How does Bitcoin mining really work?


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Mining Bitcoin is more than just the creation of Bitcoin tokens; it’s also the decentralized global system by which miners validate and secure all Bitcoin transactions — and earn Bitcoin themselves.


How does mining Bitcoin work — i.e. how does a miner actually mine Bitcoin? It goes back to the blockchain technology that Bitcoin is built on. Although the word mining implies that the reward lies in extracting a precious ore — or creating a Bitcoin — in fact miners rely on super-charged computer systems to validate blocks of digital transactions to do their crypto mining.


Once a miner has completed a certain number of calculations (1 MB) to verify a block of transactions, they may be rewarded with new Bitcoins — if they are the first to verify the block. This competitive process in turn helps to secure the system and prevent fraud. And it enables a network-wide consensus that essentially backs the validity of each Bitcoin, even without a central authority.

How Bitcoin Mining Works

Quick refresher: Unlike other traditional currencies Bitcoin isn’t overseen, issued or regulated by a central authority such as a bank. Instead, miners mint Bitcoin using blockchain — the transparent, digital public ledger that is essentially a list (or chain) of confirmed Bitcoin transactions that verifies the integrity of each transaction.


The transactions are confirmed by Bitcoin miners, who use special computer hardware to do the complex mathematical cryptography calculations required to confirm each item on the blockchain — an immense undertaking called a “proof of work” that involves literally billions of calculations.


Bitcoin miners are rewarded for this service with transaction fees and newly generated Bitcoins (and the satisfaction of knowing they are also helping to create, validate, and protect the Bitcoin universe).


Since there’s no government running Bitcoin — just a global network of computers, users, and software — how does Bitcoin mining work and generate new coins?


When a Bitcoin transaction is executed, it gets sent to miners for verification. For new transactions to be confirmed, the miners need to be included in a block along with the mathematical proof of work. The process of mining Bitcoin actually helps secure the network, and the transactions that fly across it every day. For a hacker to take control of the blockchain, to commit fraudulent charges, and to steal Bitcoin, they’d have to control over 51% of the network.


It’s an important insight into the decentralized world of mining cryptocurrency: Rewarding miners creates a competitive environment that encourages more miners to join the network. This increases the size of the network, making it harder to get more than 51% control of it, which in turn makes transactions more secure for users who are sending Bitcoins back and forth.

The question of whether Bitcoin mining is legal is still fairly complex and can vary from region to region. The short answer is that Bitcoin itself, as well as Bitcoin mining, are legal in many developed countries, including the U.S., U.K. and Japan. In general though, it’s wise to consider the use of any cryptocurrency within the context of the laws and regulations in a specific jurisdiction, as many are still in flux.


In some countries, the use of cryptocurrencies is forbidden and mining Bitcoin is illegal. In others, like China and India, the use of crypto is restricted. In Canada it’s not illegal to use cryptocurrencies, but they are not considered legal tender — which is a key distinction in how crypto is treated in the U.S. as well.


According to IRS guidelines issued in 2014, cryptocurrencies like Bitcoin are considered property, and are taxed as such. Also, if an employer compensates an employee using a cryptocurrency, the employee will get a W2 or 1099 tax form and may owe income taxes on their crypto paycheck.


Whether you’re contemplating crypto mining yourself, planning to trade crypto, or just wondering how to mine Bitcoin, it’s best to keep an eye on the news. The status of cryptocurrency mining as well as crypto’s legal standing can shift as new regulations come into play.

How Much Does a Miner Earn?

Given the speed at which technology can change and markets can shift — and new laws, policies, and trends can take hold — what miners actually earn can be tough to predict.


When miners mine Bitcoin, they compete against one another to create a hash — or 64-digit hexadecimal number — which goes into the blockchain ledger as confirmation of that Bitcoin transaction. When a computer solves the computation, that miner gets 6.25 Bitcoin — about $293,000 as of 8/31/21.


Remember, though: You have to be the first to validate a block of transactions in order to earn Bitcoin. Mining has become so competitive that some mining rigs leverage the computational muscle of thousands of high-powered computers to complete this process and ‘win’ (more on that in the next section). In short, miners have to subtract the time, effort, and considerable energy it takes to mine Bitcoin to determine their actual earnings.


Also, if you’re part of a mining pool, you would likely get only a portion of the total amount earned.


Recommended: Is Crypto Mining Still Profitable in 2021?

What Do I Need to Mine Bitcoins?

With the right equipment, nearly anyone can mine Bitcoin — in theory. The catch? As just discussed, Bitcoin mining has become highly competitive because of the potential rewards — and the complexity of the calculations and technology involved.


When Bitcoin was first announced in 2009, all miners needed was a sturdy PC and they could potentially get in the game. Things progressed quickly, though. In 2010, software was released that let miners mine with graphics processing units (GPUs), the technical name for a video card.


This was a major shift in Bitcoin mining because a single GPU was 100 times faster than a central processing unit (CPU), which was how most people were initially mining.


Then miners started getting fancy. They built computers specifically for mining Bitcoin, as well as other cryptocurrencies. These “crypto mining rigs” could feature motherboards, the main hub of a computer, that supported four to eight graphics cards.


If a single card was 100 times faster than a CPU, it’s easy to see how the average user looking to mine Bitcoin might be left in the dust by a high-powered crypto rig that featured anywhere from four to eight GPUs churning away at blockchain calculations.


From there, as is the case with many things tech, the hardware got better, faster, and more specialized. In 2013 the first Bitcoin ASIC miners hit the scene. ASIC stands for application-specific integrated circuit. These mining tools are built to do one thing — mine cryptocurrencies (including Bitcoin).


ASICs are an option if you’re thinking about getting into mining. While they’re more effective at processing Bitcoin transactions than their GPU and CPU predecessors, and they’re more energy efficient, they can come with some upfront costs, running anywhere from $1,000 to $3,000. And this doesn’t include the potentially high utility costs needed to maintain them (read: keep them cool enough to function).

Another option to consider may be a mining pool.

How Bitcoin Mining Pools Work

bitcoin mining pool is a group of users who have decided to join forces to validate Bitcoin transactions (create a new block). Users who join mining pools contribute their own CPUs, GPUs, or ASICs to a network and when rewards are paid out, they all get a share.


Joining a mining pool isn’t too difficult. The first thing a user may want to have is a Bitcoin wallet. A Bitcoin wallet is a digital or physical place where you keep your Bitcoin, private keys (codes) and addresses.


There are many options when it comes to a Bitcoin wallet, from software solutions, to sites, to wallets that come in the form of hardware in secure USB sticks. A wallet makes a good first step because it’s where shares of rewards (new Bitcoins) would be sent and stored.


A next good step to joining a mining pool may be grabbing some Bitcoin mining software. Even if you’re thinking about going it alone, this software may be key to getting started.


If you are going solo, this software will try to verify transactions with just the processing power of whatever hardware (CPU, GPU, or ASIC) that you’ve got. That said, many folks agree that the computations have gotten so complex, it’s less likely that a solo miner will create a new block on their own. If you’re joining a pool, the mining software will help you connect to your pool.


Once miners have their wallets and software situation sorted, a good next step would likely be finding a mining pool they like and joining it. Many mining pools these days are located in China because of the cheaper electricity. Some of these pools are actually companies, including F2Pool, AntPool, BTCC, and BW. While these are some of the biggest pools, there are pools based in the U.S. and Europe as well.


While pools might seem appealing to miners with less computing horsepower, there may be some things to consider before joining. Pools may charge users a fee. And miners might be paid out their shares based on the level of their contribution, which could mean that miners with fancy ASICs take home more of the rewards.


Since this is Bitcoin, there’s probably another innovation around the corner.


Cloud mining is an example — an option if you don’t want to own your own mining hardware and would rather mine with someone else’s. However, cloud mining may also come with its own costs and risks that have left some members of the Bitcoin community less than impressed with this approach to mining coins.

What’s Cloud Mining?

Much like storing data or running applications in the cloud, cloud mining is the process of paying someone else to use their crypto mining hardware. This could save a miner the upfront cost of graphics card or ASIC systems. To get started, a miner would likely open an account with a cloud mining company, decide how much they want to spend, and how much they want to mine.


While cloud mining may seem like an easier way to get started with Bitcoin mining, it’s worth mentioning that there have been reports of cloud mining companies that might not be on the up and up. Miners looking to get started might consider doing a fair bit of research before deciding if cloud mining is right for them—as well as what company to go with.


Recommended: A Closer Look at Bitcoin Cloud Mining

The Risks of Crypto Mining

In addition to questions of legality, crypto mining can involve other risks — from excessive energy use, which may have environmental implications, to regulatory and security risks.

Environmental risks:

Because mining Bitcoin requires so much computer power and uses so much electricity — the hash rate of Bitcoin has been at record highs this year — the environmental impact of crypto mining has come under serious scrutiny. And last spring, when a well-known car manufacturer declined to accept cryptocurrency owing to its potential environmental toll, the issue made headlines.


What’s going on? Researchers estimate that some 80% of Bitcoin mining takes place primarily in four countries (China, Russia, Kazakhstan, Iran) — places where energy is cheap and fossil fuels like coal generate most of the country’s electricity. Thus there is a significant risk of higher carbon emissions from those networks.


Some newer altcoins (alternatives to Bitcoin) claim to be more environmentally friendly, but when you think about how to mine cryptocurrency like Bitcoin, this is a risk to consider.


Recommended: How Much Electricity is Needed to Mine Bitcoin?

Security risks:

Being part of a decentralized, global system that’s largely unregulated does come with some security risks. In some cases, using Bitcoin software could make your personal devices more vulnerable. If you’re part of a mining pool, that may help to mitigate some of the risks.

Regulatory risks:

As discussed above, the question of Bitcoin’s legality is increasingly complex and depends on a wave of cryptocurrency regulations around the world that seem to fluctuate week to week, region to region. These may include how Bitcoin is defined (e.g. as a commodity or a currency); how it can be used (e.g. for some purchases or payments but not others); how it’s taxed.

Investment risk:

The value of Bitcoin and other crypto currencies is another factor that keeps fluctuating. A decade ago, many investors placed their bets on the generally upward trajectory of crypto, but as recent swings in valuation this year have shown, that’s not something investors can count on.

Is Bitcoin Mining Right for You?

Despite some hurdles, learning how to mine Bitcoin is still an intriguing and potentially lucrative opportunity for some. With the right equipment, it’s possible to validate enough transactions to earn actual Bitcoin tokens. That said, mining Bitcoin is not the gold rush it once was. Even if you invest in some serious Bitcoin mining ASICs, mining itself keeps getting more complex and competitive.


That doesn’t mean you can’t do crypto mining, though. There are thousands of cryptocurrencies that could use help from eager miners willing to donate some processing cycles from their CPUs or GPUs, and even if you don’t hit the mother lode, you could mine for a better understanding of how cryptocurrency works. Whether or not you want to grab a metaphorical hat and mining pick is up to you.


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This article originally appeared on and was syndicated by


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Crypto curious? Here’s how to buy Bitcoin


If you’ve read any financial news recently then you’ve likely heard about Bitcoin. Although Bitcoin has been around for several years – since 2009 to be exact – it seems this cryptocurrency only seems to grow in popularity.

There are hundreds of types of cryptocurrency, and Bitcoin is only one of them. However, because it is one of the oldest, it is arguably the most well-known of all the cryptocurrencies. You will largely see it referred to as BTC for short.

What exactly is Bitcoin? In a nutshell, it is a virtual currency traded, created, and stored with blockchain. Blockchain is a decentralized ledger system, which simply means it flows through a “bank” that is not regulated by any government or agency. Blockchain is what allows Bitcoin transactions to take place.

If you are familiar with Bitcoin, or at least the concept of it at this point, your next natural question is how do I purchase Bitcoin? Do I simply log onto the Bitcoin website and start buying? Not exactly. But there are several options for purchasing once you decide you’re ready to buy.


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Buying it is entirely different from the way we are used to operating our traditional bank accounts. So before you purchase this cryptocurrency, you should be aware of the differences and risks involved with these types of digital assets.

When you purchase Bitcoin, you are speculating on a currency, since there is no physical product you are holding. You are betting the U.S. dollar value of one Bitcoin will be higher in the future versus today.


To start investing in Bitcoin, you should have a cryptocurrency exchange account, such as Bitcoin exchange. These exchanges store your private keys, which is how you access your crypto and complete transactions.

These “wallets” for storing your Bitcoin come in different forms, and depending on how you prefer to access your information and your security concerns, then it will determine which one you choose.

  • Paper wallets: A paper wallet stores your passwords on paper, or some other physical medium. Then it’s up to you to store this in a safe place. This method is harder for someone to steal your access information, however, it can easily be lost or misplaced.

  • Hardware wallets: This wallet uses a physical device to store your password keys, usually a thumb drive. You can easily carry it around with you or keep it on your person at all times, but like a paper wallet, it can get misplaced or lost.

  • Online wallets: Also referred to as hot wallets, these wallets are online or app-based and store your password information digitally so you can send, receive, and use your cryptocurrency. A hot wallet relies on the internet to function, versus a cold wallet that does not need the internet.

Related: Where to Stash Your Coins – Your Guide to the Best Crypto Wallets

If you choose not to use an exchange and you want to purchase Bitcoin, you should use a service where you can store your Bitcoin.

Whatever you do, it’s wise not to broadcast to everyone you are purchasing or holding a ton of Bitcoin. Although unlikely, this makes you a target for someone to steal access to your private keys. The private keys are needed to authorize transactions, so you want to keep them as guarded as possible.

By not using an exchange or secure brokerage, you risk your access information being stolen, which means someone could steal your Bitcoin after hacking into your account.

Another tip to note is you do not have to purchase an entire Bitcoin. Most crypto exchange accounts allow you to purchase a fraction, which might be especially helpful if you have a small amount of money for your purchase.


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Because it is a digital currency, you will find many high-tech ways to purchase this crypto.


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Coinbase considers itself as a one-stop shop for all cryptocurrency activity, including purchasing Bitcoin. Coinbase is one of the biggest companies in the cryptocurrency market, based in the USA, and has over 56 million verified users for all of its products. One advantage of Coinbase is how straightforward it tries to be for the purchasing process.

To get started, you must create an account. The information is basic, including your name, email, and password. Next, you’re required to verify your identity with the two-factor authentication, to prove it’s really you.

To purchase, you can link a debit account, bank account, or credit card, and you only need $25 to start with to buy a portion of the Bitcoin. You can also buy and sell your Bitcoin via the Coinbase mobile app.

Read a full review on Coinbase.


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Binance is another crypto exchange and trading platform allowing you to buy and sell crypto, including Bitcoin. You can download the Binance app and take it with you on your smartphone, tablet, or desktop.

Binance tends to have lower transaction fees, which are determined by your trade volume – the more you use Binance, the lower your fees. Binance also lets you purchase a portion of a Bitcoin for as little as $15.

Binance is also super fast. It claims to have such a large server it can handle 1,400,000 orders per second. This means you can expect your transactions to be completed quickly, which is helpful since the site allows buying, selling, and Bitcoin trading.

To get started, you first have to create an account. You will have to provide your name, email, and mobile phone number. You can open this account straight from the mobile app too, if you prefer. Then to start purchasing Bitcoin, you can link your debit or credit card or bank account, or buy it directly from other users on the Binance P2P (peer-to-peer) platform.

Read a full review on Binance.US.




Most of us recognize the PayPal payment processor from our days of online shopping. But you can use this as another method to purchase Bitcoin too.

If you don’t already have a PayPal account, you can set one up and immediately use it to purchase Bitcoin. To create an account, you must provide your name, physical address, date of birth, and a Tax Identification Number.

Once your account is ready, you can use your existing PayPal balance, a linked debit card, or a linked bank account to make the transaction. You should note, you can not use a credit card to make this purchase.

PayPal also charges transaction fees for each purchase. It depends on the amount of Bitcoin, but it is around 2% of the overall amount.


Robinhood is another option for buying Bitcoin. You may already be familiar with this site since you can buy gold, ETFs, stocks, options, and other products all in this one place, including Robinhood’s mobile app. Robinhood is a brokerage with zero-fee trading and now has 10 million active users.

Robinhood is available to anyone to open an account, however, you must be based in the U.S. to do so. Any account holder may purchase Bitcoin, except for those in the states of Hawaii, Nevada, New Hampshire, and West Virginia. Not only can you buy BTC, but you can also purchase Bitcoin cash, and again, without paying any commissions.

The advantage to using a site like Robinhood is that you do not have to use a separate crypto exchange. If you are feeling confused or don’t want to take the steps to choose a crypto exchange, then Robinhood allows you to store your Bitcoin with them.

To open an account with Robinhood, you must be 18 years or older, have a valid Social Security Number, and a legal U.S. address within the 50 states or Puerto Rico. You must also be a U.S. citizen, U.S. permanent resident, or hold a U.S. visa.




eToro is another online trading platform allowing you to buy and sell cryptocurrencies, including Bitcoin. For those who prefer to buy their Bitcoin with a bank account, eToro may be the solution for you. eToro is like Robinhood in that it acts as a brokerage and offers other investment options like ETFs and stocks.

eToro does charge fees for various types of transactions, but you are given all fees upfront so you see the charge beforehand. One exclusive feature eToro offers is CopyTrader. This technology lets you compare top traders’ performance with crypto and then replicate their trading activity.

To open an account with eToro, you must be at least 18 years old, accept the terms and conditions, and input basic personal information. Once you’ve supplied this, you are ready to go.

Read a full review on eToro.


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A Bitcoin ATM is not totally unlike the ATMs we are familiar with, except this type of ATM allows you to buy and sell Bitcoin using cash. And unlike traditional ATMs, you can not withdraw money, nor is it tied to a central bank account. Instead, a Bitcoin ATM connects to the internet and lets you buy and sell Bitcoin instantly.

To use these machines, your identity must first be verified. Some require you to input your mobile phone number and then confirm your ID with a code. Most require you to scan a QR code from your Bitcoin wallet or other exchange.

Once your ID is verified, you choose how much Bitcoin you want to purchase and then put cash into the machine. Once you’ve made your purchase, you receive a confirmation. This is usually a very quick process, similar to the ATMs we are used to.


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Once you’ve made your Bitcoin purchase, you may be wondering what the next steps are. Turns out, you have multiple options with BTC and the best action depends on what your goals are with your crypto. You can:

  • Hold or store it: You can either hold your Bitcoin in the account where you purchased it from, or a more secure method is to store it in your digital wallet. If you are holding it, it’s because it’s an investment, much like buying into the stock exchange.

  • Sell it: If you think you want to sell Bitcoin, you should confirm if the account where you purchased it from also allows you to sell it.

  • Convert it: Some accounts, such as Coinbase, allow you to convert a portion of your Bitcoin to another form of crypto.

  • Transfer it: Bitcoin can be transferred to someone else virtually.

  • Spend it: There are several places now accepting Bitcoin, which means you can spend it the way you would with paper currency. You can buy gift cards, travel, and many other items through retailers accepting Bitcoin.

  • Donate it: There are online charities that allow you to donate your BTC.

Related: Credit Cards Offering Crypto Rewards


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It’s hard not to discuss Bitcoin without highlighting the volatility of the product and other risks associated with this type of purchase. In general, there are a few points to keep in mind when it comes to purchasing Bitcoin or any other form of crypto.


  • Potential to make money
  • May help you diversify your portfolio
  • Transactions are immediate
  • Transactions are anonymous


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  • Potential to lose money
  • No regulatory oversight of your purchase
  • Risk of cyberhacking your Bitcoin
  • No refund once a transaction has occurred


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If you plan to purchase Bitcoin, or are only curious how you go about getting your hands on this crypto, then make sure you do your research beforehand. The crypto market may seem a little daunting at first, but understanding how to correctly buy Bitcoin and what to look for with these exchanges is your first step before you ever purchase.

Remember, no matter how you buy Bitcoin or any other crypto, there is risk involved and no guarantees your purchase will gain value. Anything you choose to purchase it with should be money you’re okay with losing.

This article originally appeared on and was syndicated by


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