How Does Bitcoin Mining Work?

You probably understand how Bitcoin is bought and sold in a market, but it’s more complicated when it comes to how digital currencies are created. This is where Bitcoin mining comes in, the process by which new currency units are made, or “sisters-in-law,” and introduced to the market. But how does the process work and why is it so harmful to the environment? Here’s everything you need to know.

How does Bitcoin mining work?

Incredible mine

Unlike a centralized physical bank, Bitcoin acts as a decentralized banking registry, a transaction log maintained in several places at once and updated by network collaborators. That record is called a blockchain. The blockchain is updated by adding new blocks of data to that chain, which contains information about Bitcoin transactions.

To add a block of new transactions to the chain, miners must calculate the correct random numbers that solve a complex equation generated by the blockchain system. Once they do, a set of rules written in the Bitcoin code grants the miner a certain amount of Bitcoin. This, in a nutshell, is the mining process, but it gets more complicated than that.

Miners use expensive and complex mining platforms to do these calculations, and the more computing power you have, the easier it will be to extract Bitcoin. Fast processing means more guesses about the correct solution of the blockchain equation and a better chance of finding the right answer. The problem is that miners have to be the first to get the answer or they don’t get the reward, even though they still lend their computing power to the network.

Once a miner finds that answer, a group of transactions (or block) is added to the ledger. The miner who solved the equation is rewarded with Bitcoin and any fees for the transactions that are added to the blockbook. Then the whole process starts again until someone finds the solution to the next equation so they can add the next block.

What is a mining platform?

graphics card

Nvidia GeForce RTX 3070 Founders Edition

A typical platform will include all the components of a PC: motherboard, CPU, GPU, RAM, storage, and power supply. As mining has evolved, people have created more complex configurations and specialized equipment designed to maximize processing capacity. The first miners used their personal computers with only the processing power of a CPU at their disposal.

However, since it can take a long time to extract even a single unit of Bitcoin, miners have had to upgrade over the years. This means several high-end graphics cards, grouped together, to process more equations at once. In turn, this requires more power, better cooling, and a way to relieve all that heat, which often increases the price of mining. The increase in demand for graphics cards among miners has contributed to the increase in their shortage during the COVID-19 pandemic and the subsequent rise in prices in the secondary market.

Another option that has become popular is to invest in preconfigured mining hardware, such as an application-specific integrated circuit.(Opens in new window) (ASIC) miner. These are essentially microprocessor banks with a cooling system. People also come together to form mining groups that combine their processing power and then split the rewards for the blocks they extract.

What is a hash rate?

hash rate


The system-generated questions that Bitcoin miners answer are called “working test” equations. To answer the question correctly, miners have to produce the correct 64-digit hexadecimal number to solve it. The first miner to correctly guess a number, or hash, equal to or less than the target value receives the reward for that block. Of course, if a miner wants to make money, he must have a platform capable of calculating the hash before anyone else. This is where the hash rate comes in.

The difficulty of solving each new job test problem is not in the equation itself, but in how many possible answers a machine has to grind to guess the correct hash. That constant calculation requires immense amounts of energy and power, especially in the case of mining farms that use all-day mining platform banks to extract new Bitcoins.

Essentially, a hash rate is how many riddles per second your platform can handle. Depending on the processing power of a person’s mining equipment, they are able to calculate responses to a certain hash rate, which can range from megahashes per second (MH / s) to gigahashes per second (GH / s). via terahashes per second (TH / s).

How Much Money Can You Make By Mining Bitcoin?

bitcoin value

(Source: Google)

Given the complexity of the operation, one may be wondering how miners can even make a profit. Bitcoin was designed to become harder to extract as more people joined. The reward rate is also halved for every 210,000 blocks added to the blockchain. The average is about every four years.

Bitcoin also has a finite supply; there will only be 21 million units. At the time of writing, more than 18 million units have been minted. Due to the decrease in the reward and the increase in the level of difficulty, it will still take until the year 2140 to coin the entire stock of Bitcoin.

Despite the challenges, miners still see it as a worthwhile investment. As of November 2021, the reward for mining a block is 6.25 bitcoins. And at the time of writing, a single unit of Bitcoin equals more than $ 50,000, so we’re seeing a return of almost $ 400,000 per block, depending on the conversion rate of the day.

That said, it is still quite difficult to make a profit. Between the costs of energy, the price of specialized mining platforms and the volatility of Bitcoin, there is a strong barrier to entry in the current market.

Why is mining necessary?



Since Bitcoin is still a form of currency, you need to exchange paid work. Bitcoin mining serves this purpose, but it also helps mitigate certain issues that are unique to digital currency. For example, you can’t give the same $ 5 bill to someone multiple times or keep charging the same amount to your current account an infinite number of times. Either you physically don’t have the money anymore, or the bank won’t let you withdraw more than you have registered.

Bitcoin mining not only adds new currency to the group, it also verifies transactions that have already been made using the blockchain’s decentralized ledger. If there was no record for cryptocurrencies, people could illegally spend the same amount several times (known as double spending) without knowing if they actually had the currency to back up their transactions. This was a common scam when Bitcoin started.

And because Bitcoin uses the blockchain instead of a conventional bank, there has to be a way to track transactions without allowing anyone to fake or hide them. That’s why it’s so important to have multiple simultaneous copies of the ledger. Solving working test equations helps to verify transactions in the blockchain by adding them to the log.

Each time the blockchain is updated, the entire ledger is updated for all network users, so all miners will always have the most up-to-date version of the book. This helps maintain the integrity of the book and eliminates discrepancies.

What is the environmental cost of cryptographic mining?

energy consumption

(Source: Digiconomist)

Although many have resorted to cryptographic mining as a way to generate revenue, the process has become expensive and time consuming. Since so many people are now involved in extracting new coins, it also takes a lot more computing power to extract a block than it did in the past.

According to Digiconomist(Opens in new window), a single Bitcoin transaction carries 1,544 kWh, which equates to 53 days of electricity for an average American household. It adds up all the transactions that take place around the world and it is believed that the energy cost of cryptographic mining is higher than in some countries. This led Tesla to stop accepting Bitcoin as a form of payment, Malaysian authorities to publicly destroy mining platforms, and China outright banned all mining and trade.

Cryptographic mining certainly has its problems, but it also has a purpose. It creates new currency units and maintains the integrity of the blockchain book, which helps prevent illicit transactions. Whether that purpose justifies the environmental cost is under debate. While efforts are being made to make mining more environmentally friendly, other digital currencies, such as Ethereum, are planning to phase out the mining process altogether.

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