Bitcoin Mining: How Does it Work?

Cryptocurrency mining was once popular, increasing the demand for graphics processing units (GPUs). In reality, Advanced Micro Devices, a GPU manufacturer, reported strong financial results as demand for its stock soared to greater heights, with shares trading at their highest levels in a decade.

Despite the rising need for GPUs, the crypto mining gold rush was short-lived as the adversity of mining cryptocurrencies such as Bitcoin increased at a similar rate.

However, mining Bitcoin can still be profitable. So, what exactly is bitcoin mining, and how does it work? This article will help you understand Bitcoin mining.

What is Bitcoin Mining?

Bitcoin mining is the process of proving and recording transactions on the blockchain. The mining entails running software to solve complex mathematical problems to prove transactions on a cryptographic blockchain.

When miners solve a math problem, they get rewarded with a share of the cryptocurrency linked with the mining operation. Bitcoin miners are accountable for securing the Bitcoin network and, as a result, get rewarded with transaction fees and new Bitcoins.

The confirmed transactions are the backbone of how a decentralized cryptocurrency functions as a valid currency. Miners are responsible for verifying these transactions.

The developer of Bitcoin, Satoshi Nakamoto, implemented A proof-of-work (PoW) consensus system has to ensure that only confirmed crypto miners can mine and validate transactions. PoW also protects the network against outside threats. As miners deploy increasingly powerful equipment to solve PoW, the network’s equations become more complex to solve. At the same time, competition among miners escalates, increasing the cryptocurrency’s scarcity.

Bitcoin mining is time-consuming, expensive, and only occasionally profitable. However, mining has a magnetic desire for many cryptocurrency investors because miners get rewarded with crypto tokens in exchange for their efforts. This could be because entrepreneurs regard mining as a gift from the gods.

The bitcoin reward that miners earn is an incentive that encourages people to help with mining’s primary goal: securing the Bitcoin network and legitimizing bitcoin transactions.

How Does Bitcoin Mining Work?

Bitcoin miners use unique software to solve complicated mathematical problems to confirm Bitcoin transactions on the blockchain. The miners employ their equipment to calculate “nonce,” or “number only used once.” The platform computes nonce using a hash function (such as SHA-256). Since the miner doesn’t know the exact nonce, they must perform many calculations in parallel to arrive at the correct number rapidly. This is where graphics processing units (GPUs) come into play.

GPU maximizes processing power by combining multiple GPUs into a single mining setup. A motherboard, as well as a cooling system, are necessary for GPU mining. Motherboards help mining rigs accommodate various graphics cards.

Another method of cryptocurrency mining is ASIC mining. ASIC miners, unlike GPU miners, are created exclusively to mine cryptos; hence they make more cryptocurrency units than GPU miners.

While some miners prefer to use GPUs to mine Bitcoin, application-specific integrated circuits (ASICs) and field-programmable gate arrays (FPGAs) can be purpose-built for computing specific hash algorithms and are significantly more efficient powerful than GPUs. Due to the huge power consumption and expenses involved, the number of GPUs required to match a single ASIC’s “hashing rate” would be outrageously costly.

Once a miner has solved the mathematical problem, they must broadcast the solution to the rest of the network. If other miners accept the solution, it gets added to the blockchain, and the miner gets rewarded with a set number of Bitcoins. The more computing power miners bring to the network, the higher their chances of solving a block and being rewarded with Bitcoins.

The developers designed the Bitcoin network to increase in difficulty over time, meaning that more computing power is needed to solve the mathematical problems and earn rewards. This ensures that Bitcoin remains a deflationary currency and that the total number of Bitcoins in circulation never exceeds 21 million.

Mining Pools – A Collaborative Way to Mine

Bitcoin mining pools allow Bitcoin miners to pool their resources and share their hashing power while splitting the reward evenly based on the number of shares they contributed to a block’s solution.

The Bitcoin mining pool members who produce a verified proof of work that their Bitcoin miner solved get “share.” Bitcoin mining pools arose as the difficulty of mining rose to the point where slower miners could take years to generate a block.

Joining a pool allows miners to join forces and share the hashing power, resulting in a faster investment return. If a mining pool is successful, the reward gets divided among the miners according to the number of resources they provide to the pool.

Most crypto mining softwares include a mining pool; however, crypto fans can now form their mining pools by collaborating online. Miners are free to switch pools whenever they need to because certain pools earn more significant rewards than others.

Miners consider official crypto mining pools more reliable since they receive frequent upgrades and technical support from their host firms. CryptoCompare is the most incredible place to explore mining pools since it allows miners to compare mining pools based on their dependability, profitability, and the coin they wish to mine.

Why Does Bitcoin Need Miners?

In the blockchain, Bitcoin offers a disruptive technology. The currency itself is decentralized, allowing transactions to take place anywhere in the world without the need for government approval or delays. So, Bitcoin needs miners to keep the network running decentralized.

Miners are also responsible for verifying and approving all Bitcoin transactions, which helps to ensure that the blockchain remains tamper-proof.

Additionally, miners help prevent the “double-spending problem” by confirming transactions. A Bitcoin double spend is defined as a bad actor submitting a copy of a transaction to make the copy appear valid while keeping the original or erasing the initial transaction. Anyone can easily duplicate digital information; this is possible—and dangerous—for Bitcoin or any other digital currency.

The Requirements for Mining Bitcoin

The price of Bitcoin is one of the most crucial variables for miners. If you, like most people, pay for your mining hardware and electricity, you’ll need to earn enough bitcoin from the mine to cover your recurring costs and recover your initial investment in the machine.

The hash power dedicated to Bitcoin mining determines the price of Bitcoin. Hash power is the swift speed at which a given miner can solve a cryptographic problem, measured in gigahashes per second (GH/s) or terahashes per second (TH/s).

The more hash power you have, the greater your chances of solving a block and being rewarded with Bitcoins. However, you need to set up some tools to trade. They include;

·        Mining Hardware

One of the essential requirements for a profitable Bitcoin mining setup is Bitcoin mining hardware. The mining hardware you choose will determine your overall profitability. The hardware cost varies with the manufacturer and determines how little energy the machine consumes compared to the amount of computational power it generates.

The more processing power you have, the more bitcoin you’ll be able to mine. Your monthly costs will be lower if you use less energy. So, when buying mining hardware, ensure to take note of the power consumption listed in watts.

Most modern ASIC Bitcoin mining rigs require at least a 220-volt 20-amp power supply. If your hosting costs are low enough, prioritizing ‘price per TH’ above ‘watts per TH’ makes sense. Your lower operating expenses (OpEx) will compensate for the loss in machine efficiency – and vice versa if your hosting costs are high.

·        Mining Software

Bitcoin mining software solves complicated mathematical puzzles with the help of your hardware and, in turn, rewards you with Bitcoin. Bitcoin mining software regulates the operation of the hardware equipment and connects it to Bitcoin and various mining pools. It also manages and optimizes the miner’s performance (s).

·        Mining Pool

A mining pool is a collaborative effort of miners who combine their hash power to increase the chance of solving a block and being rewarded with Bitcoins. Joining a mining pool allows you to receive smaller but more frequent payouts rather than waiting for a large payout that may never come. The rewards get distributed according to the amount of work each miner contributed to the pool.

·         Electricity

As mentioned earlier, the amount of Bitcoin you can mine each month is directly related to the amount of electricity you consume. Relevant hardware models, network size, and current miner profitability influence how much energy it takes to mine a bitcoin.

 One bitcoin requires an average of 143,000 kWh of energy to generate. The Bitcoin network consumes an average of 128,248 MWh (128 GWh) of electricity per day to produce 900 bitcoins. However, if the magnitude of the hash rate and other elements change, this estimate also changes.

·        Bitcoin Wallet

The ultimate piece of the puzzle is a Bitcoin wallet. A Bitcoin wallet is a digital asset that allows you to send and receive bitcoin. It is not only a place to store your bitcoin but also enables you to access your public and private keys. This is how you will receive the payouts from your mining pool.


Bitcoin mining is still a profitable venture, provided with the right hardware and software. It is important to remember that the amount of profit you make depends on various factors, including the cost of electricity and the current market value of Bitcoin. So, do your research before investing in mining hardware and software