# Learn: What is bitcoin mining?

While distinct, there are certain similarities between bitcoin mining and actual mining for precious metals such as gold, for example. Both processes are carried out with the intention to earn a reward.

Furthermore, bitcoins actually exist in the bitcoin protocol but they haven’t been brought out yet – just as gold exists in the ground but it hasn’t been mined yet.

But the aim of bitcoin mining is, however, twofold. For once, when the above-mentioned high-powered computer or any other type of mining hardware, for that matter, successfully solves the complex math problem on the network of Bitcoin, they produce a new bitcoin.

On the other hand, by solving the computational math problems, bitcoin miners are actually making the payment network a secure through the proof-of-work consensus algorithm.

### Why is Bitcoin Mining Necessary?

In order to break down bitcoin mining, there are a few important considerations that need to be taken into account.

Consumers tend to trust different types of printed fiat currencies because they are backed by central banks. In the US, for instance, this is the Federal Reserve. This is even true for digital payments made with fiat currencies.

Bitcoin, however, is not regulated by any central authority. It can be said that it is ‘backed’ by the computing power, which secures the network. This vast network of computers and mining hardware records transactions and make sure that they are accurate.

Unlike central authorities, however, bitcoin miners are spread throughout the entire world and record the transactional information on a public ledger available to anyone. This ledger can be viewed using a [block explorer](https://live.blockcypher.com/btc/) and there are many different websites that provide this service.

In other words, bitcoin mining is necessary for two different reasons – first, it is needed to create new bitcoin and second, it’s needed to confirm the transactional information. So, in theory, if you don’t want to buy Bitcoin, you can earn it through mining. Whether or not that’s efficient for you as an individual miner, however, is a different story.

### How Does Bitcoin Mining Work?

In order for a bitcoin miner to get block rewards, there are two conditions which need to be met. First, the miner needs to confirm a certain amount of transactions and second, which is the trickiest part, solve a complex computational math problem.

Put simply, if that’s at all possible, each miner is competing with all of the others to come up with a 64-digit hexadecimal number which is referred to as a “hash” which is less than or equal to the hash which is targeted. In other words, the computer will be spitting out different hashes at a certain rate per second guessing all of the possible 64-digit numbers until they reach the correct solution.

Therefore, computational power is essential – the more powerful your mining equipment, the larger hash rate per second you’d be able to achieve. This is why the Bitcoin mining hardware is particularly important. Naturally, the cost of mining would be based on a the operation costs such as electricity, internet connection, hardware maintenance, and so forth.

This is the main reason for which back in 2013 bitcoin miners started to use machines which were specifically designed for mining cryptocurrencies. These are called Application-Specific Integrated Circuits or ASIC mining, for short. ASIC mining devices can cost a serious amount of money but are more efficient than traditional computers.

There are a few important things to be considered when it comes to BTC mining. These are some of its pillar components, so to speak.

1. **Blocks**

One of the things to be aware of in the world of Bitcoin mining is blocks. Transaction data is recorded in files which are called *blocks.* Think of it as a page from your city’s recordbook. Blocks are organized into a chain in chronological order – hence, *blockchain.* New transactions, as they are being confirmed by miners, go into new blocks, with each new block is being added to the end of the chain. This is why blockchain is also referred to as records of blocks.

2. **Block Rewards**

Is Bitcoin mining profitable? This is probably the most commonly asked question. Unfortunately, there is no one answer. Block rewards are what miners compete for. Other cryptocurrencies such as Bitcoin Cash, for instance, also have their own block rewards which differ from those of Bitcoin.

At inception, every single bitcoin block reward was worth 50 BTC. However, the protocol works in a way where the block reward is being halved after 210,000 blocks have been discovered. This takes roughly around four years to complete. As of July 9th, 2016, the reward for discovering one block is 12.5 BTC.

So is Bitcoin mining profitable? It depends. One would have to calculate the current block reward based on the current prices and compare that to the cost of mining, which varies from miner to miner.

It’s worth noting that the reward for successful Bitcoin miners [will drop](https://bitcoinist.com/bitcoin-halving-2020-what-will-the-price-of-bitcoin-be/) once again in May 2020 and it will decrease to 6.25 BTC per block from the current 12.5.

3. **Hash Rate**

To put it in the most basic terms, hash rate represents the speed at which bitcoin mining hardware can guess the correct hash. Therefore, the faster your hash rate is the higher the chances of discovering the new block you have. BTC mining has become highly competitive and, as such, you need to consider getting powerful bitcoin mining hardware. Individual miners, can, on the other hand, take advantage of cloud mining or mine a coin with lower difficulty, but more on that later.

4. **Difficulty**

The difficulty of bitcoin mining is [adjusted frequently](https://bitcoinist.com/paraguay-bitcoin-price-mining-death/) in order to maintain an average time of about 10 minutes to process a block. The rate is recalculated every 2,016 blocks.

In case you wonder why ten minutes – it’s because bitcoin developers have decided that this is the time needed for a steady and diminishing flow of producing new coins.

### What is a Mining Pool?

When it comes to cryptocurrency mining, a mining pool is the combined resources by miners who are sharing their overall computational power over a network in order to split the reward equally based on the amount of work that they have contributed to discovering a new block.

A “share” would be awarded to each member of the mining pool who manages to present a valid partial proof of his work. Mining pools became popular as the difficulty of bitcoin mining increased over time and when it became apparent that individual miners could no longer compete with bigger pools and large-scale mining operations.

### What is Cloud Mining?

Cloud mining, on the other hand, is what allows individual miners to participate in the process without having to purchase particularly expensive bitcoin mining hardware.

If you want to take part in BTC mining but you don’t want to spend the time and resources to get powerful machines, you can use shared processing power provided by remote data centers. The only thing you’d need is a home computer. Generally, there are three types of cloud mining that you can take advantage of. These include:

1. Hosted Mining

You can lease a mining machine which is hosted by the provider.

2. Virtual Hosted Mining

This is a method which would require you to create a virtual private server and after that install your own mining software.

3. Lease Hash Power

Cloud mining also allows you to lease a certain amount of hash power without having the best bitcoin mining hardware. This is likely to be the most popular method of all. Most of the providers offer comprehensive calculators that you can take advantage of to determine the current profitability based on the resources you are ready to spend.

However, it’s important to pay special attention when it comes to cloud mining as there are fraudulent service providers. It’s crucial to make proper and in-depth due-diligence, especially if you intend to lease hash power. One of the largest cloud Bitcoin mining companies out there is [Genesis Mining](https://www.genesis-mining.com/).

### Energy Consumption: Things to be Aware of

Mining bitcoin is intentionally designed to be energy intensive. The computational power needed to solve the abovementioned complex math problems requires a lot of electricity to power up the specialized mining hardware.

On the flipside, it requires even more resources to attack the network than to defend it, making Bitcoin the [most secure](https://bitcoinist.com/bitcoin-51-percent-attack-study/) blockchain today.

In fact, there is an entire pseudo-environmentalist brigade which aims to have the regular user believe that Bitcoin mining would somehow be the death of the planet. A lot of their arguments revolve around the fact that large data centers used for carrying out the math computations use tremendous amount of electricity. However, *Bitcoinist* recently outlined three reasons for which this rhetoric is [complete nonsense](https://bitcoinist.com/bitcoin-mining-three-reasons-why-energy-consumption-rhetoric-is-pure-nonsense/).

[According](https://bitcoinist.com/banks-consume-energy-bitcoin/) to clean energy researcher Katrina Kelly-Pitou, the entire debate on the overall electricity consumption by bitcoin mining facilities is headed in the wrong direction. The research outlines that electricity consumption can increase while, at the same time, have minimal impact on the environment. This is because those facilities gradually begin to use more efficient, sources of energy which are renewable. Not only does this make mining more profitable, but it also lowers the impact on the environment. The researcher also outlined that banks use three times more electricity than Bitcoin’s network.

What is more, a brand new report concluded that 80 percent of Bitcoin mining is running on renewable energy. This is unsurprising since miners are naturally incentivized to seek the cheapest and cleanest sources of energy, many of which are renewables such as hydroelectricity (e.g. Iceland).

If you’re worried about Bitcoin consuming too much energy, you might want to think twice about lighting up the [Christmas lights](https://bitcoinist.com/bitcoin-mining-energy-consumption-us-christmas-lights/) this year. That’s right – the lights that American consumers alone use to decorate their homes for the occasion make up a gigantic 6.63 billion kilowatt hours of electricity consumption every single year. That’s more than the entire *national energy consumptions* of a lot of the developing countries every year. For example, both Ethiopia and El Salvador used less electricity per year.

However, if you decide to set up a mining rig in your garage, you can most definitely expect a more expensive electricity bill next month.

### Best Bitcoin Mining Hardware: Things to Consider

There are a few key parameters to look out for when it comes to choosing the best bitcoin mining hardware. These include:

* Power Consumption

Naturally, you want to be aware of how much electricity does your miner consume. The lower this number, the better.

* Hashrate

As we explained above, the hash rate is essential for bitcoin mining. The larger this number is, the better the machine is, generally.

* Energy Efficiency

This measurement accounts for the efficiency of your machine. If this particular number is low, it means that the machine will consume less power for the same amount of work done by the machine.

There is a range of different devices produced by some of the largest companies in the field such as Bitmain Technologies, Canaan Creative, Halong Mining, Innosilicon Technology, and others of the kind.

### **What Else Can You Mine?**

Bitcoin is not the only cryptocurrency which can be mined. It’s worth noting, though, that if you are using a specialized cryptocurrency mining hardware you’d have to check the compatible digital currencies, as some of the devices would only allow you to mine selected cryptocurrencies. However, apart from Bitcoin, other popular choices include Bitcoin Cash, Monero, Dogecoin, Litecoin, and so forth.

### Conclusion

If you managed to make it thus far, you should have a general understanding of the main principles behind bitcoin mining and why it is essential to its network.

At the same time, bitcoin mining represents an alternative method to acquire the digital currency. Of course, if you don’t feel like investing time and efforts into it, let alone designating specialized bitcoin mining hardware, you can always check our detailed guide on to how to buy cryptocurrencies.

We’ve gone in depth on how to buy Bitcoin with Paypal, credit card, debit card, and even with cash. We’ve also covered some of the most popular platforms where you can buy Bitcoin.

Once you’ve done that, you can hop to our comprehensive guide to Bitcoin wallets and determine whether you want a web-based one or an offline, hardware solution instead.
