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Uncovering Bitcoin Mining

16 May 2022

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Uncovering Bitcoin Mining
What is Bitcoin Mining? / Why Does Bitcoin Need Mining? / How does "Proof-of-Work" Come In? / How much bitcoin do miners earn? / What Are Bitcoin Mining Pools? / How much does bitcoin mining cost? / TL;DR / 

Learn how mining secures the Bitcoin network, and why it's the beating heart of the entire system.

What is Bitcoin Mining?

Bitcoin mining is the process by which transactions are verified and added to the blockchain, and also the means through which new bitcoin are released into circulation. Bitcoin "miners" run specialized hardware to solve computationally difficult math problems, and in doing so, they validate bitcoin transactions and provide the essential security for the Bitcoin network. They are rewarded with bitcoin for their efforts, and this provides an incentive for people to dedicate time and resources to bitcoin mining.

Mining is a computationally intensive process that requires powerful hardware. In the early days of Bitcoin, it was possible to mine using only a personal computer. As Bitcoin became more popular, people began dedicating more powerful hardware to mining. Nowadays, bitcoin mining is mostly done by large bitcoin farms, as competition has become too intense for individual miners to profit. These bitcoin farms use specialized hardware designed specifically for bitcoin mining, and thrive in countries and environments where electricity is cheapest.

Why Does Bitcoin Need Mining?

Bitcoin mining serves two purposes: it secures the Bitcoin network, and it helps to release new bitcoin into circulation. Mining provides an incentive for miners to keep validating transactions because doing so begets them a great reward — bitcoin. This two-pronged incentive system ensures that Bitcoin remains a secure and stable system over time.

If a single person or entity was the only one in charge of validating transactions, it would be possible for that person to manipulate transactions and potentially steal bitcoin. This is why bitcoin mining is so important – it ensures that a verifiably random group of people is in charge of bitcoin validation, rather than just one person or entity.

verifying transactions

Due to the incentive system of bitcoin rewards, it's in miners' best interest to play by the rules. Trying to cheat or defraud the system is not profitable and in fact, tampering with bitcoin transactions is extremely difficult and costly. That means double-spending bitcoin, counterfeiting records, and any other fraudulent attempts are not very efficient endeavors. It's a classic prisoners dilemma — everyone has the incentive to play by the rules and validate transactions, because they know everyone else will if they don't.

How does "Proof-of-Work" Come In?

Bitcoin mining works in a way such that solving the math problem is incredibly difficult, but once you find the solution, it's trivially easy to verify that it's the correct one. Imagine a lock on a door, or a combination lock; solving it is incredibly tough, but when it's solved and you know the solution, anyone can simply open the lock or combination and walk into the room. It's a matter of finding that single solution out of all the possible solutions that's incredibly difficult. The first person to find the solution can prove it's correct. That's exactly how Bitcoin integrates Proof-of-Work into its system. If the miner gives the proof, they get the bitcoin.

And that's why the more computer power one has, the faster they can solve the math problem. If you have one person trying to guess the combination to a lock, and another with hundreds of people working for him, the one with hundreds will have a much better chance of getting the solution.

Some Commonly Asked Questions About Bitcoin Mining

How much bitcoin do miners earn?

The amount of bitcoin earned by bitcoin miners is called the "block reward." At its inception, the block reward was 50 bitcoin, but the Bitcoin protocol is designed such that this reward decreases over time, halving every 4 years to be exact (this is what's referred to as 'The Halving'). The reward halving tames bitcoin inflation, and ensures that bitcoin mining remains profitable over time, as bitcoin halvings typically correlate with sizable price increases. If demand for bitcoin remains the same (or better yet, increases) while the halving decreases bitcoin's supply, prices are more likely to go up. This mechanism is one of the reasons bitcoin has become so popular and valuable over time. Its mathematical predictability gives bitcoin a level of scarcity and stability unmatched by any other asset in the world.

bitcoin halving

What Are Bitcoin Mining Pools?

Bitcoin mining pools are groups of bitcoin miners who work together to mine bitcoin. By pooling their resources, miners can earn bitcoin more quickly and increase their chances of rewards. Pooling resources also helps to spread the risk associated with bitcoin mining, as no one miner or pool is in charge of validating bitcoin transactions.

How much does bitcoin mining cost?

The cost of bitcoin mining depends on many factors, including the price of bitcoin, geographical location, energy accessibility, and the electricity costs associated with running the mining rigs. Generally speaking, bitcoin mining is a very costly endeavor, and is typically only profitable for professional miners who have access to large amounts of cheap electricity. However, bitcoin mining is still a popular endeavor, as innovation in the space and an increasing political acceptance begins to welcome bitcoin miners to the fold.


  • Bitcoin mining is the process of validating bitcoin transactions and securing the bitcoin network.
  • Proof-of-Work is used to ensure that miners have an incentive to validate bitcoin transactions, as they are rewarded with bitcoin for their efforts.
  • Bitcoin mining pools are groups of miners who work together to increase their chances of earning rewards.
  • The cost of bitcoin mining can vary greatly depending on a number of factors, including the price of bitcoin, location, energy costs, and more.
  • Despite the costs, bitcoin mining remains a popular endeavor, as it can be profitable for miners with access to cheap electricity.

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