What is Bitcoin Mining?

By July 16, 2020March 8th, 20214 minute read
What is Bitcoin Mining?

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!

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.

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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