Originally published on October 28, 2020 and updated on October 3, 2024

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If want to acquire Bitcoin (BTC) without buying and trading, there’s an exciting, albeit tech-heavy and energy-intensive option: Bitcoin mining. While it may sound like physical mining, it’s entirely digital and requires heavy investments. 

Sounds like we’re going to do some digging, right? Let’s get started.

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Key takeaways

• Bitcoin mining is a digital process where powerful computers validate network transactions. Miners earn new Bitcoins as rewards for their work.
• Efficient Bitcoin mining requires specialized hardware like ASICs and GPUs.
• The hashrate measures mining power and determines how quickly miners validate transactions.
• Bitcoin mining consumes large amounts of electricity, leading to environmental concerns. Some mining operations are moving to countries with renewable energy sources such as Iceland to reduce their carbon footprint.
• The profitability of mining is influenced by hardware costs, electricity rates, and Bitcoin’s market value.

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What is Bitcoin mining?

Bitcoin mining is the process of validating a transaction by creating a new block in the Bitcoin blockchain. Miners try to find a “nonce” (a random number) that, when combined with the data in the block, produces a “hash” that meets certain conditions. The process involves testing billions or trillions of different nonces until they find the right one. The first miner to get the correct nonce gets to verify the blockchain transaction and is rewarded with newly minted Bitcoin.

In simple terms, Bitcoin mining is like a lottery, and brute force is used to find the right hash as fast as possible. The fastest miner gets to validate the transaction and earns the reward.

In the early days of Bitcoin—known as the “Satoshi era”— you could mine using a regular computer. Now? Not so much. Today’s mining is highly competitive, and only those with powerful machines, known as ASICs (application-specific integrated circuits), and access to cheap electricity can make a profit. But if you’re determined, let’s dive deeper into how it works.

What’s the purpose of Bitcoin mining?

Bitcoin mining has three key purposes:

Confirming transactions on the network

The interesting part about Bitcoin mining is that these transactions aren’t verified one by one. When a Bitcoin transaction is initiated, it must be verified by all miners before it can be added to the blockchain, a public ledger of all Bitcoin transactions.

Now, the question is, how long does it take to verify a transaction in the Bitcoin blockchain? With the average power usage of an ASIC miner, the entire process usually takes 10 minutes.

Securing the entire Bitcoin network

When miners add a block to the blockchain, they make the entire Bitcoin network more robust and secure. It will be complicated and nearly impossible for attackers to reverse a transaction after it’s broadcasted on the network. To reverse a transaction, attackers will have to go back to all confirmed transactions and reverse all of them—it’s practically irreversible!

Issuing new BTC

When miners confirm transactions, they receive newly created Bitcoins, known as the block reward. As of 2024, miners are rewarded with 3.125 BTC per block. Back then, miners earned 50 BTC rewards but that amount is cut in half 210,000 blocks mined (approximately every 4 years). This event, known as Bitcoin halving, affects the miners’ earnings.

Miners also earn transaction fees from users who want their transactions processed faster. As the total supply of Bitcoin approaches its limit of 21 million, transaction fees will play a bigger role in miners’ earnings over time.

Additionally, The mining process also helps keep Bitcoin decentralized. Meaning, that no single entity controls the network. Instead, many miners around the world work to maintain it. This setup makes Bitcoin valuable as a form of money that governments or banks do not control.

Are there factors that affect Bitcoin mining?

Aside from competition, several factors can make or break a Bitcoin mining operation. These are:

• Hash rate: Hashrate measures mining power in the Bitcoin network. It’s the speed at which a miner can guess numbers. Higher hash rates mean more guesses per second, increasing the chance of finding the correct hash. As more miners join the network, the overall hash rate increases, making mining more competitive. Think of it like a race where you’re constantly competing against faster and faster runners. To stay in the game, you need to upgrade your gear.
• Mining difficulty: Mining difficulty adjusts every 2,016 blocks(about every two weeks). It changes based on how fast blocks are being added. If blocks are added too quickly, the difficulty increases. If it is too slow, it decreases. This system keeps block creation stable at about one every 10 minutes. As technology improves and more miners join, the difficulty increases over time. 
• Mining hardware: Back in the day, Bitcoin mining could be done using regular computers. But those days are long gone. Today, you need specialized equipment, namely: ASICs (Application-Specific Integrated Circuits), built solely for mining. They’re super-efficient but also expensive and quickly outdated and GPUs (Graphics Processing Units), are more versatile but less efficient for Bitcoin mining. 

What are mining pools?

Think of a mining pool like a group project in school, but instead of splitting a grade, you’re splitting Bitcoin rewards. Mining pools combine the computing power of multiple miners to increase the chances of solving a block and earning a reward. When a pool wins, the reward is distributed among the participants based on their contributions.

The upside? More frequent, albeit smaller, payouts. The downside? You’ll have to pay pool fees, and you have less control over your mining operations.

What’s the difference between a Bitcoin mining farm and a Bitcoin mining pool?

A Bitcoin mining farm is a large-scale facility with thousands of specialized computers (ASICs) dedicated to mining Bitcoin, owned and operated by a single entity. In contrast, a Bitcoin mining pool is a group of miners who combine their computational power to increase their chances of earning rewards, which are shared among participants. Mining farms are centralized and require significant capital, while mining pools allow miners to collaborate and share the rewards more frequently but in smaller amounts.

Can you mine Bitcoin on your own?

Solo mining Bitcoin is where an individual miner uses their own hardware and computational power to attempt to mine blocks independently. While rewards can be significantly higher, the chances of successfully mining a block are much lower due to the increased competition and difficulty.

What happens when all Bitcoins are mined?

Once the supply of Bitcoin reaches its cap of 21 million (expected around the year 2140), miners will no longer receive block rewards and will rely solely on transaction fees for income. This shift may change the mining landscape. Some worry it could lead to network security issues.

However, due to scarcity, Bitcoin’s value might increase, making mining profitable even without block rewards. The network may need to adapt to ensure its long-term sustainability.

Related: What happens when all Bitcoins are mined?

Bitcoin mining and energy concerns

Bitcoin mining requires massive amounts of electricity, raising questions about its environmental impact. The energy-intensive process and global scale have sparked debates about sustainability and resource allocation.

Energy consumption in mining

Bitcoin mining consumes a significant amount of energy not just to power mining rigs but to cool them too.

The energy use of Bitcoin mining is comparable to that of small countries. In 2021, Bitcoin’s annual energy consumption was estimated to be higher than that of many nations. This high energy demand has raised concerns about carbon emissions and climate change.

Critics argue that this energy could be better used elsewhere. Supporters counter that Bitcoin mining incentivizes renewable energy development. The debate continues as Bitcoin’s value and mining difficulty fluctuate.

Mining farms and location

Bitcoin mining operations often cluster in large facilities called mining farms. These farms house thousands of specialized computers working non-stop to mine Bitcoin. They require extensive cooling systems to prevent overheating.

Mining farms tend to be located in areas with cheap electricity. Historically, China dominated Bitcoin mining due to low energy costs. However, recent regulatory changes have shifted mining to other countries.

Countries with abundant renewable energy sources are becoming popular for mining. Iceland and Canada, with their geothermal and hydroelectric power, attract miners. This shift may help reduce Bitcoin’s carbon footprint over time.

Is Bitcoin mining profitable?

The profitability of Bitcoin mining depends on several factors, including the cost of hardware, electricity, and Bitcoin. The market can shift quickly, and what’s profitable today may not be tomorrow.

For instance, miners can make big profits during Bitcoin’s bull markets. But mining can become a losing game during bear markets, especially if you’re paying high electricity costs.

The legal and regulatory landscape

Bitcoin mining operates in a complex legal environment that varies across countries. Rules and restrictions differ significantly, impacting miners and the broader cryptocurrency ecosystem.

Is Bitcoin mining legal?

In most countries, Bitcoin mining is legal, though some, like China, have banned it due to concerns about energy consumption. In the U.S. and the EU, mining is permitted but regulated. Some countries tax mining or impose strict rules on energy usage.

Governments worldwide are addressing issues such as energy consumption, financial stability, money laundering, and tax evasion related to Bitcoin mining.

Regulatory concerns

Governments have several concerns about Bitcoin mining. Energy consumption is a major issue as mining requires significant electricity, raising environmental worries.

Financial stability is another key concern. Regulators worry about the impact of cryptocurrencies on traditional financial systems. They fear potential market manipulation and volatility.

Money laundering is also a significant issue. Bitcoin’s pseudo-anonymous nature makes it attractive for illegal activities, leading to stricter Know Your Customer (KYC) and Anti-Money Laundering (AML) rules for miners and exchanges.

Tax evasion is another regulatory focus. Many countries now require miners to report their earnings and pay taxes on cryptocurrency gains.

How to mine Bitcoin

With Bitcoin’s mainstream adoption, many people and institutions worldwide have become very interested in acquiring it first-hand. Because of this, the level of competition and mining difficulty on the network began to increase. But if you want to try your hand at Bitcoin mining, here are some steps you can take to get started.

Step 1. Get a secure Bitcoin wallet

First things first, you can’t start mining Bitcoin without a crypto wallet. This is where you’ll store, send, receive, and check your balance in real time. There are different types of cryptocurrency wallets available online, so be sure to get what best fits your storage and mining needs. You must also pick the most secure and reliable one—we’re talking about your money here, so it’s better to be safe than sorry.

Step 2. Get your Bitcoin mining hardware

If you’ve read some guides on how to mine Bitcoin on a PC or other digital devices, you probably know by now that risking your typical home desktop or laptop in the process is never a good option. Not only will that bring you less profit, but also higher electricity bills because of increased power consumption.

Bitcoin mining requires high-powered computers that have specialized hardware like ASIC miners. 

This type of hardware is specially designed to run the tedious processes of Bitcoin mining, which is why they cost a lot of money. BTC mining rigs’ price varies per brand, the amount of hash power or rate they can produce, and other powerful features they have. Here are some of the top ASIC miners in the market today, in no particular order.

• Antminer T19
• Antminer S19
• Antminer S19 Pro
• M30 S+
• M30 S++

There are hundreds of mining rigs available online, so don’t be limited by this list. You can scout for other mining hardware from manufacturers like Bitmain, MicroBT, and Canaan, to name a few.

Step 3. Get your Bitcoin mining software

Aside from the ASIC hardware or mining rigs, you should also get Bitcoin mining software. This will connect your Bitcoin miner to the blockchain if you’re going solo or link your hash rate to a mining pool if you’re joining a group of BTC miners.

The software you’ll need varies depending on your computer’s operating system, so make sure that your hardware and software are compatible. Here’s a list of some BTC mining software for you to check out.

• CGMiner – This is known as one of the oldest BTC mining software in the market. It runs on Mac, Linux, and Windows devices and is compatible with ASIC, FPGA (Field Programmable Gate Array), and GPU (Graphics Processing Unit) miners.
• Awesome Miner – If you have multiple mining rigs or a mining pool, Awesome Miner can be your friend. It can manage numerous mining engines and handle multiple mining rig types like FPGAs and ASICs, using one dashboard. It’s designed for Windows and Linux devices and is free for anyone to download and use.
• MultiMiner – Known for its quick-start mining features, MultiMiner is built and designed for Windows devices. It’s also compatible with mining rigs, such as GPUs, FPGAs, and ASICs.
• BFGMiner – If you’re interested in doing a little bit of software tweaking or customization, BFGMiner is one of your best options. It can mine multiple cryptocurrencies at the same time and is compatible with FPGA and ASIC miners. Additionally, it runs on Mac, Linux, and Windows devices.

Step 4. Choose your mining strategy

You have two options to run your mining operations: solo mining and pool mining. As we mentioned earlier,  Bitcoin mining is an increasingly competitive field. It’ll be more challenging to generate a new coin if you go solo since you’ll be competing with thousands of miners worldwide—including massive mining pools and huge institutions. 

That’s why a lot of miners today join Bitcoin mining pools or a group of miners to combine their computing powers. But before you join any mining pool, be sure to check the following:

• Pool size – If you’re just kickstarting your BTC mining operations, joining a big mining pool might be a good idea. While it doesn’t guarantee you big earnings right away, you’ll surely get paid more frequently.
• Minimum payout – It’s essential to know how much you’re required to mine before getting paid. Scout for pools with small minimum payouts if you’re looking into getting block rewards more often.

Pool charges – These will be automatically deducted from your reward and are usually percentage-based. Check how much fees you’ll need to pay and decide if it’ll work for you.

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