What Is Bitcoin Mining and How Does It Work?12 min read

What Is Bitcoin Mining and How Does It Work?12 min read

10/01/2019 0 By Vasyl Tsyktor

Bitcoin mining is now associated with fast and easy revenue. More and more private investors purchase high-end computers to “generate money from the air”. With the Blockchain technology, this idiom has turned into a reality. Media sources report about large Bitcoin farms forming a significant part of the total network capacity and capable of creating tens of Bitcoins per day delivering a hundred dollars to crypto entrepreneurs. Cybercriminals even create malware that forces our computers to make these hackers richer. What is Bitcoin mining and how should you do it?


Bitcoin mining is the process of generating virtual money called Bitcoin (also known as BTC) using a special algorithm. In other words, computers located in different countries solve mathematical tasks to generate new cryptocurrency coins. Nobody controls this coin issuing process and the distributed ledger of transactions behind BItcoin ensures the safety of the entire system.

Bitcoin mining is creating a unique data block consisting of a hash of the previous block header, transaction hash, and random number. The chain that contains all transactions in the network is called a blockchain, the technology behind smart contracts.

How Bitcoin mining works

The system records all bitcoin transactions in a public log and then transfers them to miners who try to find a single hash from millions of combinations. This hash has to match all new transactions and the secret key. If so, the miner who has managed to calculate this hash will receive a reward of 12.5 bitcoins equal over $47,000 in total. This is how much bitcoin miners earn as of January 2019. The thing is that many miners all over the world compete for a reward trying to guess the first hash. As soon as the hash is guessed, the block with all transactions gets closed and miners proceed to the next data block.

The hash that miners try to calculate consists of the hash of the previous block, the number of hashes of transactions appeared in the last 10 minutes, and a random number that the miners change to make the final hash satisfy the system requirements. These requirements make the hash calculation process lasting 2 weeks more difficult.

Bitcoin miners are similar to seeds who share a file within a torrent network. These seeds ensure the entire person-to-person (p2p) network to remain functional. For their efforts, they get high ranking as a reward. When it comes to Bitcoin, miners get coins as a means of a reward for successfully calculated hash. They are those who conduct transactions as well as allow users to buy and sell bitcoins.

In fact, mining rewards vary from cryptocurrency to cryptocurrency. Bitcoin mining reward becomes twice lower every four years. Therefore, the reward will be 6.25 BTC in 2020. For each mined Ethereum coin, you will get more than 750 ETH. The success of mining depends on the calculating power of your computer. The more powerful your hardware is, the higher your chances to earn money are.


With the growing competition in Bitcoin mining and increasing number of new transactions, it becomes more and more difficult to calculate hashes and generate new blocks in the blockchain. You used to need an ordinary personal computer to create new blocks and get rewards. Now high-end hardware may not be enough to earn money on Bitcoin mining.

ASIC mining

ASIC mining refers to generating new data blocks with special devices called ASIC miners designed for coin mining. ASIC stands for Application Specific Integrated Circuit. These devices cost about $400 but they are more efficient than typical graphics processing units (GPUs). Ones of the popular ASIC vendors is AntMiner and Bitmain. When choosing an ASIC device, you need to pay attention to which cryptocurrency a particular device has been designed for.


  • Efficient mining process


  • High cost
  • Low hardware availability

CPU and GPU mining

GPU Bitcoin mining is the most popular way to generate new data blocks. This type of mining involves using GPUs to calculate transaction hashes. The most popular GPU vendors are Nvidia, AMD, and Radeon. For example, GeForce GTX 1070 costs over $400. A less popular mining method is CPU mining that implies using multiple central processing units (CPU). The main disadvantage of CPU mining is a limited number of coins you can generate using this method.


  • Affordable hardware cost
  • High hardware availability


  • A limited number of coins
  • You need many GPUs to mine Bitcoins

HDD and SSD mining

Another way to mine cryptocurrency is HDD/SSD mining that involves using a hard drive. A type of the cryptocurrency influences how efficiently you can mine corresponding coins. HDD mining isn’t a popular way to mine coins because of its low efficiency.


  • No need for purchasing expensive hardware like a motherboard, central processing unit, and GPU
  • Low power consumption


  • Low efficiency

Cloud mining

Cloud mining refers to the cryptocurrency mining process based on using computing power provided by third-party high-end hardware owners. Miners remotely use this hardware to generate new data blocks for specific fees. All transactions happen on the website belonged to the cloud mining company. All settings, connection, and maintenance take place on third-party service. Cloud mining providers may have different business models that include either a fixed fee or a fee based on the number of Bitcoins mined.


  • You can have several mining farms for an affordable cost instead of spending tens or even hundreds of thousand dollars for a single farm
  • No need for connecting, configuring, and maintaining hardware since the equipment provider takes care about it.
  • Higher computing power for the same price in comparison with GPU mining.
  • You can mine different cryptocurrencies with the same hardware.


  • High fraud risk. There remains a question: Why don’t cloud mining companies mine Bitcoins on their own instead of offering their equipment?
  • You have to share your reward with a hardware provider.
  • A high risk of server hacking attacks. As a result, you may get nothing.

How to mine Bitcoin

To mine Bitcoins, you need to do the following:

  1. Install both powerful GPU and CPU on your computer,
  2. Connect a set of ASICs or even use a whole farm.
  3. Create a Bitcoin wallet to store mined coins.
  4. Download and install Bitcoin mining software.
  5. Configure your software: choose a type of mined coins (if your computer program is suitable for mining different cryptocurrencies), set your hardware and the current mining capacity (some solutions may allow you to set variable values).
  6. Start mining Bitcoins.

Below, we will consider what you need to mine Bitcoin. We will cover the most common method – GPU mining.


With the rise of numerous Bitcoin miners all over the world, ASICs become a popular cryptocurrency generation method. The power of a single GPU Radeon HD 7990 is 1.2 gigahash per second with a few hundreds of watts of electricity consumed compared to the modern ASIC-system Red Fury for $125 that generates 2.5 gigahash per second with 2.5 watts consumed. When it comes to home-based Bitcoin mining, it’s unprofitable without ASICs.

If you consider creating a mining farm and mining Bitcoin using GPUs, then you should know the following hardware requirements:

  • High-end GPUs.
  • Get an efficient cooling system
  • Install motherboards with the maximum possible number of slots for installing GPUs.
  • Recommended RAM is more than 4GB.
  • For GPU mining, Microsoft Windows 10 Pro 64-bit is suitable. There are also operating systems like ethOS specifically designed for mining Ethereum.
  • Stable Internet connection.

Besides hardware, the basic mining expense is electricity since Bitcoin mining requires a small volume of traffic. At the time of the rising coin mining, all expensed could pay off for just about two weeks. However, in 2012, The Verge wrote about miners who was making $2,000 per month on mining using the $40,000 worth equipment. With the growing competition among miners, the cost of a single Bitcoin also was rising.

So miners began to work in groups thus increasing their capabilities but distributing a reward among multiple users. Unlike solo mining, group mining brings money faster, but in small portions.


The basic function of Bitcoin mining software is to perform the calculation. Here are some popular solutions you can use to generate new data blocks within blockchain.

  • CG Miner is one of the most popular Bitcoin mining software packages suitable for mining based on GPUs or ASIC. Its main advantage is the high stability and efficient work. You don’t need to constantly monitor the work of this computer program, it takes care of all mining processes on its own. The solution comes with a detailed manual but it may seem extremely difficult for beginners. CG Miner is software for experienced users who are used to working with scripts.
  • GUI Miner is a simple and useful computer program for CPU Bitcoin mining. It’s similar to CG Miner, but a bit simplified and translated into different languages. GUI Miner is the best option for beginners to start from.
  • Miner Gate is a multi-functional and easy-to-use mining software for 14 cryptocurrencies including Bitcoin, Litecoin, Ethereum, ZET Cache, Monero, Desh, and Bitecoin. It has a convenient user interface and built-in virtual currency converter. It also has a smart mode that can help you determine which cryptocurrency is the best to mine at the moment. The solution makes its choice on a base of the computing power available and current cryptocurrency rate.
  • Ufasoft Miner is a very simple computer program for CPU mining of Bitcoin, Bitforce, Solidcoin, and Tenebrix. It has a wide range of benefits that include: a user-friendly graphical interface, CPU temperature adjustment, and low system requirements. However, if you use high-end hardware for mining, you should consider other solutions. With Ufasoft Miner, you can count on low numbers of coins mined. However, this is a good choice who aren’t familiar with cryptocurrency mining.
  • Diablo Miner is an advanced software for the GPU and CPU Bitcoin mining. The main advantage of the solution is that it can synchronize with powerful hardware like Nvidia 8 and AMD 79xx-series GPU. Therefore, you can get more coins compared to using Ufasoft Miner. However, it has no user-friendly interface and you will have to work with scripts. Diablo Miner is best suitable for advanced users.
  • NiceHash Miner is a multi-purpose software that allows users to mine coins using CPU or GPU-based method. The main its advantage is the automatic selection of the optimal cryptocurrency mining algorithm for current hardware. The program is suitable for mining various cryptocurrencies, but it automatically converts all mined coins into BTH. As a result, you lose the capability to make money on the price diversity.
  • Awesome Miner is a useful solution for professional miners working with several remote computers. Thanks to the built-in algorithm, the computer program monitors the most profitable cryptocurrencies and can automatically switch to the best type of coins. For example, if your hardware is best suitable for mining Ethereum, the solution will send a command to remote computers to mine ETH. If you upgrade your farm and it becomes more profitable to mine Litecoin (LTC), Awesome Miner will start mining it. Another advantage of this software is automatic monitoring of the current load and hardware temperature. In addition, it has a user-friendly graphical interface and efficient work in a background mode. The only drawback of Awesome Miner is that it’s paid, unlike many other solutions. The basic version will cost you $30 while the price of the advanced package is $800.

Is it profitable to mine bitcoins?

Bitcoin farm

One computer with 10 GPUs will cost about $4,000. One graphics processing unit like Radeon HD 7xxx 925 MHz will operate at a speed of about 555 Mh / s. Taking into account the cost of electricity, you will get around 0.02 USD per week from one GPU. When it comes to a mining pool, you will have to pay an additional fee for a capability to unite your resources with other miners to increase your mining efficiency. With these conditions, it’s hard to make enough money in a short period.

As for 2019, Bitcoin mining makes sense only in the case where you have a mining farm with 1,000 computers. Such a huge farm will cost you a lot of money. Isn’t it better to invest this money in something else? However, there’s a more affordable mining option.

You can use cloud mining and choose those server providers who offer free trials to save your money. Furthermore, with data virtualization technology and server programming basics knowledge, you can learn how to deploy huge farms and connect tens or hundreds of computers per day. Moreover, if you automate all the mining-related processes like registering a new server, installing a mining software on it, and monitoring through some kind of document-based panel, then it will be the right way to mine Bitcoins in 2019.

If you’re not familiar with the technologies and processes mentioned above, then you should focus on other ways to make money because your time investments won’t pay off soon. When you possess all this knowledge, Bitcoin mining may become even more difficult. So only those how will have got huge mining farms by the time will be able to successfully make money by generating new data blocks.