How Does Bitcoin Mining Work? The Tech Explained

At one point, individuals could mine valuable bitcoin with their home computers. Bitcoin was worth relatively little at that time, but the value of each coin mined now sits somewhere in the $30,000 to $40,000 range.

So, using your personal computer to mine a few hundred bitcoin worth a few cents then would’ve left you with enough money to pass down to your grandchildren now. The biggest barrier to entry was and is the fact that not everyone knows how bitcoin mining works.

So, how does Bitcoin mining work? We’re going to take a look at the process today, going over some facts about mining and investing in bitcoin. Hopefully, the ideas below will give you a sense of what you can do to get involved with the process.

How Does Bitcoin Mining Work?

To understand how mining works, you have to understand how the system in general works. Bitcoin is a decentralized form of currency that exists in a way that’s almost impossible to hack into or damage.

The value and security of bitcoin rest in the “blockchain.”  The blockchain is technically the ledger through which bitcoin transactions get documented. One particular section of approved transactions is wound together and considered one “block.”

When one section finishes, it’s tied together with the existing blocks that are completed. In this way, they form a chain.

Understanding Blockchain

Blockchain technology is a very secure, very complex form of categorizing and documenting information. It’s used in other applications, but the primary way that people understand blockchain in 2021 is through cryptocurrency.

A block, first, contains a set of data. In this case, it’s a group of transactions. Each data point contains information about senders, recipients, and the value sent between those two parties. Second, each block has its fingerprint called a hash.

The hash is always unique to the block. The hash adjusts based on changes to the information inside of the block. So, if someone were to go in and adjust the information inside a particular block, the identification of that block would change and it would be apparent that the block was tampered with.

Finally, the block in question always includes the hash of the previous block. This connection is what solidifies the “chain” aspect of the blockchain. Each block gets connected and signified by the previous block as well as its hash.

That hash is then included in the following block, and so on.

If one block in the chain gets tampered with, it will make all of the following blocks invalid. Further, the blockchain distributes across nodes contained in each new user’s account.

Everyone has access to the blockchain, and it’s replicated each time someone joins. When a new block gets added, it’s verified across every single individual account. The system then forms a consensus that everything is in order, and that the information is still safe.

Conditions of Mining

Something to note about mining bitcoin is that the system exists in such a way that it adjusts over time. The bitcoin system was created by someone (or a group) named Satoshi. Satoshi Nakamoto is the name attributed to the entity or person that created the system.

As the creator of one of the most powerful and anonymous cryptocurrencies, it comes as no surprise that they’ve been very good at remaining incognito.

This person created a finite number of bitcoins that could get mined by users. That number is something like 21 million. This keeps bitcoin as a valuable resource, as scarcity enters into the equation.

Further, there’s a set value that can get mined from the system over an amount of time. Only one block can get added to the chain every ten minutes. This ensures that there aren’t thousands of new blocks added at the same time, throwing a wrench in the chain.

If twenty people discovered new blocks across the world and those blocks got sent to the network at different speeds, there would be an inconsistency in the chain and that could cause security or verification issues.

It’s also worth noting that the value of each block in the chain diminishes in value as more blocks get mined. As things stand now, one block is worth around 6.25 BTC. That’s a value of over $200,000.

At one point, a block was worth far more than it is now. That value diminishes at intervals and will be worth relatively little as there are fewer blocks to mine.

This is to help with inflation. If you had mined the first chunk of gold on planet earth, that chunk would be worth a lot of money. If all of the gold on earth got mined, the chunk wouldn’t be as valuable.

Increasing Competition and Complexity

As the word spreads about bitcoin, more and more people start competing to harvest individual coins. As more coins are harvested, the blockchain gets bigger and bigger.

Specifically, one coin is added to the chain every ten minutes, and each block holds a little more complexity than the next. That’s why someone might have been able to mine a significant number of blocks with their computer back in 2010.

At that time, there were fewer people to compete against. You had a much better chance of being the individual that discovered the particular block in question. Your competition would have been less advanced as well, considering you were competing with others that had personal computers.

Since then, mega-powerful computers have been designed to harvest bitcoin. That’s their sole function, and millions of dollars are invested into these computers so that they can quickly uncover bitcoin.

Scale that up as more and more people start getting involved, and you’ve got a very difficult task in front of you. Not only do you have to compete with a lot of people, but you’re also competing with the relative value that they’ve invested into their technology.

So, if you’re looking to start investing in bitcoin, what do you have to do?

How to Mine Bitcoin

The first thing you have to do is figure out which computer or set of computers that you’ll be using. You can do some research to figure out which technology is best for your particular purposes.

These are often called ASIC Bitcoin Mining Rigs. The hardware tends to run anywhere from $2,500 to $10,000 for individuals. Note that you can scale up that investment and potentially have more success.

That said, a mining rig is the first thing that you’ll need. These are pieces of hardware that run expansive calculations to try and uncover the next pieces of code in the blockchain.

Mathematical equations get solved, uncovering and “mining” bitcoin. These equations are too complex and varied for the human mind to figure out. Even the most brilliant mathematical mind would fail in comparison to any bitcoin rig.

So, we can all rule that one out. Sorry, Einstein.

The next thing you’ll need is a mining application. This is the interface that you’ll use to organize your efforts and structure your processes. The interface you choose might help with the ease with which you use the computers.

That said, the hardware is the thing that will make the biggest difference.

Cooling and Ventilation

On the physical end of things, computers that use that much brainpower have to have ways to cool down. Each little function that happens within a computer produces a little amount of heat.

In your daily laptop or desktop, the functions you’re using produce infinitesimal amounts of heat. You might notice that your computer heats up if it’s old or you’re running a lot of programs, though.

In the case of ASIC mining rigs, there’s a lot more going on. You’re using a great deal of power and your computer is running at absolute full steam.

You have to invest in technology that helps the device cool down. Vans, ventilators, and other accessories might be necessary to keep your computer running. This is important for a couple of reasons.

For one, the cooler the device is, the more productive it will be. When the device is hot, it’s prone to overload itself and start to lag behind your competitors.

It could even overheat and break. Further, effective cooling devices will save you money.

The expense of Energy and Cooling

Keeping your computer cool with the air conditioning or fans within your house is not an option. For one, it won’t do the trick. It’s also incredibly expensive to try and keep the devices cool in that way.

You’re already going to have a pretty high electric bill as the result of your new investment. It’s so significant that you have to consider the energy costs as an essential part of the spread of your budget.

Make sure you invest in solid power supplies and ensure that your house or building has the energy source equipped to run these computers at full steam.

You can also plan to run the computers all of the time if you’d like to. If you have the setup to accommodate computers running at full speed, 24 hours per day, you can do that.

You just have to make sure that the juice is worth the squeeze. If you’re producing a significant amount of value from your rig, you can justify spending exorbitant energy bills.

If you’re not getting any money out of mining, you might not want to keep the operation running. There’s a great way to mitigate your risk and start making actual money, though.

Mining Pools

You’re up against too much strong competition if you’re doing things on your own. It’s not a reliable way to acquire Bitcoin.

Instead, you can look for mining pools that utilize the power of multiple people to generate bitcoin. You won’t reap the value of an entire bitcoin each time, but you’ll get a cut of the share regularly.

It’s a much wiser idea to work with a group of people and combine the power of all of your rigs. You can sign up for a membership at a mining pool and start to get a reliable source of value from your bitcoin setup.

The beautiful thing about signing up for a pool and running an interface is that most of them will show you how much you can expect to make. They’ll offer calculators that tell you how much energy you’re using, the value you’re deriving from the effort, and what it all balances out to.

You might find that harvesting bitcoin loses you a little bit of money or makes you a few dollars per month. If you have excellent equipment, you might be able to turn a significant profit.

If not, it might not be worth the time these days.

Alternatives to Mining

Since bitcoin is so popular, it’s possible to get involved in investing or owning bitcoin without mining. You can take a look at bitcoin.org to learn more about bitcoin ATMs in your area.

So long as you have a digital wallet that allows bitcoin, you can buy different amounts of it. You can often spend bitcoin just as you would spend normal currency.

There are some businesses or operations online that only accept bitcoin as well. In any case, buying bitcoin allows you to invest and reap the rewards as the value of the currency changes. At one point, the value of bitcoin was almost double what it is now, and it’s liable to get back up to that point.

If you buy bitcoin instead of investing in a powerful computer, you might see that bitcoin increase in value by a significant margin. That investment could very well bring more returns than your ASIC rig ever would.

Want to Learn More Facts About Bitcoin?

Understanding “how does bitcoin mining work” is an important thing if you’re looking to get involved. Whether you plan to start mining bitcoin, or you just want to learn more about bitcoin benefits, knowing the fundamentals is essential.

We’re here to help you learn more, too. Explore our site for more insights into bitcoin technology and options for investing in bitcoin.