How Bitcoin Mining Works

Mining is how the Bitcoin network decides who gets to add the next block of transactions to the ledger, and it is also how new bitcoins are created. The name is a metaphor. Nobody digs anything up. Miners run specialised computers that make trillions of guesses per second at a numerical puzzle.

The puzzle

To propose a block, a miner must find a number (called a nonce) that, combined with the block’s contents and run through Bitcoin’s hash function, produces a fingerprint below a target value. Because hash outputs are unpredictable, there is no shortcut. The only way to find a valid answer is to keep guessing.

Checking an answer, on the other hand, takes any computer a fraction of a second. That asymmetry is the trick: proposing a block is expensive, verifying it is cheap.

Why make it hard on purpose?

The difficulty is the security. If adding a block were free, an attacker could flood the network with fake versions of history. Because every block costs real electricity and hardware, rewriting past blocks would mean redoing all that work and then outpacing the entire honest network. This is called proof of work: the block carries proof that real resources were spent on it.

The network adjusts the difficulty every 2,016 blocks (about every two weeks) so that blocks keep arriving roughly every 10 minutes, no matter how much computing power joins or leaves.

Where new bitcoins come from

The miner who finds a valid block earns two things:

1. The block subsidy: newly created bitcoins, written into the block by the miner under the protocol’s rules.
2. Transaction fees paid by everyone whose transactions are in that block.

The subsidy started at 50 bitcoins per block in 2009 and halves every 210,000 blocks, roughly every four years. After the halving in April 2024 it is 3.125 bitcoins. Because the subsidy keeps halving, the total supply approaches but never exceeds 21 million bitcoins. Over time, miners will depend more and more on fees. See the glossary entry on the halving.

Mining pools

The chance of a single machine finding a block is tiny, so most miners join a pool that combines computing power and shares rewards in proportion to work contributed. This smooths income, but it also means a few large pools coordinate a large share of the network’s work, a real centralisation concern that the community watches closely.

The electricity question

Bitcoin mining uses a lot of electricity, comparable to a mid-sized country according to estimates such as the Cambridge Bitcoin Electricity Consumption Index. Supporters argue the energy is what makes the ledger secure and that miners increasingly use stranded or surplus power. Critics argue the cost is out of proportion to the benefit. Both points are made in good faith. What is not in dispute is that the energy use is a direct, intended consequence of the design.

Can you mine at home?

For Bitcoin, realistically no, not profitably. Mining today is dominated by industrial operations using purpose-built chips (ASICs) and cheap electricity. A home computer would cost more in power than it could ever earn. Be wary of “cloud mining” contracts promising fixed returns: many have turned out to be scams.

The short version

Miners compete to solve a deliberately expensive puzzle. The winner adds the next block and collects new bitcoins plus fees. The cost of that competition is what makes Bitcoin’s history hard to rewrite.

Next: Proof of Stake Explained