How Does Bitcoin Mining Work? A Beginner’s Guide

Learn how Bitcoin mining works – from cryptographic hashing and nonce to mining rewards, pools, hardware (GPU & ASIC) and environmental impacts.

What Is Bitcoin Mining?

The crucial procedure that logs transactions onto the blockchain, a decentralized digital ledger, is bitcoin mining. It is also the process by which new bitcoins are produced and added to the system.

Miners use mining software and specialized hardware to accomplish this task. Their objective is to solve intricate cryptographic puzzles, which entails figuring out a number that satisfies the requirements established by the degree of difficulty of the Bitcoin network.

Bitcoin is awarded to the miner who cracks the puzzle first. The cycle is restarted after the solution is discovered and a new block is added to the blockchain. As an incentive, this reward system motivates miners to keep the network up to date by confirming and documenting transactions.

It’s important to think about whether mining is the right career path for you if you’re considering it. It necessitates a large time and financial commitment to mining equipment. Before you begin, take a moment to determine whether bitcoin mining fits with your objectives.

KEY:-
1. Bitcoin miners earn rewards in the form of Bitcoin by successfully adding new blocks to the blockchain.
2. Due to heavy competition in the network, earning mining rewards is increasingly challenging.
3. The chance of solving the puzzle depends on the overall mining power of the network.
4. To compete effectively, miners must invest in specialized hardware like ASICs built exclusively for mining.

How the Bitcoin Mining Process Works

Although mining is a complex process, in short, a block on the blockchain records the wallet addresses and transferred amounts whenever a transaction takes place between digital wallets. A cryptographic algorithm called hashing is used to process this block after it has been supplied with particular data. This process produces a hash, which is a distinct 64-character hexadecimal code.

Important:-
Bitcoin broke through its highly anticipated price barrier of $100,000 on Dec. 5, 2024, and traded at more than $104,000 on some exchanges.

The Hash

Here is an example of a hash: 

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

Why Are Letters Used in Large Numbers Like Hashes? Understanding the 64-Digit Code

There are 64 characters in the above number. You’ve probably noticed that it contains both letters and numbers if you looked closely. However, why is that the case?

In our everyday decimal system, we use base 10. That means we count using numbers from 0 to 9. For example, 1% equals 0.01 in decimal format. Each digit in a decimal number has 10 possible values.

However, hexadecimal, or base 16, is frequently used in the computing industry. “Deca” means ten, and “hex” is the Greek word for six. Each digit in a hexadecimal system can stand for one of sixteen possible values. However, we use letters A to F to represent the values 10 to 15 because we only have 10 numeric symbols (0 through 9).

So why use hexadecimal? This is due to the fact that cryptography and computing demand far more combinations than base 10 can provide. A 10-digit number, for instance, has 10 billion (10¹⁰) possible outcomes, which is insufficiently secure for encryption.

By using hexadecimal characters—including the letters A, B, C, D, E, and F—a 64-character hash can generate 16⁶⁴ unique combinations. That’s approximately 1.1579 novemvigintillion (a 1 followed by 90 zeros). This huge number of combinations is crucial in cryptography for generating secure hashes.

In short, letters appear in these long strings to expand the number of possible combinations, making digital security more robust and reliable.

Target Hash and Nonce 

How Bitcoin Mining Works: Understanding Hashes, Nonces, and Target Hashes

The goal of bitcoin mining is to produce a hash value that is less than the network’s desired hash. The network modifies the mining difficulty by requiring an abnormally high average number of attempts to find a valid hash, given that Bitcoin miners can compute trillions of hashes per second. Remember that there are 1.664 × 10⁶² possible combinations for a 64-digit hash. The Bitcoin network sets a hexadecimal value called the target hash to control the rate at which new blocks are mined.

By adjusting the nonce, a tiny portion of the hashed data, miners experiment with different values. A key component of 64-character hexadecimal hashes is the nonce, which stands for “number only used once.” However, the block header’s nonce field quickly runs out of space—often in less than a second—because it can only hold values up to about 4.3 billion. Miners get around this by using an additional nonce from the Coinbase transaction, which has a far wider range and permits billions more hash attempts.

Unless the input changes, the hashed data yields the same result. The block data is first hashed by the mining software with the nonce set to zero. The nonce is increased and the procedure is repeated if the final hash falls short of the desired goal. Until a hash is generated that is less than the network’s target hash, this cycle keeps going.

Here are some sample hashes and the specific conditions that determine whether they would result in a successful mining attempt:

How to win for a block

Hash Example

So, if you were to hash “Hello World!” using an online SHA256 generator, you might get:2
KeyCDN. “Tools: SHA256 Generator.”


7f83b1657ff1fc53b92dc18148a1d65dfc2d4b1fa3d677284addd200126d9069

Add a digit to the end, like “Hello World!0” and rehash it. You might get:

e59f8bdf1305e382a4919ccefd613d3eebae612aa4c443f3af2d65663de3b075

Then, increase the number by one—”Hello World!1″ and rehash it. You might get:

9e2be792bcd092bd5ab7bdac7bda1ae5d0db9f6d052a3c819615900c7c06e9be

This is mining, but it’s done automatically by the mining program. It takes trillions of attempts for the network of miners to find the solution.

The Mining of Block 490163

The image below, taken from Blockchain.info, provides a clear summary of what occurred during the mining of block No. 490163 on the Bitcoin blockchain.

In this case, 731511405 was the nonce that produced the valid hash. (Remember that the nonce starts at zero and increases by one every time you try. The extra nonce functions as a secondary counter once it reaches its limit, so it probably took trillions of tries to find the winning hash. At the top of the screenshot is the target hash for the block.

The phrase “Relayed by AntPool” denotes that AntPool, a well-known and extremely active Bitcoin mining pool, mined and submitted this block.

Notably, AntPool contributed to the blockchain network by confirming 1,768 transactions in this single block. If you’re interested in reviewing each transaction included in block 490163, you can visit the corresponding page on Blockchain.info and scroll down to the “Transactions” section for the full list.

Each block’s mining difficulty level will also be shown to you. The Bitcoin network is set up to produce a new block roughly every ten minutes. Based on the number of miners participating, the system automatically modifies the mining difficulty every 2,016 blocks, or roughly every two weeks, to keep the pace steady. This doesn’t ensure a precise 10-minute interval, but it’s fairly close.

The “Bitcoin Block Time Historical Chart” displays these variations over time, per BitInfoCharts.
In order to determine the mining difficulty, the previous difficulty level is multiplied by 2,016 and divided by the average block mining time during the most recent cycle.

= Old difficulty x ( 2,016 ÷ average time to mine in the last period )

1.0 is the least challenging level. The harder it is to find the answer, the higher the number. On December 5, 2024 (as determined on December 1), the difficulty level was 102.89 trillion. This may be published as 102.89T.

What is Blockchain Mining?

The computational procedure used by network nodes to validate the data contained in blocks is known as blockchain mining. To put it simply, miners receive payment for serving as auditors. They add new blocks to the chain, validate Bitcoin (BTC) transactions, and receive incentives for their efforts to keep the network secure.

Why Mine Bitcoin?

The potential reward—bitcoins, which have seen a sharp increase in value—is one of the primary drivers behind devoting time and resources to Bitcoin mining. For example, Bitcoin hit an all-time high on December 5, 2024, closing at over $101,000 on Coinbase after surpassing $100,000. 3.125 BTC was the mining reward at the time. That reward was approximately $315,625.00¹ at the day’s closing rate.

About every four years, bitcoin mining rewards are cut in half.⁵ Each mined block yielded 50 BTC when Bitcoin first launched in 2009. This was cut in half to 25 BTC in 2012. It fell once more to 12.5 BTC by 2016. The reward changed to 6.25 BTC on May 11, 2020. It again halved to 3.125 BTC in April 2024.

As the supply of new bitcoins declines due to the halving cycle, and market prices rise, miners aim to earn as much as possible while they still can. By around the year 2140, Bitcoin’s fixed supply will be fully mined, and no new coins will be issued.⁶

Only transaction fees will be left as a motivator to keep the Bitcoin network running after mining rewards eventually disappear. The majority may stop mining unless transaction fees rise to the point where continued efforts are financially justified, but some may keep mining in order to support a decentralized currency.

Miners’ Rewards for successfully completing 1 block halve every 210,000 blocks, or an average of every 4 years

Important:-
The mining pool NiceHash has a useful calculator on its website if you would like to estimate how much bitcoin you could mine with your rig's hash rate. Similar tools can be found in other online resources.

How Long Does It Take To Mine 1 Bitcoin?

Bitcoin experiences a major event known as the “halving” every four years. This happens after the blockchain processes every 210,000 blocks. Depending on the hashrate and overall network participation, the precise timing may differ slightly.

In April 2024, there was the most recent halving, which decreased the mining reward to 3.125 bitcoins roughly every ten minutes. The reward will drop to 1.5625 BTC every ten minutes in 2028, when the next halving is anticipated. The reward will decrease even more to just 0.78125 BTC every ten minutes by 2032. It is evident from these modifications that mining precisely one bitcoin at a time is not feasible.

However, you can estimate the rate at which new bitcoins are added to the blockchain by using average block times and reward rates. On December 5, 2024, for instance, mining a block took an average of 9.796 minutes and yielded a reward of 3.125 Bitcoin. This enables us to estimate bitcoin production using a straightforward formula:

Block Time ÷ Block Reward = Average Rate for 1 BTC

So, the rate at which the blockchain created 1 BTC on that day was:

9.796 minutes ÷ 3.125 BTC = 3.13 minutes

The rate will change as the blockchain’s average block time creation changes due to network hashrate.

What You Need To Mine Bitcoin

Large mining pools and corporations control the majority of the mining power on the Bitcoin network. However, it is technically feasible to use a high-performance, contemporary graphics processing unit (GPU) to mine Bitcoin from home. However, using a single GPU for solo mining has very little chance of producing any rewards. To increase your chances of success, you must join a mining pool (described further below).

For example, the mining power of the entire network would be less than 0.001% from a high-end GPU that costs several thousand dollars. To have any chance of solving a block, your computer must produce billions of hashes per second, making mining a numbers game. It could take a very long time, or perhaps never, to mine a block successfully because it uses so little power in comparison to the entire network. Because of this, it is unlikely that you will ever recoup your hardware investment.

Mining Hardware

Investing in high-performance hardware, such as an Application-Specific Integrated Circuit (ASIC) or a top-tier Graphics Processing Unit (GPU), is necessary to mine cryptocurrencies successfully. Video cards, also referred to as GPUs, usually range in price from $1,000 to $2,000. However, depending on their capabilities, ASICs can cost tens of thousands of dollars, making them much more costly.

At the moment, individual miners who join mining pools and massive ASIC mining farms provide the great majority of Bitcoin’s network hashing power. Compared to conventional CPUs or even potent GPUs, these ASIC devices are substantially more efficient. ASICs get stronger and more energy-efficient with each new generation, providing better performance. For instance, you could mine 335 terahashes per second (TH/s) at an energy consumption rate of only 16.0 joules per terahash with an investment of more than $11,000.
Even though there are more affordable mining hardware options, serious miners prefer the more expensive models because they offer faster hashing and possibly larger mining rewards.

Mining Pools

Third parties run mining pools, which organize teams of miners. Miners are more likely to receive rewards when they collaborate in a pool and divide the payouts among all members than when they work alone.

Important:-
Most mining pools reward users based on their contribution to the overall work. For example, if your GPU delivers 121 mega (million) hashes per second while the total pool hash rate is 121 exa (quintillion) hashes per second, your payout will be minimal, as it reflects only a tiny share of the total mining effort.

Downsides of Mining 

The main risks associated with bitcoin mining are financial. It requires a large initial outlay of funds, frequently hundreds or even thousands of dollars for specialized hardware. It is a high-risk financial endeavor because, despite this expense, there is no assurance that you will receive a return.

Bitcoin mining and use may be prohibited in some nations. Therefore, before engaging in mining operations or investing in equipment, it is imperative to carefully review your local laws and comprehend your government’s position on cryptocurrencies.

Another major issue tied to Bitcoin mining is its environmental impact. The energy required to power the Bitcoin network is enormous—some estimates suggest it’s comparable to the electricity consumption of entire small nations.

Large-scale mining operations generate enormous amounts of electronic waste, even with technological advancements in ASIC (Application-Specific Integrated Circuit) efficiency. This is a result of regular hardware upgrades meant to keep up with hash rates that are rising quickly. An estimated 39.89 kilotons of e-waste are produced annually by Bitcoin mining, according to Digiconomist.

Mining equipment also generates a lot of heat. Your cooling needs—and electricity costs—will probably increase if you’re using one or more ASIC devices on a constant basis. This increases the financial strain and environmental impact even more, so it’s crucial to carefully consider all the risks before beginning.

However, there are initiatives to lessen this adverse externality by using carbon offset credits and looking for greener, cleaner energy sources for mining operations, like solar or geothermal. Furthermore, some governments have taken steps to lessen the negative environmental and climatic impacts of Bitcoin.

Where Is Bitcoin Mining Illegal?

Bitcoin mining remains legal in many parts of the world, but growing concerns over energy consumption, grid stability, and climate impact have led to tighter regulations. Several nations have either imposed temporary restrictions or passed laws making mining financially unfeasible, while some have issued outright bans. Below is a look at how different countries are responding to Bitcoin mining:

• Paraguay: Enforced a six-month moratorium on crypto mining starting April 2024.
• Sweden: Imposed a steep 6,000% energy tax specifically targeting crypto mining operations.
• Norway: Proposed legislation in 2024 requiring data centers to get approval for their activities, giving the government the power to reject crypto mining applications.
• China: Banned all forms of cryptocurrency mining as early as 2021.
• Kazakhstan: Increased energy taxes on mining in 2022 and, by 2023, restricted operations to times of energy surplus only.

As global environmental and energy concerns rise, Bitcoin mining laws continue to evolve, making compliance a key factor for miners worldwide.

FAQs