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How Does Bitcoin Mining Work?

Last Updated: January 15, 2022

Just how does bitcoin mining work? Let’s take a look.
How Does Bitcoin Mining Work
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People who mine for Bitcoin create new coins by decoding computer algorithms, as well as long, complicated puzzles.

These types of computer algorithms can’t be solved by people or individuals with low level computing power, which is why it is so difficult to mine cryptocurrency.

Miners capitalize on computational resources, mining software, and a lot of different computers in order to speed up the process, so that they can get more out of it.

Another advantage to cryptocurrency mining is increased security, as well as an established verification of transactions.

This makes sure that the currency that is being mined can be used safely and freely within the ecosystem of the blockchain.

This is kind of like a traditional bank that prints money, and then supports its value.

A GPU, CPU or ASIC is needed to mine cryptocurrency. You also have to be the first to mine the token, and you have to invest in high-grade computers that are going to have really good performance so that you can stay competitive.

You are also supposed to be able to guess the cryptocurrency coin’s hash, by trying a number of different hashes.

A hash is just a long number, which is similar to trying a number of keys in one lock.

To avoid devaluation and inflation, Bitcoin is going to cut the value in half when it comes to its miners occasionally.

So far in the history of Bitcoin, there have been three halvings, and the last one was in May 2020.

Doing it like this increases the value of the cryptocurrency, so that payments are steady.

Main Kinds of Mining

There are two main popular types of mining, proof of work, which is used to mine Bitcoin and Ethereum and proof of stake, which is used to mine Dash and Stellar.

The maximum supply of Bitcoin in the world is 21 million, but there are some currencies out there that can be mined indefinitely.

Proof of Work

Proof of work is the method that is used when a computer solves complex algorithms.

When it results in a match, others are going to confirm that it is valid, and the user that mines the block gets to keep the coins.

The essential part here is who can be the first to figure out the hash.

Proof of Stake

With proof of stake, the creator of a new block is chosen by the network beforehand based on that person’s share of the coins.

As an example, if someone only has 0.5% of the complete supply of a cryptocurrency, then they are only able to mine 0.5% of the blocks.

A number of different Altcoins make the most of this method, which has been developed as an alternative to the original proof of work algorithm.

This means that those who have more cryptocurrency coins are going to get more mining power. It is slightly more energy efficient than proof of work.

Where are the Mining Centers Located?

The most popular country for cryptocurrency mining is China, who’s responsible for as much as half of the complete mining in the world every month.

The other half is shared between America, Russia, Germany, Ireland, Malaysia, Kazakhstan, Iran, and Canada.

When mining for cryptocurrency, you need to think about things like legislation, temperature, hardware availability, and electricity prices.

These factors can influence the cost of mining, and the efficiency of it.

Because it is very hot in North Africa and Australia, computers might not work as efficiently, which means that they are going to be very expensive to maintain.

The other thing to think about is legislation. Legislation is complex, because most states require a license for people to mine cryptocurrency.

There are also other countries out there that have clamped down on mining cryptocurrency in general.

Electricity is cheaper in China, America, and Canada compared to Germany.

This helps explain the mining distribution of users, because the cost of mining around the world varies depending on where you are.

How Much Can You Make from Mining?

cryptocurrency mining is China

Again, this is going to depend completely on the cost of the computer, electricity, the cost of the cryptocurrency coin, and what your reward is for each block.

Advanced computers are going to cost more in Europe, because there are fewer miners there.

The computer machinery that you need can set you back anywhere between a few $100, to tens of thousands.

You also need to think about other things like the price of electricity, the price of energy, and the reward for the cryptocurrency block.

Mining for cryptocurrency is going to become profitable if you scale your mining, or you work with a team of miners, so that you can split the cost of the electricity.

The other thing to think about is that the computers are going to be very loud, which means that you can’t do this at home.

It could be argued that mining was always intended for bigger profits, and bigger investments.

Another important factor to consider is network capacity, as well as the cost of maintaining the mining farm, including buying a cooling device for all the computers that you are using.

The Best Exchanges for Bitcoin

Now that we have talked all about mining for Bitcoin, how it works, and what you will need if you want to embark on a career of mining Bitcoin, let’s take a look at the most popular exchanges in the world right now for purchasing and selling Bitcoin.

eToro

eToro

eToro is a sophisticated cryptocurrency exchange that can help you trade with confidence, and they say that they are actually one of the world’s biggest social trading platforms.

👉 Get Started with eToro

They also talk about how they have more than 20 million people using their services, and the best part is that you can invest in their cryptocurrencies without having to pay a commission.

If you are someone who is new to trading, then you can replicate trading strategies from some of their top-performing traders, and if you’re wanting to trade stocks as well, they have this as an option.

Pionex

Pionex

Pionex is one of the most popular exchanges in the world right now to purchase Bitcoin from, because not only are they free for you to use, but there is no minimum deposit.

You might roll your eyes when you hear the word free but trust us when we say that they really are free, and they’re going to make your life a whole lot easier.

If you want to be able to conduct trades through Bitcoin using a bot, they have 16 free bots that they have attached to their software and system, that you can access as soon as you share your email address with them.

We also love that they have a really high level of customer support, which means that they are going to be around for their clients for a long time to come and aren’t just going to drop the ball as soon as you sign up with them.

Of course, you can trade other major cryptocurrencies on this platform as well, including Ethereum.

Binance

Binance

Binance is one of the best cryptocurrency exchanges in the industry to purchase Bitcoin and other cryptocurrencies because you can purchase and sell your cryptocurrencies within minutes, and they are actually one of the world’s biggest exchanges.

Another massive advantage to this cryptocurrency exchange is that they have an app, so that you can download it onto your smartphone, and take it with you.

Their support team is really active, and is available whenever you need them, and they also have a community on their website, as well as their blog, so you can tap into both, and learn a lot more about trading in general.

Uphold

Uphold

Uphold is another great exchange option if you’re looking to trade your cryptocurrency, but the best part is that if you also like trading traditional currency as well, they can help you with this.

You can trade between precious metals, cryptocurrencies, and national currencies, and they say that to get started, all they need is your email address.

They support 27 different national currencies, as well as 15 American stocks, and four precious metals.

They allow for automated trading, and they believe that they offer their clients a more versatile home for their financial life, so that you can do everything online, and stay away from the bank if you really want to.

Final Thoughts

Mining for Bitcoin is more difficult than you might think, which is why there aren’t many people out there doing it.

As you can see, there are different rules for Bitcoin mining depending on where you are located in the world, and you’ve also got to think about the expense of it.

If you plan on doing some serious Bitcoin mining, it is ultimately going to cost you a lot of money, and you’ve got to be pretty knowledgeable on the entire process.

Sometimes, it’s easier to just sign up for an exchange that can help you purchase and sell your Bitcoin so that you can make your trades straight away, and you don’t have to wait to mine your Bitcoin to make a profit.

Written by Thomas McGovern

I have over a decade of experience with blockchain and cryptography. I also hold a master’s degree in Mathematics.