Bitcoin Mining Explained

Bitcoin mining gets it’s name from the fact that when transactions are added to the public ledger (block chain) new coins are created (mined).

Bitcoin mining is an integral part of¬†how bitcoin works. The bitcoin network relies on miners to verify and update the public ledge of bitcoin transactions, to verify that bitcoin users¬†aren’t trying to cheat the system, and to add newly-discovered bitcoins to the money pool.

On this page, we’ll¬†present the basics of what bitcoin mining is, what miners actually do, and why people choose to mine bitcoin.

In order to get the most out of¬†this page, we highly recommend¬†reading our page on How Bitcoin Works (if you haven’t done so already).

TIP: The concept behind Bitcoin mining is very similar to the concept behind mining other cryptocurrencies. Thus if you understand Bitcoin mining, you generally understanding mining any digital currency.

What is Bitcoin Mining?

Mining is the process by which special bitcoin users (called miners) compete with each other to “discover” new bitcoins and¬†add recent bitcoin transactions to bitcoin’s¬†public ledger (the transaction blockchain).

In order to spend or receive¬†bitcoins, a bitcoin user¬†must create a transaction and broadcast it to the entire network. Then, for this transaction to successfully go through, it must¬†be¬†permanently recorded on the block chain. Mining is the process of adding recent transactions to the block chain, and thereby making them a permanent part of the bitcoin “public ledger.”

What Do Miners Do?

Let’s dive in to how this works. In order to add transactions to the block chain, all of the miners collect the transactions recently broadcasted by other¬†bitcoin users, verify that the transactions are valid (according to the current block chain), and compile them down into a transaction block ‚Äď a condensed record of all the transactions for that period of time.

Of course, if any miner could simply create a¬†transaction block and immediately add it to the¬†permanent ledger, then¬†anyone who wanted to could just create a fake transaction block (for example, one in which they spend bitcoins that¬†they don’t own) and add it to the ledger.

Because of this,¬†the bitcoin algorithm is design to make mining difficult. Instead of being able to add a transaction block to the block chain at will, a miner has to solve a very difficult computational puzzle ‚Äď called a proof-of-work scheme. This proof-of-work scheme was designed to have solutions that are easy to verify, but very difficult to find.

In other words, what bitcoin miners are actually doing is competing with each other to see who can solve a difficult, cryptographic puzzle first. When one miner finds the solution to the problem, they broadcast their solution to all of the other miners. The other miners then verify that the solution is correct. If it is, the network permanently adds the successfully-mined block to the publicly accepted block chain.

The miner who won the “mining race” and was the first to successfully solve the puzzle is then rewarded¬†for the effort with 25 newly “discovered” bitcoins. This possibility of reward acts as an incentive for miners to keep investing¬†computational time and effort into¬†mining bitcoin.¬†This new creation of bitcoins also acts as a way to add to the overall bitcoin money supply.

Learning More About Mining

The description of mining above is extremely general and conceptual. For a more hand-on approach, check out our guide on How to Mine Litecoin.

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"The Basics of Bitcoin Mining" contains information about the following Cryptocurrencies:

Bitcoin (BTC)

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Olayinka on

what did i need to become a miner

Thomas DeMichele
Thomas DeMichele on

You can mine with a CPU or GPU using a mining pool and a mining program (which you run from the command line). In other words, you can start by using whatever hardware / software you have as long as you are running a desktop or laptop. This will net you very little “hash power” and won’t be profitable, but you can play around with it that way. Meanwhile, to level up you would need high powered GPUS or an ASIC rig. //cryptocurrencyfacts.com/asic-mining-basics/

We are working on setting up a hobbyist mining tutorial part of our site.

The problem with mining for profit is that it takes a ton of electricity and expensive hardware, and profit margins are slim. Then on top of that it takes some time and dedication to learning. Common wisdom says that investing (that is just buying and holding) is a better way to make profit and some light trading is a better way to make coins. However, with all that noted, mining is of course always an option.

I don’t have an perfect place to point you to for how-tos, but that is why we are working on building such a place here.

You can see a basic gist of mining here: //cryptocurrencyfacts.com/beginners-guide-to-mining-litecoin-mac/ (this guide is in the process of being edited, so make sure to read the IMPORTANT section for updates as to our progress).

Shanu on

BitCoin Software is opensource, and I have heard that one can simply fork this coins. Thats how Bitcoin Cash was produced from Bitcoin. Is this forking and mining same thing?

Thomas DeMichele
Thomas DeMichele on

Mining and forking aren’t the same thing. Mining is confirming transactions by running software. A hard fork is when users get together and make a copy of Bitcoin’s code and ledger.

Meanwhile, while Bitcoin is open source creating a new version of the software, either as a fork or as a fully new coin from scratch using the same code, requires adoption and consensus. People have to switch over to that software, maintain it, use it, and mine the coin. Thus, miners will sometimes fork coins, as they have the mining power, but a fork doesn’t require that this be the case. Perhaps this is where the confusion comes in?

The reality is creating a successful fork or crytpo is a tall order that is very far from “simple.”