What is Bitcoin Mining?

By July 16, 2020May 9th, 20234 minute read

Nowadays, bitcoin is getting a lot of mainstream attention. Almost everyone is talking about it. While discussing bitcoin’s creation, the word ‘mining’ keeps coming up a lot. Sounds similar to mining coal, gold, or any other precious metal. But, bitcoin mining is a bit different. And how exactly?

Bitcoin mining doesn’t involve physical labor. The work involved is computational.

Gold or coal exist underground, and miners dig them out. Similarly, bitcoins by design exist within the Bitcoin network.

Miners dig/compute them out by successfully solving mathematical problems, and they use specialized hardware for unraveling these problems. At least, nowadays.

Before delving deeper into bitcoin mining, let’s try and understand what the blockchain family consists of.

Bitcoin Nodes

Bitcoin Core is a software that is the driving force behind the Bitcoin network a.k.a blockchain. This software when installed on a computer downloads the entire blockchain, which is around 330 GB in size!

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Bitcoin’s blockchain is a decentralized public ledger that contains the record/’chain’ of all bitcoin transactions segregated into ‘blocks’.

Apart from miners, The Bitcoin blockchain has other participants – nodes. Nodes or full nodes as they are better known have the latest version of the Bitcoin Core software installed and the entire Bitcoin blockchain downloaded on their computers.

They distribute copies of the updated blockchain to more nodes and help keep the network decentralized and secure.

Full nodes maintain the blockchain and ensure that everyone stays with the ‘longest’ chain.

The Bitcoin blockchain also comprises of light nodes. Light nodes function minimally, by just holding information of only the previous blocks. They connect with other light nodes to further decentralize the network and need less power to operate.

As of date, there are around 10,500 nodes across the world.

Bitcoin Nodes Across the world
Bitcoin nodes across the world

Miners are nodes as well and are called mining nodes. They perform a different set of functions compared to others.

While the full nodes validate bitcoin transactions and broadcast their information across the network, mining nodes or miners verify transactions and put them in blocks. Full nodes then add these blocks to the blockchain.

It is important to know that transaction validation occurs before verification. Now that the family is introduced, let’s jump to the main topic of discussion!

What Exactly Happens in Bitcoin Mining?

Bitcoin mining essentially is mining blocks to add bitcoin transaction information. That’s where the effort is. Here’s what exactly happens.

Once the full nodes detect and validate a bitcoin transaction, they are ready to be verified and confirmed by the miners. Before they enter the blockchain.

Competition is an important aspect of the bitcoin mining ecosystem. Miners compete with their other bitcoin mining peers to ‘work’ and compile transactions in a certain block.


The ‘work’ involves solving the mathematical puzzle called a ‘hash function’, and requires a significantly high computational power. This happens per the SHA (Secure Hashing Algorithm)-256 hashing algorithm that is native to Bitcoin.

Solving hash functions amounts to solving a bitcoin block. Every hash function requires input data to be solved. The input data can be of any size. In the context of bitcoin mining, the inputs are unconfirmed bitcoin transactions.

Miners utilize the transaction inputs along with a few other pieces of arbitrary inputs to combine them and arrive at a ‘hash’ or result beginning with a set number of zeros. To know more about hashes check out the video below:

Hashes in bitcoin mining start with 18 zeros. Hash functions/blocks in the Bitcoin blockchain take approximately 10 minutes to solve. After this, full nodes take the call on adding them to the blockchain.

The miner who solves the block first receives a set number of bitcoins as a reward for the work done. This is called ‘proof-of-work’ (PoW). The reward is reduced every four years through an inbuilt process called ‘halving’. The current block solving reward is 6.25 bitcoins.

Bitcoin Mining Difficulty

Bitcoin mining has an element of difficulty embedded in the process. The difficulty is the sole reason why miners have to constantly update their hardware (spend more money and increase computational power) to stay in the game.

Mining difficulty increases with more miners joining the network.

Increase in Bitcoin Mining Difficulty Overtime
Increase in Bitcoin Mining Difficulty Overtime, Source: Bitinfocharts. com

Since increasing mining difficulty increases the cost of producing bitcoin, miners have to sell their BTC to cover operational costs. But that’s a topic for some other time.

Over time, the rising difficulty has led miners to switch from GPUs (Graphics Processing Units) used in high-performance gaming PCs to ASIC miners.

BTC Mining Today

Over the years, bitcoin mining has blossomed into a billion-dollar industry. ASIC miners specifically designed to mine bitcoin are the backbone of this industry. These devices can solve Bitcoin’s SHA-256 hash functions much faster than GPUs.

Also, bitcoin mining has become a costly proposition and is no longer suitable for individuals. That’s why different miners over time contributed their computing power and formed mining pools. Some of the biggest BTC mining pools operating currently are:

  • Antpool
  • F2Pool
  • Poolin
  • SlushPool

This is an overview of bitcoin mining. Head over to Telegram groups of some bitcoin communities in India like IndiaBits, Bitcoin India, and WazirX to interact with the members there and know more about the uses of bitcoin including investing. Hope this primer will not let you ‘wonder’ about bitcoin’s creation process anymore.

Who Created Bitcoin?

Bitcoin is the first application of the concept of "cryptocurrency," first articulated in 1998 on the cypherpunks mailing list by Wei Dai, who proposed a new form of money that relies on cryptography rather than a central authority to manage its creation and transactions. Satoshi Nakamoto published the initial Bitcoin specification and proof of concept on the cryptography mailing list in 2009. Satoshi exited the project in late 2010, with little information about himself available. Since then, the community has evolved, with numerous people working on Bitcoin. Satoshi's anonymity has sparked unfounded fears, many of which may be traced back to a misunderstanding of Bitcoin's open-source nature.

What Is Bitcoin Used For?

Bitcoin was created as a means of sending money over the internet. The digital currency was designed to be a non-centralized alternative payment system that could be used in the same way as traditional currencies. Bitcoin is being used by an increasing number of businesses and individuals. This includes establishments such as restaurants, apartments, and law firms.

How Can I Get Bitcoin?

To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process. Following that, you'll be sent to the Funds & Transfers section, where you can begin depositing Bitcoins into your wallet. You may also use INR to fund your WazirX Bitcoin wallet and then use it to purchase Bitcoin.

Is Bitcoin Safe And Legal In India?

In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.

How To Convert Bitcoin To Cash?

There are many ways of converting Bitcoin to cash, such as crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, Peer to Peer Transactions. You can use cryptocurrency exchanges such as WazirX for this. Unlike typical ATMs, which allow you to withdraw money from your bank account, a Bitcoin ATM is a physical location where you may buy and sell Bitcoins using fiat currency. Several websites provide the option of selling Bitcoin in return for a prepaid debit card that may be used just like a standard debit card. You can sell Bitcoin for cash through a peer-to-peer platform in a faster and more anonymous manner.

Is Bitcoin A Good Investment For The Future?

Some investors are afraid of the risks or devastation, but others are very eager to pursue the possibility of profit from a Bitcoin investment. A Bitcoin investment is similar to stock investing, except it can be more volatile.

How Bitcoin Mining Works?

Bitcoin mining is a crucial element of the blockchain ledger's upkeep and development and the act of bringing new Bitcoins into circulation. It's done with the help of cutting-edge computers that solve exceedingly challenging computational arithmetic problems. Auditor miners are rewarded for their work. They're in charge of ensuring that Bitcoin transactions go through smoothly and legitimately. This standard was established by Satoshi Nakamoto, the founder of Bitcoin, to keep Bitcoin users ethical. By confirming transactions, miners assist in avoiding the "double-spending issue."

What Is Bitcoin?

Bitcoin is a decentralized digital currency that may be purchased, traded, and traded without intermediary like a bank. Bitcoin is built on the blockchain, which is a distributed digital ledger. Wei Dai suggested a new kind of money that relies on cryptography rather than a central authority to oversee its production and transactions on the cypherpunks mailing list in 1998. Bitcoin was the first application of that notion. In 2009, Satoshi Nakamoto sent out the first Bitcoin specification and proof of concept to a cryptography mailing group.

How Can I Convert Bitcoins To Cash?

Bitcoin may be converted to cash in various ways, including crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer to Peer Transactions. You may do this by using Bitcoin exchanges like WazirX. You may also sell Bitcoin for cash faster and more anonymously through a peer-to-peer marketplace.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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