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How Does Bitcoin Mining Work?

Last Updated : 27 Feb, 2023
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Bitcoin Mining is the process of verifying bitcoin transactions and storing them in a blockchain(ledger). It is a process similar to gold mining but instead, it is a computer process that creates new bitcoin in addition to tracking Bitcoin transactions. Let’s further study bitcoin and the various concepts related to it.

What is Bitcoin Mining?

Bitcoin mining is a computation-intensive process that uses complicated computer code to generate a secure cryptographic system. The bitcoin miner is the person who solves mathematical puzzles(also called proof of work) to validate the transaction. Anyone with mining hardware and computing power can take part in this. Numerous miners take part simultaneously to solve the complex mathematical puzzle, the one who solves it first, wins 6.25 bitcoin as a part of the reward. Miner verifies the transactions(after solving the puzzle) and then adds the block to the blockchain when confirmed. The blockchain contains the history of every transaction that has taken place in the blockchain network. Once the minor adds the block to the blockchain, bitcoins are then transferred which were associated with the transaction.

For the miners to earn rewards from verifying the bitcoin Transactions, two things must be ensured:

  1. The miners must verify the one-megabyte size of the transaction.
  2. For the addition of a new block of transaction in the blockchain, miners must have the ability to solve complex computational maths problems called proof for work by finding a 64-bit hexadecimal hash value.

Why Do Bitcoin Needs To Be Mined?

Bitcoin is a digital currency where there are chances of copying, counterfeiting, or double-spending the same coin more than once. Mining solves these problems by making the above illicit activities extremely expensive and resource-intensive. Thus, it can be concluded that it is more beneficial and cost-effective to join the network as a miner than to try to undermine it. 

Why Does Bitcoin Needs Miners?

Bitcoin miners are very essential for the smooth functioning of the bitcoin network for the following reasons:

  • Miners’ job is just like auditors i.e. to verify the legitimacy of the bitcoin transactions. 
  • Miners help to prevent the double-spending problem
  • Miners are minting the currency. In the absence of miners, Bitcoin as the network would still exist and be usable but there would be no additional bitcoin.

Why Mine Bitcoins?

There are several pros of mining a bitcoin:

  • Mining bitcoin helps support the Bitcoin ecosystem.
  • Bitcoin mining helps miners to earn rewards in form of bitcoins.
  • It is the only way to release new cryptocurrencies into circulation.
  • It is used to check counterfeiting and  double spending.

How Does Bitcoin Mining Work?

The nodes of the blockchain network are based on the concept that no one in the network can be trusted. Proof of work is accepted by nodes to validate any transaction. Proof of work involves doing hefty calculations to find a 32-bit hash value called nonce to solve the mathematical puzzle. The miners create new blocks by abiding by the fact that the transaction volume must be less than 21 million. 21 million is the total number of bitcoins that can be generated. The verified transaction gets a unique identification code and is linked with the previous verified transaction.

Let’s understand this with the help of an example-

  • Suppose Alice wants to transfer 10 BTC to Bob.
  • Now the transaction data of A is shared with the miners from the memory pool. A memory pool is a place where an unconfirmed or unverified transaction waits for its confirmation.
  • Miners start competing with themselves to solve the mathematical riddle in order to validate and verify the transaction using proof of work.
  • The miner who solves the problem first shares his result with other nodes(miners).
  • Once maximum nodes agree with the solution, the transaction block is verified and is then added to the blockchain.
  • At the same time, the miner who solved the puzzle gets a reward of 6.25 bitcoins.
  • Now, after the addition of the transaction block, the 10 BTC associated with the transaction data is transferred to Bob from Alice.
Bitcoin Mining


Requirements to Mine Bitcoin

In past, users of the system used to mine bitcoins using their home computers but as the technology has improved, this is no longer the case. The general time a bitcoin network takes to verify a new transaction is 10min. Within that time, there are more than one million miners competing with each other to find the hash value. When there is more computing power working together to mine for bitcoins, the difficulty level of mining increases. Therefore, in order to mine bitcoins, the user must possess-

  • Specialized mining hardware is called “application-specific integrated circuits,” or ASICs.
  • A Bitcoin mining software to join the Blockchain network.
  • Powerful GPU (graphics processing unit).

How to Start Mining Bitcoin?

The following steps display the ways to mine bitcoins:

  1. Profit calculation: One must, first of all, calculate the profit by taking hardware costs, electricity costs, and bitcoin costs into consideration.
  2. Buying the Mining Hardware: After ensuring the feasibility of mining bitcoins, the user must purchase mining hardware like ASICs.
  3. Mining Software: For proper access to bitcoin, mining software provides a pathway to join the Blockchain network. There are lots of free mining software available online.
  4. Installing Bitcoin Wallet: After the user receives bitcoins as a reward for mining, the bitcoins are to be kept in the bitcoin wallet.
  5. Joining a Mining Pool: This increases the possibility of mining bitcoins efficiently.

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