What is Bitcoin Mining?

As Bitcoin continues to increase in popularity and is becoming a more common investment option, you may be wondering if you should start mining your own.

Unlike traditional currency, which is created by a government or other regulating organization, new Bitcoin is created through a process called “mining.” Technically, anyone can do this.

And it’s clear why this is an appealing thought.

After all, if it’s possible to create valuable currency out of nothing, why wouldn’t you? If you’re aware of all of the things you can buy with Bitcoin at major retailers, this might seem like a no-brainer.

But it’s not quite that simple.

There are a few things you need to know before taking a dive into the mining world, especially if you’re new to cryptocurrencies like Bitcoin.

Keep reading to learn what, exactly, the mining process involves, as well as what you need to consider if you’re interested in becoming a miner.

What is bitcoin mining?

Traditional currency is created and exchanged through central banks that oversee, control and monitor the funds.

Bitcoins, on the other hand, are “mined” by Bitcoin miners that perform extra tasks within the network. That’s how Bitcoin becomes available to buy on exchanges.

So, when people “mine” for Bitcoin, they’re not actually creating new coins. They’re accessing Bitcoin that already exists in the protocol.

And when comparing this to the process of mining gold, the name makes sense. Gold miners don’t produce gold — they dig it up and put it into circulation.

That’s exactly what Bitcoin miners do.

So, in theory, accessing new Bitcoin by mining is completely free, and anyone can do it.

That being said, the process is a little more complicated than digging into the ground — which is why today, it’s often limited to experienced miners with extremely powerful computers.

How does Bitcoin mining work?

Bitcoin miners perform extra tasks within the blockchain network.

This means that the first step in the mining process is finding a block in the blockchain to put the transaction on, first. For each attempt to find a new block, a miner has to expend a small amount of energy.

Most attempts fail, so that energy is essentially wasted. However, every few minutes, a miner succeeds at finding and adding a new block onto the blockchain.

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This means that a small amount of energy is extra expended for each Bitcoin that is successfully mined due to all of the failed attempts.

However, the failed attempts also provide a “proof of work” that shows what it took to create a coin.

Proof of work prevents miners from creating Bitcoins right from thin air. Energy must be spent to make them, which also adds to the value of the blockchain.

This is different from the world of cash printing. More money can be printed at any time, even though it isn’t adding to the value of the currency pool.

If an attacker were to try and go back to change previous transactions, they would have to try and mimic all of the work already completed on the chain.

This is practically impossible, making Bitcoin (and other cryptocurrencies) a secure form of currency that is an alternative to cash.

So mining coins not only creates more currency and adds value to Bitcoin, but it also secures the entire premise of the currency itself.

In exchange for securing the network by updating the blockchain, each new block contains a transaction that awards the miner with new bitcoins that can then be put into circulation.

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When Bitcoin launched, each new block lead to 50 coins for each minor that unlocked it.

This amount is cut in half every four years. The current reward sits at 12.5 bitcoins per block. Miners also get to keep mining fees attached to the transactions on their blocks.

Anyone can start mining Bitcoin and try to earn coins. However, Bitcoin mining is becoming an increasingly specialized field.

Most miners are professionals with specialized hardware, large data centers, and cheap electricity. That makes it hard to compete in the mining world today.

You have to know exactly what you’re doing, be willing to invest your time, get the right resources, and access electricity cheaply.

The rates for electricity vary significantly across the world. Just take a look at how much more expensive it is in a place like Denmark over somewhere like India:

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This means that it’s much cheaper to mine Bitcoin in India than it is to mine in Denmark.

If you have access to cheap energy along with the right resources, you could potentially make a killing mining Bitcoin.

How does cloud mining Bitcoin work?

Although less common than investing in hardware, it’s also possible to mine Bitcoin through cloud mining.

Though the mining process itself is very much the same, cloud mining involves utilizing shared processing power from a remote data center.

This way, you don’t have to worry about purchasing equipment, added electricity costs, or ventilation problems with equipment that produces heat.

Instead, you only need a home computer to manage the process, and a Bitcoin wallet to store what you mine.

From there, you can choose from three different types of cloud mining. The first option, hosted mining, involves leasing a mining machine that is fully hosted by your provider.

Virtual-hosted mining, then, is a slightly more hands-on option, as it involves creating a virtual private server and installing your own mining software.

Finally, the most popular option is leasing an amount of hashing power. This way, you can mine without having a dedicated physical or virtual computer.

With each of these options, it’s important to consider the risk of fraud and thoroughly read and contracts with your hosting provider. Because cloud mining typically gives you less control over your mining operations, you need to know exactly what the risks are.

How difficult is it to mine Bitcoin?

If you’re new to Bitcoin mining, you might be wondering just how difficult it is to succeed with this process.

And the truth is, mining is becoming increasingly difficult. To understand why you’ll need to revisit what a single block is.

One single block contains cryptographic signatures for that specific block, along with the transactions that are stored within it.

Transactions are collected from the network itself, usually along with a fee, that then becomes part of the block reward.

The reason that it’s harder to mine Bitcoin now than it was a few years ago is that this algorithm keeps the generation of new blocks constant and consistent as more people invest.

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The target is to generate a new solution to a block at about an average of every ten minutes.

The solution includes the wallet address associated with the solving system, which then receives the transaction fees and block reward.

Then, the block is officially written to the blockchain.

This means that mining is becoming increasingly competitive — so if you don’t have good hardware, it may not be worth your while.

How to set up Bitcoin mining hardware and software

To begin mining of any kind, you need Bitcoin mining hardware. You can’t simply open up your regular laptop and start mining away.

When Bitcoin was first created, it was possible to mine with a regular computer CPU or a high-speed video processor card.

Those days are long gone. You need some kind of custom Bitcoin ASIC chip to dominate the mining world.

Anything less, and you’ll be using more energy than you’re likely to earn. That’s why it’s necessary to mine Bitcoin with hardware built for that purpose.

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Most hardware doesn’t come cheap, but some quick searching online can help you compare brands and prices.

And the cost is worth it when you look at the possibilities for how much you can mine with the hardware.

Some companies offer systems with bitcoin mining capabilities that are already built in.

Once you’ve got the right hardware, you need to download some kind of Bitcoin mining software.

There are tons of programs that you can use, but two of the most popular ones are CGminer and BFGminer.

Another alternative is EasyMiner, which is a Windows/Linux/Android program.

Most mining programs are open source and free. Since mining programs run in the command line, you might need a batch file.

Here’s what the control panel of EasyMiner looks like:

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If you’re mining solo, connect your mining program to your personal wallet so that your earnings are deposited automatically.

If you’re mining with a pool, connect your wallet to your user account that is associated with the pool.

What are Bitcoin mining pools?

When you’re ready to mine Bitcoins, it can be helpful to join some kind of Bitcoin mining pool.

Pools are groups of Bitcoin miners that work together to solve blocks and share the rewards.

Pools make mining more convenient and lucrative than mining on your own.

This is largely due to something called hash rates. The hash rate is the speed at which a computer can complete an operation within the Bitcoin code.

It’s best to mine with a smaller pool so that you can avoid a large concentration of hashing power.

The hash rate distribution is best when it’s split between different mining pools.

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If you’re looking for a completely decentralized pool, checkout p2pool. Other alternative pools include BitMinter and CK Pool.

Do your research to select a pool that is right for you. Take a look at the pool’s reputation, profitability, interface, transparency, support and feedback, and user vote policy.

The best pools give each miner a voice and choose the Bitcoin client of their choice, like Bitcoin Core, Bitcoin Classic or Bitcoin Unlimited.

How to calculate mining profitability

Once you’ve mined for a little while, check out your figures to find out if the payoff is worth the investment.

This requires having a concrete idea of how much Bitcoin is worth.

How much did you make? Compare that to the cost to keep your computer running at full speed during the times that you were mining.

Many mining profit calculators are available to help you calculate this.

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If you’re not making more than it costs to mine, you can either cut your losses or beef up your hardware and optimize it to work at full capacity.

You can also use a program like SpeedFan to keep temperatures of your hardware within safe limits so that they don’t overheat and ruin — which will cost you extra money you don’t need to spend.


As the price of Bitcoin and other digital currencies soar, many people are trying to find a way into the world of Bitcoin mining.

And if you’re looking for an alternative to buying Bitcoin on exchanges, it could work.

But it’s not worth your while unless you do it right.

If you’re willing to invest in hardware and software, as well as the time it takes to learn to mine correctly, it could be worth your time — and a great way to make a profit off of Bitcoin.