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What Is Bitcoin Mining? A Comprehensive Guide


By Nerly Shammah Sep 12, 2022


Bitcoin Mining



We know that explaining how Bitcoin works could get a bit complex for an average person to understand, but this guide will try to simplify things as much as possible.


What is Bitcoin Mining?


As the name implies, put simply, is the process of mining bitcoins, but if that’s too simplified, in a much more detailed definition, bitcoin mining is the process by which a miner verifies 1MB of bitcoin transactions commonly known as a block, for two reasons specifically:


● To secure the network and keep data records authentic

● To earn rewards for doing so.


Bitcoin runs on a distributed ledger technology(DLT) and so, this task is simultaneously tackled by numerous miners across different locations.


The first Bitcoin mining software was deployed on Jan 8, 2009, and the genesis block, which refers to the first Bitcoin block, was mined a day after, Jan 9, 2009. 


At Glance


● Bitcoin mining is the process by which a miner expends energy to verify bitcoin transactions, earn rewards, and secure the network.


● Bitcoin mining requires heavy hardware to process. This hardware is not cost-efficient based on many factors.


● Miners are incentivized with block rewards for verifying transactions and securing the network.


● A Graphics Processing Unit (GPU) or an Application-Specific Integrated Circuit (ASIC) is required to mine Bitcoin effectively.


● The “winner” miner gets the block rewards for verifying a block first. The chances of being the winner are based on one’s mining power relative to the total mining power of the network.


● Miners keep the network secured by ensuring that all transactions posted to the blockchain are authentic.



Understanding Bitcoin Mining


Bitcoin mining operations are driven by two things, verifying transactions thus securing the network, and also creating new bitcoins. Simply, miners mint new coins each time a new block is added to the chain. The coins minted are called coinbase coins and are paid to the miner that is first to solve the mathematical puzzle and verify the transactions in that block.


Where things get a bit confusing is what mathematical puzzle it is, how it works and why it’s necessary. Put simply, for a miner to successfully verify a block and mint/earn new coins in the process, this puzzle is put in place to make things competitive.




Bitcoin mining is the only way new bitcoins can crawl into circulation. The expansion of the supply which is capped at 21 million coins is only possible through mining. 


Considering that bitcoin is money and so being able to print new money should come with an amounted cost, this essentially keeps the network secure as proof-of-work has to be perceived for block validation to be observed and rewards issued.


A lot of things come into the picture, the cost of setting up mining rigs, and the 1MB per block which limits the verification process. 


It is a debatable topic that the block size of Bitcoin transactions was set that low to limit the minting process of Bitcoin. Bitcoin is considered an alternative to fiat currency, given its nature of appreciating in price value rather than depreciating. The concept of limited block size enhances its aim to not inflate the supply in the short term.


Why It's Necessary To Mine Bitcoin


Bitcoin runs on a distributed ledger, miners individually record transactions, there are many things that this translates to, asides from the distributed record and the profitability of mining Bitcoin, some other things fall into place.


The process of mining Bitcoin on its own really requires no math skills in a practical sense, a node handles the process, and your winning probability is based upon your computational power, your mining rigs/equipment, or hardware in literal terms.




That said, being a Bitcoin miner not only puts you in a position to earn the native cryptocurrency for verifying blocks, but it also gives you an amount of influence on the network. 


Timely Bitcoin improvement proposals(BIP) are made for its developments, so as a miner, proportional to your computing power, you have a direct influence on the network, this influence can be exercised through “voting” for or against development proposals.


How to solve Bitcoin mathematical puzzle?


As aforementioned, solving the mathematical puzzle required to verify bitcoin blocks isn’t human-knowledgebase-centric, rather, the probability of arriving at the solution to start verifying transactions and earning is based upon your computational power.

How bitcoin mining works in Theory


Every block on the Bitcoin network is accompanied by a hash, which particularly represents the block header of the previous block. For a new block to be chained to the others, a new hash that represents the previous block back has to be formed. These hashes make it difficult for a bad actor to change block data without having to re-mine previous blocks.


So basically, a block header is hashed in an attempt to get a hash that is lower or equal to the target hash that meets the network's difficulty requirement.


So when new transactions are broadcasted to nodes, they group them into blocks and then solve for the target hash by generating random "nonces" in an attempt to guess the target hash, this is known as proof-of-work(PoW), which is a required mechanism for Bitcoin consensus.


The miner that is first to arrive at it earns the block rewards and his block gets added to the chain.



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