Tutorial – What Is Bitcoin Mining?

The circulating supply of Bitcoin is currently around 17 million coins, according to our crypto research platform Coinpaprika, but its maximum supply is exactly 21 million coins. Mining is the process by which new Bitcoins are generated, and the same process that will create those four or so million extra coins over the next few decades

However, that’s just one side of Bitcoin mining. It’s also an integral part of how the Bitcoin network processes transactions, so it’s worth knowing what mining is, how it works, and whether you should get involved; we’ll answer all of those questions and more in this article.

What Is Mining and How Does It Work?

Bitcoin mining is the process by which all new Bitcoins are created, but it’s also a core feature of how the Bitcoin network processes transactions.

For some quick context, the Bitcoin network prevents fraud by keeping a long list of transactions – the blockchain – dating back to its inception in 2009. New bundles of transactions are added to the blockchain roughly every 10 minutes, in what are called blocks. When new blocks are created, other users in the network can then verify them against their own records to ensure the transactions are valid.

Theoretically, anybody could create a new block and publish it to the Bitcoin network, slowing the entire system down. To prevent this, each block features a cryptographic puzzle that’s extremely difficult to solve but very easy for others to verify. From a technical standpoint, mining is the process of solving these puzzles.

So how does mining generate Bitcoin? In exchange for miners’ computing power, the network rewards them with 12.5 Bitcoins if they are able to mine a block that is adopted by the rest of the network.

In addition to the flat reward of 12.5 Bitcoins (which halves every four years to slow down the production of new coins), miners receive the pool of fees collected from the block’s transactions. While fees are optional in Bitcoin transactions, almost everybody includes them to encourage miners to process their transactions faster.

The Bitcoin Hashing Algorithm

To create these cryptographic puzzles, the Bitcoin network uses a hashing algorithm called “SHA-256” to digest a block’s data into an intimidating string of numbers and letters – called a hash – such as

  • ba7816bf­8f01cfea­414140de­5dae2223­b00361a3­96177a9c­b410ff61­f20015ad,

which is the corresponding hash for the three letters “abc.”

Then, for the puzzle itself, miners need to add a random piece of information to the block’s data – called a nonce – which changes the resulting hash into one that start with multiple zeros. This takes a lot of trial-and-error, but you’re only rewarded for your efforts if you find the correct nonce. Otherwise, another miner solves the puzzle and the process starts again with a new block.

Mining Pools

Although it doesn’t sound too difficult, the likelihood of finding the correct nonce for a block is extremely low. As a result of this, miners working alone would very rarely solve blocks themselves, making their mining income extremely unpredictable. Mining pools are the solution to this problem: pools are groups of miners who collectively attempt to solve blocks and share the profits between if they are successful.


Depending on how much computing power is dedicated to mining at any given time (the hash rate), the Bitcoin network can decide to make blocks more or less difficult to solve. This is called difficulty and is represented by the number of zeros that the hash needs to start with to be accepted. By changing the difficulty, the network ensures that blocks are solved roughly every 10 minutes, preventing a backlog of transactions if miners decide to stop their operations.

Should I Mine Bitcoin?

Mining Bitcoin might sound like free money, but it turns out that mining involves quite a few variables and only makes sense for some. The key factors in deciding whether or not to mine Bitcoin are:

  • Difficulty: When mining difficulty is high, your odds of successfully mining a Bitcoin decrease, along with your share of the profits from mining pools.
  • Computing power: Only the most powerful computers and mining devices are good for solving blocks, so you’ll need to own or invest in one to succeed with mining.
  • Electricity cost: Constantly running a computer or dedicated mining device can use up a lot of electricity. The resulting electricity bills are often what kill small mining operations.
  • Current Bitcoin price: The higher price per Bitcoin, the more you’ll earn from mining. However, as the Bitcoin price rises, more people start mining and difficulty increases too.

If you want to see whether mining will be profitable for you, you can enter details about your computer or mining device, power consumption, and electricity costs into a calculator such as WhatToMine.

How Do I Mine Bitcoin?

If you’ve run the numbers and it looks like mining Bitcoin might be worth it for you, you’re probably wondering how to get started. So, just for you, we’ve prepared this mini-guide on getting started with Bitcoin mining:

For Computer

With a regular computer, all you need to do is download a Bitcoin Miner that supports your operating system. Most mining software comes with support for mining pools out of the box, so it’s possible to start mining and earn a small amount of Bitcoin with just one click. Other mining software might require you to set up your mining preferences first (which is well-worth-it in any case) or choose a specific pool to work with.

If you’re happy to mine coins other than Bitcoin, you can also use smart mining software (Read More) like GamerHash to automatically switch between mining the most profitable coins.

For Mining Devices

You might also want to make an investment into your mining business by purchasing dedicated cryptocurrency miners. Although these devices have a high upfront cost, they supply more computing power for less electricity, significantly increasing your profits in the long-term. The setup of these devices can vary greatly, but we’re sure your device’s manufacturer will make it easy to get started.

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