What Is Bitcoin Mining

What Is Bitcoin Mining?

Have you ever wondered “What is Bitcoin mining?” If so, you’re not alone. Many people understand that the mining process created Bitcoins. However, not many people know what it is and how it actually works.

Let’s take a closer look.

What Is Bitcoin Mining?

Bitcoin mining is a process that confirms Bitcoin transactions. It also works to record them on a distributed ledger. In fact, it is the most important procedure in the whole Bitcoin network.

This is because it ensures that everyone is acting accordingly, secures the system, and successfully introduces new Bitcoins into circulation. However, no mining would be able to go ahead without Bitcoin miners. Miners all over the world work to keep the network decentralized.

They do this by deploying their electricity and hardware to participate in the system. The miners recieve transaction fees as well as freshly minted Bitcoins. These rewards help to incentivize the miners to do the work and cover any of their expenses.

Although this article is simplifying the process, this system of incentives makes up the entirety of the Bitcoin network.

How Does Bitcoin Mining Work?

In the simplest way possible, Bitcoin mining works like this:

  • Firstly, miners set up their hardware in order to verify the Bitcoin network transactions.
  • Verified transactions are grouped into a 1 MB size block every 10 minutes.
  • All network computers have to complete a complicated cryptographic puzzle in order to add a new block to the Bitcoin blockchain.
  • The computer is able to finish the puzzle first and then adds the block.
  • The computer that finishes first is given Bitcoin as a reward.

As of now, once a puzzle is solved with a new block added, the miner receives a “payment” of 12.5 Bitcoins. However, over time, the price is decreasing and shrinking by half every 210,000 blocks. In fact, the very first miners were able to earn roughly 50 Bitcoins per block.

Though, in 2020, this dropped to 6.25 Bitcoins. Remember the limit of Bitcoins is 21,000,000. The amount will gradually decrease until every single Bitcoin is mined. Bitcoin mining can be a very profitable endeavor.

This is especially true when Bitcoin appreciates in value. Bitcoin miners get several other incentives over time that are highly favorable. However, they may not receive any reward at all sometimes.

This is because of the fact that only the first miner to successfully solve the puzzle is able to collect the prize. This system then encourages miners to form joint mining rigs where members are able to share the same block reward. In turn, this increases their profitability.

In 2025, roughly 95% of Bitcoins will be mined. The rest will likely enter the market by the time the year 2140 comes around. After that time, miners will only get a transaction fee as a reward.

Though it is thought that the reward will be enough to keep the network going.

Is Bitcoin Mining Profitable?

You’re likely asking yourself is bitcoin mining still profitable? Absolutely! While most bitcoin miners do not earn the same number of bitcoin per puzzle solved as in the old days, they can still earn a significant amount of money handling these equations. We’re talking about tens of thousands of dollars in bitcoin for every puzzle solved, in some cases.

For that level of profit, you’ll likely want to track down a bitcoin mining profit calculator to handle the numbers. 

But know that, first and foremost, it takes startup capital to begin mining bitcoin. You need a powerful computer with a lot of CPU power to handle the mining efforts. Other than that, almost anyone can get involved with mining cryptocurrency.

If you genuinely want to see large profits soaring while mining bitcoin, the best method today is to work in teams. It’s actually quite rare that an individual makes a living solely from mining bitcoin. It’s usually an afterthought.

If you intend to take mining seriously, find other like-minded entrepreneurs with equipment to match yours, then begin mining as a workforce.

What Do You Need to Mine Bitcoin?

Mining Computers

When it comes to a bitcoin mining PC, or a bitcoin mining rig, depending on your lingo, you need something with power. You want a high-end GPU and a powerful CPU.


The electricity cost for bitcoin mining can vary wildly depending on your area and service company. On average, the bitcoin mining electricity consumption is an estimated $35,000 per bitcoin earned. 

Mining Software

You will also require software to mine bitcoin. A few software options include CGMiner, BGFMiner, Awesome Miner, and MultiMiner. Which one you use depends on personal preference, really.

Mining Pool

Lastly, it can’t hurt to explore bitcoin mining pools on the market today. A few fan favorites include Minedollars, Slush Pool, AntPool, ViaBTC, and Genesis Mining.

What are Bitcoin Mining Pools and Farms?

You may have heard the term bitcoin mining pool in the past, or heard tell of someone running a mining farm bitcoin profit center. These are very real occurrences worldwide, and yes, they are profitable.

When it comes to mining farm bitcoin profits, a mining pool comprised of countless miners in a single house or warehouse works together to rake in large amounts of cash.

The downside is that most setups like this require huge sums of money for upfront capital. We’re talking rental space, usually the size of a storage warehouse, and computer equipment for the entire workforce. Then, you have the electricity and internet bill to contend with. It’s a lot of money, and is often too difficult to accomplish these days.

Risks of Bitcoin Mining

Environmental Risks

Are there environmental risks to bitcoin mining? Of course, yes. In the United States alone, bitcoin mining CO2 emissions skyrocketed as high as 40 billion pounds.

You see, bitcoin requires an immense amount of computing power running near-constantly. As such, bitcoin mining CO2 emissions will continue to skyrocket in countries worldwide. But the crypto industry aims to reduce carbon emissions by 100% by 2030.

Price Volatility

As we all know, bitcoin volatility is quite high. We’ve seen extreme lows, down in the low thousands of dollars, and extreme highs, with bitcoin reaching nearly $70,000 USD at one point.

If crypto drops significantly, then bitcoin mining will prove ineffective and, for many, a waste of time. The bitcoin volatility we experience today will only exacerbate as crypto becomes more popular and commonplace.


For some individuals, with the right amount of time and equipment, bitcoin mining remains a profitable venture. However, these days, with everyone trying to get their hands on the cash cow, it’s less so.

In the old days, it was possible to earn as much as 50 bitcoin per ten minutes of farming. These days, it’s more common to earn 3 bitcoin for the first person to solve the blockchain puzzle.

Regulatory Risks

At the time of this writing, regulations surrounding bitcoin and bitcoin mining remain spotty or nonexistent at best in most jurisdictions. 

Most folks can mine bitcoin to their heart’s content, earning money along the way. So long as those individuals pay taxes on their earnings, the government typically does not mind how they spend their time and resources.


Did you know there is such a thing as bitcoin mining malware? It’s true, and it infects systems globally on a near-daily basis. 

Unfortunately, attackers often utilize phishing techniques to catch miners by sending out fake links to load crypto mining code onto the victim’s computer. It’s also possible to infect websites with the same malicious code. 

Taxes on Bitcoin Mining

When it comes to bitcoin mining revenue, do you need to pay a tax on bitcoin mining? Yes, unfortunately, the Internal Revenue Service, and other government financial organizations worldwide, do consider bitcoin, and all other forms of cryptocurrency, as property, which requires taxation by the government. Furthermore, they do classify bitcoin mining as work – an income you earn on the job.

But how much is the tax on bitcoin mining? It varies depending on how much bitcoin you mine. When you file your taxes, at least in the United States, you will complete Form 1099-NEC and submit it to the IRS. This form indicates that you earned profits through mining transactions.

Can You Mine Bitcoin?

It is entirely free to join the Bitcoin network and partake in mining due to the fact that Bitcoin is a fully open-source project. Though, this still doesn’t guarantee that you will turn a profit. You will need to buy specific mining gear, pay electricity bills, and factor in your time.

Mining will require you to purchase extremely powerful computers, known as ASICs, in order to make money with Bitcoin mining. You will also have to invest in storage and cooling gear. It is impossible to mine with a simple GPU or PC in home conditions due to the large competition amongst miners.

Though, you can pay a company with rigs to mine Bitcoin for you. All you need to do is sign a contract that makes you pay them for roughly two years of mining. Before striking a deal, make sure that you calculate if it is profitable enough for you.

The Bottom Line

If you feel that Bitcoin mining may be too risky for you, don’t forget that you can contribute by writing additions to existing Bitcoin code. You can also promote the project, create your own applications, and much more. After all, Bitcoin is a community-driven project.

This means that all people are welcome to learn and contribute.

Jason Conor Verified

Editor-in-Chief of the BitcoinWisdom site, I'm responsible for ensuring all the content on our website is accurate, relevant, and helpful. I am a cryptocurrency advocate and I have been following the crypto space since early 2012. I have written extensively about Bitcoin and my work has appeared in some of the most respected publications.

Latest News