What is mining in crypto?

Crypto mining is the process of using computing power to validate transactions and add new blocks to a blockchain that runs on proof of work, such as Bitcoin. Miners compete to solve a mathematical puzzle, and the first miner to find a valid solution adds the next block and receives newly minted coins plus the transaction fees in that block.

What is cryptocurrency mining?

Cryptocurrency mining is how a proof-of-work network agrees on which transactions happened, without a central authority such as a bank. Mining is the process that keeps the shared ledger honest: to change past transactions, an attacker would need more computing power than all honest miners combined.

Not every cryptocurrency is mined. Bitcoin, Litecoin and Dogecoin use proof of work. Ethereum stopped mining in September 2022 and now uses proof of stake, where validators lock up coins instead of burning electricity.

Mining is also different from buying crypto. When you buy bitcoin on an exchange, you get existing coins from another seller. Miners create new coins as a reward for doing the network’s work.

How does the bitcoin mining process work?

The bitcoin mining process repeats roughly every ten minutes, in four steps:

1. Collect transactions. Pending transactions wait in a queue called the mempool. A miner picks transactions, usually those paying the highest transaction fees, and builds a candidate block.
2. Link to the previous block. The candidate block includes a fingerprint (hash) of the previous block, which is what chains blocks together.
3. Guess the number. The miner runs the block through the SHA-256 hash function again and again, changing a small number called the nonce each time, until the result falls below a target set by the network.
4. Broadcast and verify. When a miner finds a valid hash, it broadcasts the new block. Other nodes check it in milliseconds, add the block to the blockchain, and all miners start on the next block.

There is no shortcut: finding a valid hash is pure trial and error, which is why miners compete with raw computing power.

Proof of work and mining difficulty

Proof of work means the block itself proves that energy was spent to create it. To keep blocks coming roughly every ten minutes, the Bitcoin network adjusts its mining difficulty every 2,016 blocks, about every two weeks. When more miners join and the network’s total mining capacity (its hash rate) rises, the puzzle gets harder. When miners leave, it gets easier.

What do bitcoin miners do for the network?

Bitcoin miners do three jobs at once. They check that every transaction follows the rules, they prevent anyone from spending the same coins twice, and they make the history of confirmed transactions extremely expensive to rewrite. In return, miners are rewarded with new bitcoin and fees.

Mining hardware: from CPUs to ASIC miners

Mining hardware has changed a lot since 2009:

• CPUs. In Bitcoin’s first years, people mined on ordinary computer processors.
• Graphics processing units (GPUs). Gaming cards offered far more processing power and became popular for mining many coins.
• ASIC miners. Application specific integrated circuits are chips built for one job only, such as SHA-256 hashing. Today ASIC miners dominate bitcoin mining because nothing else comes close in efficiency.

Hardware is judged on hash power (terahashes per second) and efficiency (joules per terahash). A modern ASIC miner can draw around 3,000 watts or more, produces significant heat and is about as loud as a vacuum cleaner, so it needs cooling systems and a space away from living areas.

Ways to mine: pools, solo mining and cloud mining

There are three main ways to take part:

• Mining pool. Individual miners combine their computing power and share the rewards in proportion to the work they contribute. Almost all small miners use a pool, because steady small payouts beat waiting years for a block.
• Solo mining. You keep the full block reward if you find a block, but with one machine the odds are tiny.
• Cloud mining. You rent mining power from a company. Many cloud mining offers promise fixed daily returns and turn out to be scams; treat any promise of a fixed yield as a red flag.

The block reward and transaction fees

Mining rewards have two parts: the block reward (new coins) and the transaction fees users pay. Since the halving in April 2024, the block reward is 3.125 BTC per block. Every 210,000 blocks, about every four years, the halving cuts it in half again. Bitcoin’s supply is capped at 21 million, so once no more new bitcoins are created, miners will rely on fees alone.

Is bitcoin mining profitable?

Whether bitcoin mining is profitable depends on four things: the bitcoin price, network difficulty, your hardware costs and your electricity cost. Revenue falls whenever more miners join or the price drops, while costs stay the same.

Electricity cost: a worked example

Say a miner draws 3,000 watts and runs 24 hours a day, and your electricity costs €0.30 per kWh (check your own contract):

• Daily use: 3 kW × 24 hours = 72 kWh
• Daily cost: 72 × €0.30 = €21.60
• Monthly cost (30 days): €21.60 × 30 = €648

Add the hardware costs of the machine itself, and you need to earn more than that just to break even. Large mining operations use cheap electricity, often from hydro or surplus power, and buy hardware in bulk. That is why mining profitability at home in most of Europe is hard to reach. Use a current profitability calculator before spending money, and remember the result changes every day.

If you still want to try

To start crypto mining at home you need a miner for the coin you choose, a stable power supply, a reliable internet connection, a mining pool account and your own wallet address for payouts. Check your electricity contract, your home insurance and your local tax rules first. Treat it as a hobby with running costs, not as an investment that pays for itself.

Why crypto mining matters to you

Even if you never mine, crypto mining work affects you. It sets the network fees you pay when you send bitcoin, and its energy use is part of the debate around crypto. Critics point to electricity consumption and carbon emissions where miners use fossil fuels; supporters point to mining on renewable or otherwise wasted energy.

In the EU, MiCA does not ban proof of work, but licensed crypto providers must disclose the main climate and environmental impacts of the consensus mechanism behind each coin they offer. Mining income can also be taxable, and the rules differ per country. In the Netherlands, for example, the coins you hold on 1 January fall under box 3 like other investments.

For most people, buying a small amount of bitcoin on a licensed exchange is simpler and cheaper than mining it. Our list of crypto exchanges for beginners only includes platforms licensed under MiCA. Crypto is volatile, and you can lose all the money you put in.

Related terms

• Proof of work
• Hash Rate
• Halving
• Difficulty
• Block