Bitcoin 101

A Beginner’s Guide To Bitcoin Mining

Bitcoin Mining is the process through which Bitcoins are created on the Bitcoin network. Users utilize special software to solve complex math problems, and in turn, they are rewarded with a certain number of Bitcoins.  The process creates a smart way to issue the currency and at the same time creates an incentive for more people to mine.

What is Bitcoin Mining?

It’s a process through which transactions are verified and added on the blockchain. It serves two purposes; It confirms transactions in a trustful manner when there is enough effort (computational power) devoted to create blocks. Also, it creates (issues) new bitcoins as rewards after every block is established.

The Process

  • A miner starts by trying to verify if a transaction is valid.
  • They bundle transactions in a block.
  • Then they select the header of the most recent block and insert it in the new block as a hash.
  • They solve the proof of work problem.
  • After finding a solution to the problem the new block is added to the blockchain and shared with the rest of the network.

What is proof of work concept?

Bitcoin Mining

It’s a piece of data that is difficult (time-consuming and costly) to produce to satisfy specific requirements. The process costs processing power which translates to energy, time and hardware.

What is the mining difficulty?

Its a measure of how difficult it is to find a hash that is below the target value (a 256-bit number) during the proof of work. The target value is recalculated after every 2016 blocks which is approximately every two weeks.

The process works like a cycle that balances itself. As more miners join the network, the block creation rate increases. Therefore the average mining time decreasing which leads to the mining difficulty increasing. Hence this pushes the rate of block creation down and then the average time goes back to normal. The ideal average mining time is designed to be 10 minutes per block.

Bitcoin Mining block rewards

Block reward is the number of Bitcoins that are released after every block is mined. Nakamoto designed the reward to half after every 210,000 blocks which roughly translates to 4 years. The initial block reward was 50 bitcoins back in 2009. This figure dropped to 25 bitcoins after four years and currently stands at12.5 BTC. This amount will keep on reducing until all the 21 million bitcoins have been released.

Bitcoin cloud mining

Bitcoin Mining

Cloud mining also known as cloud hashing is a process that enables users to purchase mining capacity of hardware in data centers. It allows people to earn Bitcoins without having to manage the software, hardware, electricity or any other offline issues.

The process of mining the bitcoins is done remotely in the cloud. Consequently, it saves users from the hassles that are associated with the whole process such as electricity, heat, hosting issues, installation, and upkeep trouble.

Advantages of Bitcoin cloud mining

  • There is no electricity cost.
  • No noise pollution as there are no humming fans.
  • There is no excess heat.
  • There are no ventilation problems with hot equipment.
  • No need to invest large sums in Bitcoin mining equipment.

Disadvantages of cloud Bitcoin Mining

  • Users need to be careful as fraud is rampant.
  • It offers lower profits.
  • One is not in possession of the Bitcoin mining hardware.
  • Bitcoin Mining contracts can stop operations or stop payouts in the contracts if the price of BTC is too low.
  • It’s no fun if you are the type that likes to build your hashing systems.
  • One lacks the ability to change the Bitcoin Mining software.

Bitcoin Mining Hardware

Bitcoin Mining

Over the years as the mining difficulty has gone up the type of hardware needed to mine bitcoins has become more specialized. At the start, it was easy to mining bitcoins using a CPU from the normal desktop computers. As the crypto-coin gained more popularity and more people started participating in the activity, Graphics Processing Units (GPUs) became more popular as they were more effective than CPUs.

However, GPUs were overtaken by ASIC (Application Specific Integrated Circuit). Since their release in 2013, they have been improving with more efficient designs coming to the market. As of 2018, Bitcoin Mining is only profitable by using the latest ASICs.


Basil has three years of freelance experience writing on disruptive technologies. He focuses on breaking news and education pieces; helping to spread the gospel of Blockchain. He hopes to have his own blockchain company one day; helping the world through its innovative ledger technology.

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