Bitcoin, Cryptocurrency

How To Mine Bitcoin: What Is It And How Does It Work?

By Jay Dawson


Reviewed by: Jay Dawson

Last Updated:


How To Mine Bitcoin

Bitcoin is a cryptocurrency that can be virtually transacted. Then what does it mean to mine a Bitcoin? Where are the Bitcoins created? How can you mine Bitcoins?

Today we will answer all these questions and many of your doubts regarding Bitcoin mining. Bitcoin Mining is a sophisticated process that we will try to explain in simpler terms. 


Bitcoin is synonymous with the word ‘cryptocurrency’. It is because Bitcoin is the most popular and most transacted cryptocurrency in the world. Bitcoin is a decentralized currency that does not depend on federal governance.

It operates on a decentralized network of computers and is powered by blockchain, which records information regarding the transactions. You can earn Bitcoins in your crypto wallets as payments for goods and services, Bitcoin can be purchased at exchanges, it can be traded with someone who owns it, or through Bitcoin Mining. 


What Does Bitcoin Mining Mean?

Similar to how gold is mined, Bitcoin can also be ‘mined’ or new Bitcoins can be added to circulation by processing transactions using computing powers. Specialized hardware can be used to process and validate transactions and complex mathematical problems, which in turn earns you Bitcoins.

Bitcoin miners will have to cryptographically solve the information on a block in the blockchain and reach the answer. For this effort, you will earn a reward in the form of Bitcoins. 

Bitcoin mining is a competitive field. People with more expensive hardware have more computational power and will acquire more Bitcoins. The miners look out for transactions transmitted through the peer-to-peer network of interconnected systems and analyze these transactions.

A transactional fee is paid for the fast processing of transactions and adding it as a block to the blockchain. This is how new Bitcoins are created. 

The huge reward for Bitcoin mining attracted a lot of miners. But the rewards are poised to reduce over time as there are only limited Bitcoins. The reward amount for adding a block to the blockchain is reduced to half every four years. Once all the Bitcoin enters circulation, Bitcoin mining will cease. 

How To Mine Bitcoin?

Bitcoin Miners use expensive computer hardware and lots of electricity to mine Bitcoins. Previously, miners could use a traditional computer setup to mine Bitcoins. As the number of miners increased over the years, the difficulty in mining Bitcoin increased drastically. Mining involves two steps: Solving transactions and Proof of work. 

Specialized hardware and mining software are needed to mine Bitcoins. You will need to identify the transactions on the peer-to-peer network and verify it using the software.

The verified transactions are then bundled into a block. The header of the block is entered into the new block as a hash, which acts as the proof of work. Thus a new block is added to the blockchain and into the network. 

The header from the new block and nonce (number used only once) are combined to create a hash. Hash is an encrypted output of the information.

If the generated hash is less than the Target Value, the proof of work is solved and the miner receives a transaction fee in the form of Bitcoin. If the hash is more than the Target Value, the computation is done again, increasing the difficulty in mining. 

Bitcoin mining is increasing at a brisk pace due to more miners joining in. This causes more transaction verification and more block creation, leading to lesser computation and mining times. Miners with the most advanced setups will earn more rewards due to high computational power. This eventually leads to a decline in block creation. 


Bitcoin mining adds new Bitcoins to circulation and increases the transaction verification speeds. But it is a heavy energy consuming process. The mining rigs consume heavy loads of electricity for solving cryptographic problems and eventually, miners would get very little profit from the process.

The profits you earn after Bitcoin Mining are only made after selling the Bitcoins in the market. The prices of cryptocurrencies are highly volatile and may not fetch you the intended profits. Alternatives to traditional Bitcoin Mining like Cloud Mining, are on the rise. Cloud Mining is environment-friendly and costs less.

Jay Dawson

Jay Dawson, a cryptocurrency expert based in Dallas, TX, is passionate about sharing knowledge on Bitcoin and other cryptocurrencies, ensuring traders stay updated with the latest trends. His goal is to empower others with valuable insights into the dynamic crypto market.

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