What Is Bitcoin Mining and How Does it Work?

Anyone can try their hand at cryptocurrency mining today. While there are thousands of assets in circulation, BTC remains the most popular one – that’s why most miners opt for it. Bitcoin boasts a huge user base and an impressive market capitalization. Nearly all exchanges support it. The equipment for mining this coin is available in multiple varieties. All these factors make BTC an ideal choice.

In this article, we’ll address the question “What is Bitcoin mining?”. We’ll explain how this process occurs from the technological position. We’ll clarify the difference between several mining varieties and outline the potential risks of this activity. However, it’s necessary to admit that the multiple pros of BTC mining far outweigh its cons – that’s why we’ll also share a step-by-step plan on how to get started.

What Does Mining Bitcoin Mean?

The term “mining” denotes the process of gaining cryptocurrency. The Bitcoin emission is capped at 21 million units and is planned to end in the middle of the 22nd century. Until that moment, miners need to grant the generation of new coins by solving cryptographic puzzles. 

Such puzzles are dubbed hashes. Each of them represents a string of 64 letters and numbers. The mining rig’s task is to guess the hash’s value. The owner of the machine that copes with the task earlier than others gets a cash reward. The mission of all the others consists in validating the generation of the new coin – that is, to prove that the process was not fraudulent. Such a mechanism is called Proof of Work.

After the last Bitcoin enters circulation, miners will remain relevant. They will be in charge of the tasks that they also deal with now:

• Guarantee stability, security and smooth functioning of the blockchain
• Facilitate the network expansion
• Validate every single transaction that takes place within the chain and prevent duplicates

In exchange for their efforts, miners earn rewards. The reward per block decreases by 50% every four years, which is known as halving. Because of halving, solo mining has become unprofitable — but mining farms and pools still generate a handsome income.

How Does Bitcoin Mining Work?

Depending on how many people are engaged in it, mining falls into two categories:

• Individual. You buy your rig and you alone bear the entire responsibility for it.
• Industrial. Many people join forces and form a large pool of mining devices. Btc.com, Via BTC and F2pool can serve as well-known examples. When one machine from the set manages to solve a puzzle, each participant in the pool will get their share of the reward. The share will be proportional to the part of the computing power of the pool that belongs to the person.

The largest pools in the world control around 70% of BTC network hashrate:

Depending on the equipment used, we can talk about:

• CPU or GPU mining. It was relevant around a decade ago but not anymore. These devices lack the power to cope with the current complexity of calculations within the BTC network.
• ASIC mining. Application-specific integrated circuits are purposefully built to serve exclusively this activity. They’re powerful and can deliver a substantial profit to their owners.
• Mining farms. A farm is a complex that consists of multiple ASICs. Together, they have much better odds of handling cryptographic puzzles than a standalone device.
• Cloud mining. Instead of buying the equipment, you rent it remotely. You can connect to the cloud through a website or mobile app. Currently, it’s the easiest and the most promising mining variety. Genesis Mining, EasyMiner and ECOS are among the most noteworthy providers.
• Browser mining. You get rewards for using a specific browser to work online – such as Brave, for instance. Your profit will be tiny.
• Hidden mining. It’s a nefarious activity. Someone infects your device with a virus and uses it for mining without your permission. It’s not you but a third party who gets the rewards – and you might fail to know about it. 

If you’ve never mined crypto before, we recommend you should start with cloud mining. You won’t have to maintain your equipment yourself and think about where to place it. Farms and pools can shut down unexpectedly for reasons beyond their owners’ control – while clouds are much more adaptable and sustainable. All you have to do is manage the dashboard in the app to control your spendings and review the rewards that will be credited to you.

Hopefully, after reading this passage, you won’t need to ask anymore “How does mining Bitcoin work?”!

How to Calculate the Profitability of Mining?

In March 2024, the Bitcoin price broke its historical record by hitting the $70,000 mark. For miners, it was a very motivating piece of news. In the next few years, the BTC price should have good odds of climbing even higher, given the overall instability of the traditional financial system and the global economy. The more rigs you own or rent and the higher their computing power, the larger your income.

Apart from the profits, mining also involves expenses for:

• Buying or renting the rig
• Paying your energy bills
• Paying taxes

To assess the upcoming spendings and profit, you can use a dedicated calculator. For instance, the ECOS one enables you to overview the computing power, reward and service fee per fixed time period.

The cheaper the electricity in the areas where your ASICs are located, the lower your expenses. 

As for taxation, it’s very heterogeneous among different countries. In some territories, you’ll have to pay a tax on your block rewards. Others will charge you only for the fact of selling digital assets or making a profit on them. The rules that are valid today can change tomorrow because the international system of regulating the crypto sphere remains volatile.

It’s vital to pay attention to the legislation of the state where your ASICs will be located. It hardly makes sense to place them in a country where mining is illegal or unregulated yet – or where the political landscape can change drastically and the new party in power will edit the current mining-friendly laws. The optimal location will be a country whose political course is stable and whose government has proved its long-time loyalty to crypto mining.

This map shows the Bitcoin regulation around the world. Africa noticeably lags behind:

Armenia is one of the top locations for Bitcoin mining in the world. Its government realizes well the importance of cryptocurrencies for the global community. To facilitate the development of businesses and the promotion of innovative technologies, the authorities create special economic zones. One of them is the ECOS Free Economic Zone, whose residents enjoy zero taxes and other benefits for a period of 25 years. They get access to advanced infrastructure, profile expertise, a convenient communication platform and the possibility of hiring foreign labor without restrictions. The Hrazdan Thermal Power Plant provides local miners with cheap electricity. 

How to Start Bitcoin Mining

Today, private individuals tend to venture into mining for four reasons:

• Make a profit
• Invest in a promising asset
• Keep up with the fast-paced technological progress
• Contribute to the development of a decentralized financial system as an alternative to the conventional one that handles fiat money

Below, we’ll scrutinize the essential steps of starting mining at your home, in a garage or another location where you’ll be able to physically control your equipment. Then, we’ll switch to the basics of setting up cloud mining.

Step 1. Decide on the ASIC model

The more modern the ASIC model and the higher its hashing power, the faster you’ll be able to break even and the larger your profit. On the flip side, such devices consume large amounts of energy and emit loud noise. If you’re planning to place them in your home, consider those that are equipped with water-cooling systems – this new technology enables you to drive down the level of noise but at the same time drives up the ASIC’s price.

If your budget is limited, consider one of the most affordable models. Their hashrate is much lower but it can grant you a profit nevertheless. With modest upfront expenses, you’ll be able to assess whether this activity suits you or not.

Step 2. Set It Up

An ASIC is not a plug-and-play solution. You need to regularly fine-tune its settings, which requires technological expertise. If you lack profile knowledge, it might be wiser to outsource this task to professionals by joining a pool or trying cloud mining. 

Step 3. Create a Bitcoin Wallet

You’ll need it to receive your earnings. There are two types of wallets:

• Hot. It’s an app that you can download on your computer or smartphone, for free or at a price. Many apps are extremely user-friendly and boast visually appealing interfaces. On the flip side, as long as you store your assets online, hackers can try to steal them.
• Cold. It’s a physical device that resembles a hard drive. You buy it as a one-off purchase and store it in a safe place, disconnected from the Internet. Cybercriminals would fail to attack a cold wallet – but this technology has other drawbacks. In the worst scenario, you might lose the device or damage it beyond repair.

Since BTC is the most in-demand crypto asset, the majority of the wallets support it. It shouldn’t be a problem for you to pick the one that best suits your needs.

Step 5. Follow the News

To make the most of mining, you should follow the news related to:

• Bitcoin
• Mining hardware, if you take care of it yourself
• Legislation that regulates mining in the area where your rig is placed
• Wallet to store your earnings

Miners exchange their experiences in multiple online communities – and you may want to join them too.

Setting Up Cloud Mining

It’s an alternative to buying and fine-tuning your own rig. The exact instructions can differ from one service provider to another. We’ll share the information with you, using the example of ECOS.

1. Sign up on the ECOS website or in its app. To complete the registration, it’s enough to make three clicks. There is no need to verify your identity with documents.
2. Activate demo mining. It’s not necessary to spend money from the onset. To get a notion of cloud mining, you can watch how it functions during a demo period. All the accruals that you’ll get during this time will be credited to you after you purchase a contract.
3. Pick and buy a contract. There are options for all types of users, from beginners to professionals. Plus, you can create a custom contract to 100% meet your goals.

Here is how the range of the ECOS plans looks, with their respective conditions:

ECOS lets you pay for the rented facilities with crypto or fiat money. Your income will be credited to you daily and you’ll be able to check it in the app. Other providers might have different conditions.

Downside of BTC Mining

Now that we’ve provided an exhaustive answer to the question “What is mining Bitcoin?”, let’s outline the shortcomings of this activity:

• Low profits for solo miners. To earn money today, it’s necessary to join a pool or a cloud.
• Volatile prices. If the BTC price drops, your income will decrease.
• Legislative challenges. In some countries, crypto mining is illegal or not regulated yet. In others, it’s legal – but the political situation can change at any moment. It would be wise to engage in this activity only in the territories whose governments have confirmed their long-term approval of crypto.
• Expensive electricity. To cut down your energy expenses, consider placing your equipment outside large cities, where electricity is affordable.
• Damage to the environment. ASICs consume a lot of energy.
• Necessity to fine-tune, maintain and update the equipment. You can entrust these tasks to professionals. They will make sure your rig operates without a hitch and is powerful enough by current standards to deliver a handsome profit.
• Need of high upfront expenses. This drawback is relevant only for those who purchase physical ASICs – but not those who join a cloud.

The good news is that the advantages of BTC mining outweigh its disadvantages. And there are ways to fix most shortcomings. It’s never too late to join this exciting activity and start making a profit on it!

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