining software and work together in order to compete with these huge mining farms. Rewards these pools generate are then split among the pool members, based on their contributions.

Pros & Cons of BTC Mining

While Bitcoin mining is something that many people are talking about around the world, it is certainly not something for everyone. Over the years, becoming a miner has become a very hard activity, which is not the best choice for every single crypto enthusiast.

In order to truly grasp the idea of BTC mining and to understand whether it is a great way for earning money or not, you will be required to truly understand the main pros and cons associated with Bitcoin mining. We will discuss the major pros and cons of BTC mining below.

Advantages of BTC mining

  • If you are a crypto enthusiast, BTC mining might be a great thing for you, as you will be earning money from something that you truly love
  • Once you have all the needed technology, you can earn quite a lot from BTC mining
  • While being very demanding, BTC mining can make you feel like you are a closer part of a very exciting and popular market
  • BTC mining is a great option for those who want to earn money without having to deal with buying and selling Bitcoin and other crypto assets

Disadvantages of BTC mining

  • Mining Bitcoin can be a quite time-consuming and hard activity to take on for some individuals
  • BTC mining requires you to have very good hardware that is able to quickly act and ensure you are the first one who finds answers to the problems
  • Mining Bitcoin today is associated with the usage of huge amounts of energy, which can be quite expensive

Concerns Around the Environmental Impact of BTC Mining

Over the past few years, the conversation around the environmental impact of Bitcoin mining has become very active around the world. People of all different backgrounds have started discussing the possible impact Bitcoin mining can have on the environment.

The main reason behind this is the fact that mining Bitcoin requires very strong and powerful hardware, which needs a lot of energy to function. Without this energy, you won’t be able to mine bitcoin.

This, in turn, can have a huge impact on the environment. In fact, in many parts of the world, BTC mining has already caused some issues. Because it uses so much energy, it has caused blackouts in many parts of the world. 

This has caused many countries around the world to start thinking about ways to counter the environmental impact of Bitcoin mining. Some countries have even announced that they have decided to limit or ban Bitcoin mining altogether.

Numerous studies have been done about the impact of BTC on global warming. One of the studies by Columbia University has shown that BTC could push global warming beyond 2 °C. The study also indicated that only China’s mining could generate as much as 130 million metric tons of CO2 by 2024.

Any alternatives?

There have been many efforts toward minimizing the impact of Bitcoin mining on the environment. One of the biggest issues associated with bitcoin today is not the mining activity itself, but rather the type of energy being used. 

Many experts in both environment and crypto claim that it would be much better if more miners started using green energy. In fact, this has become a very popular thing in the crypto-mining industry. The past few years have seen a massive increase in the number of miners using green, renewable energy, that does not have the same impact on the environment. 

Another great way to lower the impact of BTC mining on the environment is to change the way it works. Something like this was done by Ethereum with its 2.0 update. They decided to turn to the Proof of Stake, PoS, protocol from the previously used Proof of Work, PoW, a protocol that is also used by BTC.

This consensus is also used to validate crypto transactions. When using this method, the owners of crypto are able to stake their coins, giving them the opportunity to check new blocks of transactions and add them to the blockchain.

BTC Mining Around the World

Over the past few years, the Bitcoin mining landscape has changed quite a lot around the world. While some countries are showing signs of not being supportive of Bitcoin mining, others are working towards supporting BTC mining.

For many years, China has been a true leader in crypto mining. In fact, the majority of Bitcoins available in the market were being mined in China. But, things have changed quite a lot in 2021, but more on that later.

For some time, western countries were a bit afraid of supporting the development of Bitcoin mining. In fact, many of these countries have even issued different types of statements against this activity. 

But, as the number of miners using green energy has increased, there are more countries supporting the further development of mining.

Things We Learned From This BTC Mining Guide

  • Bitcoin mining is the process of creating a new BTC or processing the transaction
  • Bitcoin miners use a lot of energy in order to create a new Bitcoin
  • Because of the huge energy that mining requires, it has a very negative impact on the environment
  • Many countries have issued different types of regulations on crypto mining
  • In 2021, China, the largest crypto-miner at the time, banned crypto-mining altogether

FAQs on Bitcoin Mining 

How long does it take to mine 1 Bitcoin?

It takes 10 minutes to mine one Bitcoin, but things are not that simple. This number assumes that you are using the ideal hardware and software setup for mining and that you manage to be the first one to find the answer to the question. In reality, as of today, it takes 30 days on average to mine a single bitcoin.

Is Bitcoin mining illegal?

Whether BTC mining is legal or not depends on your location. In many countries around the world, mining Bitcoin is completely legal. However, there are some jurisdictions where mining Bitcoin is not legal. For example, China banned all types of crypto-mining activities in 2021.

How do I start mining Bitcoin?

Starting to mine Bitcoin is quite hard. You will first need to get yourself very good hardware that is able to mine Bitcoin. After this, you will need to have a very good energy source that you can use for mining. As of today, it can be said that it is almost impossible to mine Bitcoin directly from your home.