How Does Bitcoin Mining Work? A Beginner's Guide

What Is Bitcoin Mining?

Bitcoin mining is the process by which transactions are officially entered on the blockchain. It is also the way new bitcoins are launched into circulation.

Mining is conducted by miners using hardware and software to generate a cryptographic number that is equal to or less than a number set by the Bitcoin network's difficulty algorithm.

The first miner to find the solution to the problem receives bitcoins as a reward, and the process begins again. This reward is an incentive that motivates miners to assist in the primary purpose of mining: to earn the right to record transactions on the blockchain for the network to verify and confirm.

Before committing to investing your time and purchasing expensive equipment, read on to see whether mining is really for you.

How the Bitcoin Mining Process Works

Mining is a complex process, but in a nutshell, when a transaction is made between wallets, the addresses and amounts are entered into a block on the blockchain. The block is assigned some information, and all of the data in the block is put through a cryptographic algorithm (called hashing). The result of hashing is a 64-digit hexadecimal number, or hash.

The Hash

Here is an example of a hash: 

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits. As you probably noticed, that number consists not just of numbers but also letters. Why is that?

The decimal system uses factors of 100 as its base (e.g., 1% = 0.01). This, in turn, means that every digit of a multi-digit number has 100 possibilities, zero through 99. In computing, the decimal system is simplified to base 10, or the numbers zero through nine.

Hexadecimal, on the other hand, means base 16 because "hex" is derived from the Greek word for six, and "deca" is derived from the Greek word for 10. In a hexadecimal system, each digit has 16 possibilities. However, our numeric system only offers 10 ways of representing numbers (zero through nine). A 10-digit figure would have 10¹⁰ possibilities (10 billion)—cryptography requires many more possibilities than this for security purposes.

That's why there are letters used—specifically, the letters A, B, C, D, E, and F. Using this combination, there are 16⁶⁴ possible combinations (1.1579 novemvigintillion) that can be generated using a hash function that generates a 64-digit hash. One novemvigintillion is a 1 followed by 90 zeros.

Target Hash and Nonce 

Miners attempt to generate a number lower than the value of the network's target hash. Bitcoin miners can generate trillions of hashes per second, so the network must set a very high average number of attempts to generate a hash. Remembering that a 64-digit hash has 16⁶⁴ possibilities, the target hash is a hexadecimal number with a specific value used to govern Bitcoin's hash rate.

Miners make these guesses by adjusting the nonce, which is part of the information being hashed. "Nonce" is short for "number only used once," and it is the key to generating these 64-bit hexadecimal numbers. Due to size limitations, the block field the nonce is stored in only allows for a number of up to about 4.5 billion; it must be rolled over using another counter because generating 4.5 billion hashes takes less than one second. This counter comes from the coinbase transaction field, which is much larger—it is called the extra nonce. Using the nonce and the extra nonce as counters gives the blockchain the ability to generate an astronomical number of attempts.

When information is hashed, it always produces the same output unless something changes. So, the mining program sends block information with a zero as the first nonce through the hashing function. If that number is wrong, the nonce is increased by a value of one, and the hash is generated again. This continues until a hash with a value less than the target hash is generated.

Here are some examples of hashes and the criteria for whether they would lead to success for the miner:

Hash Example

So, if you were to hash "Hello World!" using an online SHA256 generator, you might get:

7f83b1657ff1fc53b92dc18148a1d65dfc2d4b1fa3d677284addd200126d9069

Add a digit to the end, like "Hello World!0" and rehash it. You might get:

e59f8bdf1305e382a4919ccefd613d3eebae612aa4c443f3af2d65663de3b075

Then, increase the number by one—"Hello World!1" and rehash it. You might get:

9e2be792bcd092bd5ab7bdac7bda1ae5d0db9f6d052a3c819615900c7c06e9be

This is mining, but it's done automatically by the mining program. It takes trillions of attempts for the network of miners to find the solution.

The Mining of Block 490163

The screenshot below, taken from the site Blockchain.info, might help you put all this information together at a glance. You are looking at a summary of everything that happened when block No. 490163 was mined.

The nonce that generated the winning hash was 731511405 (remember, the nonce starts at zero and increases by one every attempt, and rolls over using the extra nonce as an additional counter—there were likely trillions more attempts made). The target hash is shown on top. The entry of AntPool in the "Relayed by" field refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools.

As you see here, the contribution to the Bitcoin community is that the pool confirmed 1,768 transactions for this block. If you would like to see all 1,768 transactions for this block, go to this page and look through the "Transactions" section.

You'll also notice the difficulty level for this block. The Bitcoin network aims to produce one block every 10 minutes or so. The system is designed to evaluate and adjust the mining difficulty every 2,016 blocks or roughly every two weeks (based on the number of participants). This doesn't always result in a block time of 10 minutes, but it's close.

The mining difficulty number represents 2,016 divided by the average time it took to mine one block in the last period, multiplied by the old difficulty level, or:

= Old difficulty x ( 2,016 ÷ average time to mine in the last period )

The lowest difficulty level is 1.0. The higher the number, the more difficult the solution is to find. The difficulty level on Dec. 5, 2024 (measured on December 1) was 102.89 trillion. You might see this published as 102.89T.

Why Bitcoin Needs Miners

Blockchain mining is the computational work that network nodes undertake to validate the information contained in blocks. So, in reality, miners are essentially getting paid for their work as auditors. They are conducting the first verification of Bitcoin (BTC) transactions, opening a new block, and being rewarded for their work.

Why Mine Bitcoin?

One of the primary reasons people invest time and money in mining is for the reward of bitcoins, which, over time, have become very valuable. For example, on Dec. 5, 2024, bitcoin's price topped $100,000 for the first time, closing at more than $101,000 on Coinbase. The reward at the time was 3.125 bitcoin. At the close of trading that day, that reward was worth about $315,625.

The rewards for Bitcoin mining are cut in half every four years. When first mined in 2009, one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC. On May 11, 2020, the reward was halved again to 6.25 BTC. The reward halved again in April 2024 to 3.125 BTC.

Due to the halving process and increasing prices, miners want to receive as many bitcoins as possible because the supply of new coins is slowly dwindling. Sometime around 2140, no more new bitcoins will be created.

The competitive incentive to mine will disappear, with only the transaction fees remaining as a reason to participate in Bitcoin's network. Some miners might still participate as a way to take part in a decentralized currency, but it's likely that without the reward, most will not want to mine. That is, unless the fees increase enough to make it worth their while.

How Long Does It Take To Mine 1 Bitcoin?

The Bitcoin reward is cut in half about every four years in an event called "the halving," or when the blockchain has processed another 210,000 blocks. The time varies slightly depending on network participation and hashrate.

The latest halving occurred in April 2024, bringing the reward down to 3.125 every 10 minutes. In 2028, 1.5625 bitcoin will be mined every 10 minutes. In 2032, it will take 10 minutes to mine 0.78125 bitcoin. With these figures in mind, you can see that there is no way to specifically mine one bitcoin.

However, you can use average block times and block rewards to calculate the blockchain's creation rate. For example, on Dec. 5, 2024, the blockchain's average block time was 9.796 minutes, and the reward was 3.125 bitcoins. So, the formula would be:

Block Time ÷ Block Reward = Average Rate for 1 BTC

So, the rate at which the blockchain created 1 BTC on that day was:

9.796 minutes ÷ 3.125 BTC = 3.13 minutes

The rate will change as the blockchain's average block time creation changes due to network hashrate.

What You Need To Mine Bitcoin

The majority of the Bitcoin network mining capacity is owned by large mining firms and pools. It is still possible to participate in Bitcoin mining with a regular at-home personal computer if you have one of the latest and fastest graphics processing units. However, the chances of receiving any reward by mining alone with a single GPU in your computer are minuscule. You'll need to find a mining pool (discussed below) to increase your chances.

For instance, a processing card that you can purchase for a couple of thousand dollars would represent less than 0.001% of the network's mining power. It could be a long time—if ever—before you solve a hash because it's all about how many hashes per second your machine can generate. With such a slight chance of finding the next block, you may never recoup your investment.

Mining Hardware

To be able to mine with some chance for success, you'll need to invest in one of the top graphics processing units (GPUs, often called video cards) for your computer or an application-specific integrated circuit (ASIC). Capable GPUs can range in price from about $1,000 to $2,000; ASICs can cost much more, into the tens of thousands of dollars.

Today, most of the Bitcoin mining network's hashing power is almost entirely made up of ASIC machine mining farms and pooled individual miners. ASICs are many orders of magnitude more powerful than CPUs or GPUs. They gain more hashing power and energy efficiency yearly as new chips are developed and deployed. For the right price (more than $11,000), you could mine at 335TH for 16.0 joules per tera hash (16 watts at one trillion hashes per second). There are much more affordable hardware versions, but the more you pay, the faster you can hash.

Mining Pools

Mining pools are operated by third parties and coordinate groups of miners. By working together in a pool and sharing the payouts among all participants, miners have a better chance of being rewarded than they have working alone.

Downsides of Mining 

The risks of mining are generally financial. Bitcoin mining requires that you go through all the effort and expense of purchasing hundreds or thousands of dollars worth of equipment only to have the possibility of no return on your investment.

In some jurisdictions, mining and using Bitcoin are not legal. It may be a good idea to research your country's regulatory stance and overall sentiment toward cryptocurrency before investing in mining equipment.

There are several concerns about Bitcoin mining's environmental impacts and carbon footprint. For instance, the energy required by the network is vast, approximated by some to equal the energy used by smaller countries.

Though microchip efficiency has increased dramatically for ASICs, large mining firms generate a large amount of electronic waste (e-waste) as they continually upgrade their equipment to meet the ever-growing hashing speeds needed to remain competitive. Digiconmist estimates that the amount of e-waste created annually is 39.89 kilotons.

Mining equipment also generates a lot of heat, so your cooling bill will likely increase, especially if you have one or more ASICs running 24 hours daily.

There are, however, efforts to mitigate this negative externality by seeking cleaner and green energy sources for mining operations (such as geothermal or solar sources) and utilizing carbon offset credits. Additionally, some jurisdictions have taken action to reduce Bitcoin's adverse effects on the climate and environment.

Where Is Bitcoin Mining Illegal?

Bitcoin mining is legal in many countries, but the activity is becoming more regulated due to concerns about electrical grid capability, grid capacity, and climate change. Many countries have placed temporary bans or introduced legislature that made it too costly, while others have outright banned it. Here are some of the actions a selection of countries have taken concerning Bitcoin mining:

• Paraguay: Introduced a temporary mining ban of at least six months in April 2024.
• Sweden: Introduced a 6,000% tax increase on energy used for cryptocurrency mining purposes.
• Norway: Introduced a proposal in 2024 to require data centers to apply for their intended activities, allowing the government to disprove requests for cryptocurrency mining or other unwanted data center activities.
• China: Enacted a general ban on cryptocurrency mining in 2021.
• Kazakhstan: Increased taxes on energy used for cryptocurrency mining in 2022 and in 2023, decided to only allow cryptocurrency mining when there is a surplus of energy.

The Bottom Line

Bitcoin mining serves the crucial function of validating and confirming new transactions on the Bitcoin blockchain. It is also the way that new bitcoins are introduced into the system. It is possible to mine on various hardware and machines, but to achieve profitability and to be competitive, you'll need to join a mining pool.