Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion crypto wallet vs exchange of the author, but not necessarily those of VanEck. Crypto mining can occur anywhere in the world, but the majority, or about 60%, of it currently happens in China, while about 10% of it happens in the U.S.

  • ASIC computers comprise the majority of mining power on most blockchains, including Bitcoin.
  • In a way, there’s an arms race going on,” said John Patrick Lee, product manager at VanEck, of mining today.
  • Bitcoin mining – the process in which a bitcoin is awarded to a computer that solves a complex series of algorithms – is a deeply energy-intensive process.
  • There are numerous cryptocurrency exchanges online where people can do this but transactions can also be carried out in person or over any communications platform, allowing even small businesses to accept bitcoin.
  • During my August visit, Compute North shut down the internet connection to all its miners, pausing their efforts for several hours.
  • It’s important to remember the impact that taxes can have on Bitcoin mining.

But again, that is not a trend the company can afford to bet on. These dynamics have resulted in a race among miners to amass the fastest, most energy-efficient chips.


It’s ultimately an exchange of electricity for coins, mediated by a whole lot of computing power. The probability of an individual miner winning the lottery depends entirely on the speed at which that miner can generate new hashes relative to the speed of all other miners combined. In this way, the lottery is more like a raffle, where the more tickets you buy in comparison to everyone else makes it more likely that your name will be pulled out of the hat. Bitcoin is one of the most popular types of cryptocurrencies, which are digital mediums of exchange that exist solely online.

These devices can only mine Bitcoin, but they are highly efficient in doing so. In fact, they are so efficient, that their introduction around 2013 made all other types of calculating mining devices obsolete almost overnight.

what is bitcoin mining

Less than a month later, in August 2017, a group of miners and developers initiated a hard fork, leaving the Bitcoin network to create a new currency using the same codebase as Bitcoin. Although this group agreed with the need for a solution to scaling, they worried that adopting SegWit technology would not fully address the scaling problem. As the network of Bitcoin users continues to grow, however, the number of transactions made in 10 minutes will eventually exceed the number of transactions that can be processed in 10 minutes. At that point, waiting times for transactions will begin and continue to get longer, unless a change is made to the Bitcoin protocol. The cryptocurrency can be used for any transaction where the business can accept it.

History Of Bitcoin Mining

If the miners band together and choose not to deploy an update from Bitcoin’s core developers, they can stall transactions or even cause the currency to split into competing versions. But due to the volatility of bitcoin, it’s impossible to predict the annual revenue of a mining farm. On my flight from China back to the United States, the price of bitcoin crashed 25 percent, from $2,400 to $1,800. In no time at all the operation I visited was bringing in $50,000 less per day. While heat is definitely an issue for the mining farm in Ordos, the electricity there is dirt cheap, only 4 U.S. cents per kilowatt-hour, with government subsidies. That’s about one-fifth of the average price in the United Kingdom.

what is bitcoin mining

A decentralized system, on the other hand , operates using a network of separately owned, operated and maintained devices. They lend their resources to create this decentralized network and share the responsibility of verifying transactions, updating and maintaining redundant versions of the ledger simultaneously.

Choice Of Hardware

Think of it as a long public record that functions almost like a long running receipt. Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin. Today, bitcoin mining is so competitive that it can only be done profitably with the most up-to-date ASICs.

what is bitcoin mining

A hash is generated by combining the header data from the previous blockchain block with a nonce. In a nutshell, crypto miners verify the legitimacy of transactions in order to reap the rewards of their work in the form of cryptocurrencies. To understand how most cryptocurrency mining works in a more technical sense, you first need to understand the technologies and processes behind it. This includes understanding what blockchain is and how it works. In a nutshell, cryptocurrency mining is a term that refers to the process of gathering cryptocurrency as a reward for work that you complete. (This is known as Bitcoin mining when talking about mining Bitcoins specifically.) But why do people crypto mine? For others, it’s about gaining greater financial freedom without governments or banks butting in.

The first miner to solve the next block broadcasts it to the network and if proven correct is added to the blockchain. That miner is then rewarded with an amount of newly created bitcoin. Now that over 18.5m bitcoin have been mined, the average computer can no longer mine bitcoins. Instead, mining now requires special computer equipment that can handle the intense processing power needed to get bitcoin today. And, of course, these special computers need a lot of electricity to run. Instead, it offers what it calls a “colocation” service, housing and operating machines for a variety of clients who are looking to strike cryptocurrency gold.

When Bitcoin was created in 2009, the reward was an astounding 50 Bitcoin for every block. Validating and recording all the new transactions that come across the network is not an easy task. It’s the core responsibility of companies like Bank of America and Venmo – so convincing random people to cooperate and work effectively is going to take a Bitcoin carefully planned incentive. Hashing is the processes of compressing data into an irreversible jumble of bits. Each set of data has a unique hash; changing the data will require computing a new hash. Some governments are as wary of Bitcoin as environmentalists are. If they were to limit mining, that could theoretically reduce the energy strain.

This process involves validating data blocks and adding transaction records to a public record known as a blockchain. The mathematical puzzle What is Ethereum takes a gigantic amount of calculations to solve and ensures that miners spend time and resources, thus providing “proof-of-work” .


Here are the basics on how Bitcoin mining works and some key risks to be aware of. The Bitcoin network is currently processing just under four transactions per second as of August 2020, with transactions logged in the blockchain every 10 minutes. That’s because the U.S. dollar is backed by a central bank of the U.S., called the Federal Reserve. In addition to a host of other responsibilities, the Federal Reserve regulates the production of new money, and the federal government prosecutes the use of counterfeit currency.

Investing directly in cryptocurrencies isn’t for everyone, given how volatile the market is, but investing in miners and other infrastructure can be another way in. The low cost of renewable energy is one reason why there is so much crypto mining in China. During what is bitcoin mining China’s rainy season, hydroelectric dams produce excess energy, and energy prices drop. That’s when miners connect their warehouses of servers to hydroelectric power sources. When the rainy season ends, miners switch back to coal or whatever else is cheapest.

And the demand for faster equipment has spawned a new industry devoted entirely to the computational needs of Bitcoin miners. Until late 2013, generic graphics cards and field-programmable gate arrays were powerful enough to put you in the race.

what is bitcoin mining

Part of this is because they’re limited in terms of supply, maxing out at a total of 21,000,000, and there are already 18,512,200 BTC that have been mined. You may be wondering what types of cryptocurrencies are out there.

How Bitcoin Mining Works

Globally, estimates of Bitcoin’s use of renewables range from about 40 percent to almost 75 percent. But in general, experts say, using renewable energy to power Bitcoin mining means it won’t be available to power a home, a factory or an electric car. The winner of the guessing game validates a standard “block” of Bitcoin transactions, and is rewarded for doing so with 6.25 newly minted Bitcoins, each worth about $50,000. That’s why Bitcoin miners now have warehouses packed with powerful computers, racing at top speed to guess big numbers and using tremendous quantities of energy in the process. But that transaction, or really any exchange of Bitcoin, must first be validated by the Bitcoin network. In the simplest terms, this is the process by which the seller can be assured that the Bitcoins he or she is receiving are real.