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How Bitcoin Mining Works

It’s important to know how mining works if you’re considering getting into it. The term “mining” calls forth images of dirt-covered men crawling through tunnels in the pursuit of gold. Bitcoin mining, despite its name, could not be further from that scenario. In this article, we’ll briefly go through what mining is and how it works.

Bitcoin mining explained simply

The reason why Bitcoin mining is called that is due to a vague similarity to actual mining. The gold and the Bitcoins exist, hidden in the tunnels and on the blockchain, but it hasn’t been found and claimed by anyone yet.

What is Bitcoin mining doing?

Bitcoin mining is, in fact, very different from gold mining — although the financial incentive is the same. To mine for Bitcoin is to engage in the practice of verifying Bitcoin transactions. Although that sounds straightforward, it is a process that requires very specific, and powerful, hardware and software.

Is Bitcoin mining legal?

That depends on where you are — a topic we’ve covered in our article Is Bitcoin Legal? China, for instance, has issued a blanket ban on Bitcoin mining for private citizens because the state subsidizes their energy. Other places, like Iceland, consider it to be legal — and the people of Iceland have taken to Bitcoin mining.

bitcoin mining
Building a Bitcoin mining rig is complicated.

How to start Bitcoin mining

There are two ways to go about getting started with Bitcoin mining. You can either invest in your mining rig, or you can join a cloud mining service. Research is required to build your rig so that you can find the best hardware and software.

Bitcoin mining hardware

Your laptop won’t do the trick. You will need to invest in an ASIC (Application Specific Integrated Circuits) Bitcoin Miner, which is a piece of hardware specifically designed for Bitcoin miners. The ASIC will get very hot, which is why you’ll also need a cooler fan or a thermally regulated environment.

Bitcoin mining software

Once you’ve got your mining hardware, it’s time to install some software on it. There are a few popular options to choose from:

bitcoin mining
This is what your competition looks like in Bitcoin mining.

Is Bitcoin mining profitable?

The million dollar question (or million BTC question) is whether or not Bitcoin mining is profitable. The short answer is that it’s not as profitable as it used to be. The amount of processing power and energy it requires to produce one Bitcoin is unaffordable to most regular people. Five companies currently dominate the Bitcoin mining market:

What is Bitcoin cloud mining?

The fact that it has become so difficult for regular people to mine Bitcoin spawned the concept of cloud mining. This service allows would-be miners to pool their resources to mine. Cloud mining allows anyone with a computer to allocate part of their processing power to Bitcoin mining. Some of the most popular cloud mining companies are:

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