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Most people think of crypto mining simply as a way of creating new coins. Crypto mining, however, also involves validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. Most importantly, crypto mining prevents the double-spending of digital currency on a distributed network.

Meanwhile, new coins are generated to reward miners for their work in securing the network. Since distributed ledgers lack a centralized authority, the mining process is crucial for validating transactions. Miners are, therefore, incentivized to secure the network by participating in the transaction validation process that increases their chances of winning newly minted coins.

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In order to ensure that only verified crypto miners can mine and validate transactions, a proof-of-work (PoW) consensus protocol has been put into place. PoW also secures the network from any external attacks.

Crypto mining is somewhat similar to mining precious metals. While miners of precious metals will unearth gold, silver, or diamonds, crypto miners will trigger the release of new coins into circulation. For miners to be rewarded with new coins, they need to deploy machines that solve complex mathematical equations in the form of cryptographic hashes. A hash is a truncated digital signature of a chunk of data. Hashes are generated to secure data transferred on a public network. Miners compete with their peers to zero in on a hash value generated by a crypto coin transaction, and the first miner to crack the code gets to add the block to the ledger and receive the reward.

Over time, as miners deploy more advanced machines to solve PoW, the difficulty of equations on the network increases. At the same time, competition among miners rises, increasing the scarcity of cryptocurrency as a result.

Today, mining cryptocurrencies requires a specialized GPU or an application-specific integrated circuit (ASIC) miner. In addition, the GPUs in the mining rig must be connected to a reliable internet connection at all times. Each crypto miner is also required to be a member of an online crypto mining pool as well.

GPU mining is another method of mining cryptocurrencies. It maximizes computational power by bringing together a set of GPUs under one mining rig. For GPU mining, a motherboard and cooling system is required for the rig.

Similarly, ASIC mining is yet another method of mining cryptocurrencies. Unlike GPU miners, ASIC miners are specifically designed to mine cryptocurrencies, so they produce more cryptocurrency units than GPUs. However, they are expensive, meaning that, as mining difficulty increases, they quickly become obsolete.

Given the ever-increasing costs of GPU and ASIC mining, cloud mining is becoming increasingly popular. Cloud mining allows individual miners to leverage the power of major corporations and dedicated crypto-mining facilities.

Individual crypto miners can identify both free and paid cloud mining hosts online and rent a mining rig for a specific amount of time. This method is the most hands-free way to mine cryptocurrencies.

Mining pools allow miners to combine their computational resources in order to increase their chances of finding and mining blocks on a blockchain. If a mining pool succeeds, the reward is distributed across the mining pool, in proportion to the amount of resources that each miner contributed to the pool.

Most crypto mining applications come with a mining pool; however, crypto enthusiasts now also join together online to create their own mining pools. Because some pools earn more rewards than others, miners are free to change pools whenever they need to.

Miners consider official crypto mining pools more reliable since they receive frequent upgrades by their host companies, as well as regular technical support. The best place to find mining pools is CryptoCompare, where miners can compare different mining pools based on their reliability, profitability, and the coin that they want to mine.

For instance, the average ASIC miner will use about 72 terawatts of power to create a bitcoin in about ten minutes. These figures continue to change as technology advances and mining difficulty increases.

Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States appear friendly to crypto mining.

Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency.

For aspiring crypto miners, curiosity and a strong desire to learn are simply a must. The crypto mining space is constantly changing as new technologies emerge. The professional miners who receive the best rewards are constantly studying the space and optimizing their mining strategies to improve their performance.

Because they are entirely digital records, there is a risk of copying, counterfeiting, or double-spending the same coin more than once. Mining solves these problems by making it extremely expensive and resource-intensive to try to do one of these things or otherwise "hack" the network. Indeed, joining the network as a miner is far more cost-effective than trying to undermine it."}},{"@type": "Question","name": "How Does Mining Confirm Transactions?","acceptedAnswer": {"@type": "Answer","text": "In addition to introducing new BTC into circulation, mining serves the crucial role of confirming and validating new transactions on the Bitcoin blockchain. This is important because there is no central authority such as a bank, court, government, or other third party determining which transactions are valid and which are not. Instead, the mining process achieves a decentralized consensus through proof of work (PoW)."}},{"@type": "Question","name": "Why Does Mining Use So Much Electricity?","acceptedAnswer": {"@type": "Answer","text": "In the early days of Bitcoin, anybody could simply run a mining program from their PC or laptop. But as the network grew and more people became interested in mining, the algorithm became more difficult. This is because the code for Bitcoin targets finding a new block once every 10 minutes, on average. If more miners are involved, the chances that somebody will solve the hash quicker increases, so the difficulty increases to restore that 10-minute goal. Now imagine if thousands, or even millions more times that mining power joins the network. That's a lot of new machines consuming energy."}},{"@type": "Question","name": "Is Bitcoin Mining Legal?","acceptedAnswer": {"@type": "Answer","text": "The legality of Bitcoin mining depends entirely on your geographic location. The concept of Bitcoin can threaten the dominance of fiat currencies and government control over the financial markets. For this reason, Bitcoin is completely illegal in certain countries, such as Tunisia, Algeria, Nepal, Morocco, Bangladesh, and China. Bitcoin ownership and mining are legal in more countries than not."}},{"@type": "Question","name": "Does Crypto Mining Damage Your GPU/Computer?","acceptedAnswer": {"@type": "Answer","text": "Because blockchain mining is very resource-intensive, it can put a large strain on your GPU or other mining hardware. In fact, it is not unheard of for GPUs to wear out or for mining rigs to burst into flames. But if you keep your rigs clean and cool with a surge protector, they're generally safe."}},{"@type": "Question","name": "Can You Mine Bitcoin on Your iPhone?","acceptedAnswer": {"@type": "Answer","text": "No. Bitcoin mining today requires vast amounts of computing power and electricity to be competitive. Running a miner on a mobile device, even if it is part of a mining pool, will likely result in no earnings."}}]}]}] Investing Stocks Bonds ETFs Options and Derivatives Commodities Trading FinTech and Automated Investing Brokers Fundamental Analysis Technical Analysis Markets View All Simulator Login / Portfolio Trade Research My Games Leaderboard Banking Savings Accounts Certificates of Deposit (CDs) Money Market Accounts Checking Accounts View All Personal Finance Budgeting and Saving Personal Loans Insurance Mortgages Credit and Debt Student Loans Taxes Credit Cards Financial Literacy Retirement View All News Markets Companies Earnings CD Rates Mortgage Rates Economy Government Crypto ETFs Personal Finance View All Reviews Best Online Brokers Best Savings Rates Best CD Rates Best Life Insurance Best Personal Loans Best Mortgage Rates Best Money Market Accounts Best Auto Loan Rates Best Credit Repair Companies Best Credit Cards View All Academy Investing for Beginners Trading for Beginners Become a Day Trader Technical Analysis All Investing Courses All Trading Courses View All TradeSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.InvestingInvesting Stocks Bonds ETFs Options and Derivatives Commodities Trading FinTech and Automated Investing Brokers Fundamental Analysis Technical Analysis Markets View All SimulatorSimulator Login / Portfolio Trade Research My Games Leaderboard BankingBanking Savings Accounts Certificates of Deposit (CDs) Money Market Accounts Checking Accounts View All Personal FinancePersonal Finance Budgeting and Saving Personal Loans Insurance Mortgages Credit and Debt Student Loans Taxes Credit Cards Financial Literacy Retirement View All NewsNews Markets Companies Earnings CD Rates Mortgage Rates Economy Government Crypto ETFs Personal Finance View All ReviewsReviews Best Online Brokers Best Savings Rates Best CD Rates Best Life Insurance Best Personal Loans Best Mortgage Rates Best Money Market Accounts Best Auto Loan Rates Best Credit Repair Companies Best Credit Cards View All AcademyAcademy Investing for Beginners Trading for Beginners Become a Day Trader Technical Analysis All Investing Courses All Trading Courses View All EconomyEconomy Government and Policy Monetary Policy Fiscal Policy Economics View All Financial Terms Newsletter About Us Follow Us Table of ContentsExpandTable of ContentsWhat Is Bitcoin Mining?Why Bitcoin Needs MinersWhy Mine Bitcoin?How Much Is the Reward?What You Need to Mine BitcoinsThe Mining ProcessWhat Are Mining Pools?Downsides of MiningFAQsThe Bottom LineCryptocurrencyBitcoinHow Does Bitcoin Mining Work?ByEuny Hong Full Bio Euny Hong is the former supervising editor at Investopedia.com. She is also the author of two critically-acclaimed, published books.Learn about our editorial policiesUpdated October 18, 2023Reviewed byJeFreda R. Brown Reviewed byJeFreda R. BrownFull Bio Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.Learn about our Financial Review BoardFact checked byKirsten Rohrs Schmitt What Is Bitcoin Mining? Bitcoin mining is the process by which transactions are verified on the blockchain. It is also the way new bitcoins are entered into circulation. "Mining" is performed using hardware and software to generate a cryptographic number that matches criteria. The first miner to find the solution to the problem receives the bitcoin reward and the process begins again. 2351a5e196