What is Bitcoin Mining and How Does Mining Work?

Cryptocurrency is getting huge popularity day by day, and many big companies are now accepting payment through Bitcoin and other Cryptocurrencies. This is the main reason why people are so much excited about Mining coins.

Cryptocurrency mining is very costly and complex. So many people are now involved in the mining business because they are rewarded with bitcoins for their work.

What is Bitcoin Mining?

First, let’s define what “mining” means within the context of the Bitcoin Mining Process. The basic definition is “the procedure of adding transaction records into the decentralized ledger, which is also a publicly accessible ledger, to ensure that the transaction record is correct and up-to-date.” Every transaction is recorded in the ledger – this is done by each user connected to the network. By connecting to the network, any user can determine which transactions they can and cannot access.

As mentioned above, each user contributes transaction data to the ledger system. This transaction data is then processed and organized into blocks that have an address of their own. There are two different types of blocks – proof-of-work (PoW) and proof-of-holding (PoH). Proof-of-work is the newest, most complicated, and also most risky form of creating new bitcoins. PoW requires massive computational power and mathematical skills. While these requirements make PoW extremely insecure, it is still the most effective method for creating new bitcoins.

On the other hand, proof-of-holding requires no advanced computing capabilities and relies on simple and brute-force mathematical problems. The main aim behind the proof-of-holding is to provide an environment in which miners can generate new bitcoins without contributing too much computational power and resources. As a result, miners can earn more money. It is an open market and can be accessed by anyone. While it might sound complex, it is very easy to learn. Just imagine how new miners can earn hundreds of dollars in only a few weeks after learning a few simple techniques.

Here is graphical example of the entire proces:

So, what is the secret behind the proof-of-holding? It is a form of “cryptographic proof.” The ledger contains certain “proofs” of the transactions that have been made. These proofs are actually created using a set of cryptographic keys that are difficult to break. These keys protect the entire system from being attacked by external agents.

This is how final block header looks like after the all components:


The difficulty of generating new bitcoins depends on the amount of computing power that is available. The larger the amount of available computing power, the harder it becomes to generate new blocks. This is why there is an increasing difficulty level as the number of miners continues to increase. Every 10 minutes, there is a new block generated. The difficulty of verifying transactions depends largely on how fast you can generate a new block.

People consider the difficulty of verifying transactions to be high because there are approximately every 10 minutes, a new transaction is generated. Transactions that are not corrected will not appear in the ledger. As a result, everyone will know that the transaction did not go through. Therefore, if a user sends a transaction that does not make sense, he might get his trade rejected. Thus, this is how people gain new clients.

How Does Bitcoin Mining Work?

Now let’s understand how this things works? Bitcoin mining is very complex and costly process, Why? Read below.

Risk of Bitcoin Mining?

The risk of Cryptocurrency mining involves the amount of electricity it uses and cyber attacks.

There are several different ways in which miners can target hash. Two of the most popular methods are known as “proof of work” and “target hash.” The latter refers to the target hash location, also known as the work area or the worksite. The proof of work takes place a few days before the start of each day’s mining activity. It consists of several numbers used to signify the amount of electricity expended during a single day.

The target hash, however, is calculated based on a random number generator. When the generator begins to function, it randomly chooses a series of numbers from a pool of possible numbers. Once these numbers are chosen, the generator determines the highest possible number that will create the hash. This computation method means that any number, even one that is entirely random, can be used in computing the target hash.

Some experts claim that miners’ proof of work method is faulty and susceptible to attacks by outside sources. They argue that miners’ random number generators to choose the work area are not as reliable as they need to be. This leaves them vulnerable to attack from anyone who knows how to harness the power of computers. It also makes it more complicated for the workers who perform the actual mining to accomplish their tasks. In short, these experts say that the problems with proof of work may cause another major issue with the way that hash is generated and used at the bottom layers of the computing power structure.

Hardware for Bitcoin Mining

Before we get into details about Bitcoin Mining hardware, let us discuss briefly what is this all about? The process of confirming and adding transaction proofs to the public block called Blockchain is carried out by system users, including miners. Every transaction sent to the network is recorded in the block, and all the network nodes can view it. All users add their transactions to the public block. This way, everyone can see that a certain number of previous transactions (in the form of headers) have already been included in the block.

The major benefit of using this approach for confirming the transaction is that it helps to minimize the propagation of false and redundant transaction records. This happens because if some previous transaction gets saved in the block, the transaction corresponding to it will be discarded. The new transaction won’t be recorded in the public block, as it conflicts with the previous one. This kind of thing happens whenever two users add transactions to the ledger at the same time. It is called an overdraft in the world of internet banking.

Fortunately, this kind of problem is easily solved in regular computers by using softwares like Consensus Software or a Payment Protection Scheme (PPoS). With such softwares, the number of outdated transaction records is drastically reduced, and only the newest, correct transaction record is stored in the block. With this solution, a miner does not have to verify the transaction record every time it is being added to the block. So in effect, the entire verification process is solved.

If you are new to bitcoins and the subject of mining, I recommend that you stay away from this area for now and consider this as a technical discussion only. Only after you’ve become familiarized with the subject of bitcoins and the difficulty of proof-of-work (Blockchain) will you begin to see how easy it is to use the best equipment for bitcoins mining.

One of the most important aspects to look for in hardware for Bitcoins mining is speed. You need your processing unit like GPUs to process as many transactions as possible in a certain period of time. This is important, as the more transactions processed by your processing unit, the faster money transfers, and other functions will be. Faster processing units are often characterized by their ability to use high quality and low power mathematical puzzles.

What are these puzzles? Well, they are mathematical algorithms created by unscrupulous developers. These algorithms solve some complex mathematical problems and verify the results.

When you send a transaction, the transaction gets “queued” until it’s confirmed on the main chain (the chain that contains the bitcoin miners) or the central block. Depending on your hardware and computing power, it will take 10 to 20 minutes to mine 1 BTC.

The proof-of-work (proof) of these transactions comes from the cryptographic hash function. The hash function takes a mathematical problem and produces a number (a hash) that is considered the most decisive proof that it took place. This hash function, or a system for generating digital fingerprints for your transactions, is controlled by the miners. The larger the group of miners that control the ledger, the higher your transaction chances are confirmed and recorded. Hence, the bigger the pool of miners, the higher the odds that your transactions are recorded and settled in a timely fashion.

One of the great advantages of cryptocurrency is the fact that it solves the problem of centralization of power. Because of its cryptographic hash function, the block is distributed across the nodes on the network, rather than being stored on a single server that can be hacked into.

The hash function guarantees that your transactions are secure from anyone with the resources to perform a mathematical attack against it hence the term “Bitcoin Mining.”

The proof-of-work is also the way that most of the technological aspects of the protocol are maintained, such as the updating of the ledger (which is also called “proof of work”), ensuring that the new blocks are mined at a consistent speed, and maintaining the integrity of the block.

Final Words

There is a great deal of controversy surrounding the way that this particular kind of business works. However, most experts agree that it is very safe and will not pose any threat to the central banking system. Besides, the increased difficulty of verifying transactions means that miners are less likely to take advantage of users.

You can easily start Bitcoin mining with your computer but make sure that it has powerful GPU and CPU. Otherwise it won’t work. You will also get a reward in terms of Bitcoins.

Hope you now understand Bitcoin mining. If you need any help or want to dive deep into this topic then comment below.