With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.
Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions or blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.What is Bitcoin Mining?Visualize and Download High-Resolution InfographicWhat is the Blockchain?Bitcoin mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function.The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins.This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.What is Proof of Work?A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.What is Bitcoin Mining Difficulty?The Computationally-Difficult ProblemBitcoin mining a block is difficult because the SHA-256 hash of a block's header must be lower than or equal to the target in order for the block to be accepted by the network.This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.The Bitcoin Network Difficulty MetricThe Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.The Block RewardWhen a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply.Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.
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Bitcoin mining is a costly hobby without guaranteed results. To be competitive, you will need to invest in several expensive machines, run them 24/7, and pay high electricity bills. Even then, there is no guarantee that you will earn any bitcoin.
Bitcoin mining's energy usage has been criticized by climate activists as proof that the cryptocurrency is not environmentally friendly. The Bitcoin mining process is estimated to consume as much electricity as entire countries. As the world pivots toward renewable energy sources, bitcoin mining is expected to become greener.
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 LiveSearchSearchPlease 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. be457b7860
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