What is Bitcoin Mining and How Does it Work?

What is Bitcoin Mining and How Does it Work?

As suggested by the secretive bitcoin founder, Satoshi Nakamoto, the purpose of bitcoin is to create the decentralized way to exchange the digital assets online without depending on mediators, such as banks or government. The records are kept in a “blockchain”, the growing ledger that maintains the transaction history of all tokens in circulation. What if no centralized body keeps track of transactions and decides which one is valid and should be stored in a blockchain? How to make sure that the system is not corrupted? Well, the solution is mining.

The Process of Bitcoin Mining

About every ten minutes computers worldwide accumulate hundreds of bitcoin transactions (which is called a “block”) and transform them into a puzzle. The first miner who finds solution informs others on the network. The rest of miners checks whether the answer is correct and if the miner has a right to dispose of money. If sufficient amount of miners give their approval, the block is added to the ledger and miners proceed to the next set of transactions. Thus the process is called “blockchain”.

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The Reward

The miner who has found a solution to puzzle receives a reward of 12.5 bitcoins after successfully creating a hash. It is a valuable incentive for miners to participate in transaction validations. Moreover, making miners solve puzzles add another level of protection. For instance, if hackers try to break into the system, they need to rewrite the blockchain which involves more than half of a network’s solving capacity and more than 500 supercomputers.

The Weaknesses of Bitcoin Mining

Although everything seems well-thought-out, this system also has vulnerabilities.

  • Rapid Consolidation. There are so-called “pools” - large groups of miners who unite in order to raise their chances to get a reward. As mining pools are growing, they are getting more opportunities to accumulate enough capacity to mount a 51% attack. In fact three years ago, a pool called GHash.IO raised its bitcoin community that almost achieved this level shortly before several users moved to other pools. This threat becomes bigger when Bitcoin price continues to fall.
  • Network Difficulty Metric. This metric is a measure of how difficult it is to discover a new block. As more miners join the network, they make the rate of block creation rise. As it goes up, the difficulty increases thus pushing the rate of block creation down again.

How to Get Started With Bitcoin Mining

One of the biggest problems for those who want to start mining Bitcoin for profit is that most sites are written for advanced users. That’s why we want to share our guide for beginners that will help you get started.

1. Get Bitcoin Mining Hardware

As we already mentioned, Bitcoin mining is a highly competitive area to earn money. Taking into account that more and more miners get into the niche with advanced hardware, it becomes harder get on board.

How to Find the Best Bitcoin Miner

When you try to find the best Bitcoin miner you should consider several factors:

  • Hash rate – This indicator shows how many hashes per second can the Bitcoin miner make. The more hashes there are, the more expensive miner is. That’s why you should also consider other features.
  • Efficiency – As miners consume a lot of electricity, you should buy the one that is the most efficient.
  • Price – Cheap hardware will mine fewer bitcoins meaning that the more efficient device will cost more.

Aim for value and efficiency, don’t focus only on a hash rate or a price.

Here are several best options currently available on Amazon:

2. Get a Bitcoin Wallet

After deciding on hardware, the first thing you need to do is get a “Bitcoin Wallet”. A wallet is a place where you virtually keep an Internet currency. Once you have it, you get a wallet address that contains a long sequence of numbers and letters. Notice that you need both an address, which is public and a key, which is private (like a password).

You can also have a self-hosted wallet in case you download a program to your computer and are not using an internet-based solution. Don't forget to make a copy of the wallet.dat file on a drive and keep the printed version in a safe location.

Watch a tutorial on how to create a secure Bitcoin wallet:

3. Find a Mining Pool

Now you are ready to start. If you want to get a possibility to earn money, you’d better join a mining pool. The reason you should not work separately especially in the beginning is that bitcoins are given in blocks - 12.5 at a time. You have to be very lucky to get even a piece of this block.

Moreover, in a pool, you have smaller and simpler algorithms to solve. Considering the collective brain and combined power you are more likely to solve bigger puzzles and get the reward based on your contribution.

When choosing the mining pool, answer the following question:

  • What fee do they charge for mining and money withdrawal?
  • What reward method do they use? - Score Based/Pay Per Share/Proportional/PPLNS
  • How frequently will you be rewarded?
  • What is a flow of withdrawing funds?
  • Will you have access to statistics?
  • How long does the pool exist?

Here is a comparison of the biggest mining pools considering the location and fees.

4. Get a Bitcoin Mining Software

You are almost ready to start mining. The final step you have to make is to get a mining client on your computer so that you could control your mining rig. Most mining pools already have their own software, but some don’t. That’s why have a look at the list of the best Bitcoin mining software.

So, hopefully, you accomplished all the steps and are ready to go. Plug your mining device into a power outlet and your computer, and open mining software to start working.


After all the work of verifying the transactions is done, you still may not receive any Bitcoin. That happens because to earn Bitcoin, you have to meet two conditions.

  • The easiest part is to verify a 1 MB of transactions.
  • You have to be the first one who brings a solution to a puzzle. This is also known as a proof of work.

Before starting with Bitcoin mining take into account that most Bitcoin users don’t mine. Mining for profit is very competitive, and it is difficult to get profits without speculating on the price. That’s why it is reasonable to start mining only if you want to do it for fun or to add more security to Bitcoin without caring about money issues.

The miner who has found a solution to puzzle receives a reward of 12.5 bitcoins after successfully creating a hash.
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