Bitcoin Mining

Similar to gold, ‘Bitcoins’ are created through a proof-of-work process called ‘mining’.

But instead of earth-moving equipment and prospecting, mining Bitcoin is a computational digital contest between special computers consisting of mathematically guessing (hashing) certain cryptographic data-proofs (Bitcoin transactions) and verifying them for the chance to get a reward, BTC. This is how new, but finite Bitcoins are created.

‘Mining secures the Bitcoin system and enables the emergence of network-wide consensus without a central authority.’

—Anthony Antonopolous

2 purposes of mining:

Validate Transactions

Mining nodes validate all transactions by reference to bitcoin’s consensus rules. Therefore mining provides security for bitcoin transactions by rejecting invalid or malformed transactions.

Create new Bitcoin

Mining creates new bitcoins in each block, almost like a central bank printing new money, the difference is, there is a supply cap. The amount of bitcoin created per block is limited and diminishes with time, following a fixed issuance schedule.

Mining process summarized:

New transactions are broadcast to all nodes.

Each node collects new transactions into a block.
Each node works on finding a difficult proof-of-work for its block.
When a node finds a proof-of-work, it broadcasts the block to all nodes.
Nodes accept the block *only* if all transactions in it are valid and not already spent.
Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

-Bitcoin white paper

Mining Visually explained

What is Proof-of-Work, and Why Does It Matter?

Bitcoin’s proof of work (PoW) is the backbone of its security, fairness, and decentralization. At its core, PoW is a system that requires miners—those who validate Bitcoin transactions—to perform computations to find a specific solution. But why is this important?

Imagine you're running a digital money system—how do you stop someone from fabricating unlimited money or rewriting the rules for personal gain? This is where Bitcoin’s Proof of Work (PoW) shines. Miners compete to find a "nonce" (a random number) that, when combined with blockchain data and passed through a cryptographic hash function, produces a result matching specific criteria set by the network, like starting with a certain number of zeros. These puzzles aren’t traditional “math problems” but brute-force tasks requiring miners to test countless random numbers until one works. This process, intentionally resource-intensive, ensures participants have significant investment—“skin in the game”—making it prohibitively expensive to manipulate the system while preserving its decentralized integrity and preventing counterfeiting.

This process takes time, physical energy, and computational resources, making it costly to attempt fraud or manipulate the system. It’s this real-world cost and effort that keeps Bitcoin honest, secure, and scarce—similar to how gold is valuable because it takes effort and resources to mine.

Decentralization: Why Proof of Work Keeps Bitcoin Open and Fair

One of Bitcoin’s greatest strengths is its decentralization—the fact that no single person, group, or government controls it. Proof of work is the mechanism that ensures this.

In Bitcoin, anyone in the world with the right equipment can mine. There are no gatekeepers. This openness means Bitcoin isn't run by a company, a government, or a board of directors. Instead, it’s secured by thousands of independent miners across the globe, all competing equally. This creates a level playing field, where no one has special privileges, and decisions about Bitcoin’s future aren’t centralized in the hands of a few.

Proof of Work vs. Centralized Systems

Think about the systems we use today, like banks or payment networks. They’re run by centralized authorities, which means you have to trust them to operate fairly and honestly. With Bitcoin’s proof of work, there’s no need for trust in a third party. The system enforces its own rules transparently through math and energy.

download (11).jpg — New transactions are constantly flowing into the network from user wallets and other applications.

“Winning” the Block

Transactions are added to the new block, prioritized by the highest-fee transactions first. Each miner begins the process of mining a new block of transactions as soon as he receives the previous block from the network, knowing he has lost that previous round of competition.

He immediately creates a new block, fills it with transactions and the fingerprint of the previous block, and starts calculating the Proof-of-Work for the new block. Each miner will include their own special transaction in the block, one that pays his own bitcoin address the block reward plus the sum of the fees from all the transactions included in the block.

If he finds the solution that makes the block valid, he “wins” this reward because his successful clock is added to the global blockchain and the reward transaction he included becomes spendable.

Proof of Work (PoW) vs Proof of Stake (PoS): Why Bitcoin Stands Alone

To understand Bitcoin’s revolutionary nature, it’s essential to dive into the two main ways blockchains are secured: Proof of Work (PoW) and Proof of Stake (PoS). These systems determine how transactions are validated and new coins are brought into circulation. While both aim to secure decentralized networks, the methods they use couldn’t be more different—and the stakes for users are huge.

Proof of Work: Energy Anchored to Reality

Bitcoin’s Proof of Work (PoW) is a system rooted in physical reality. Just like gold requires mining effort to extract, Bitcoin requires miners to expend energy to add new coins to circulation and validate transactions.

Here’s why this matters:

Energy-Based Scarcity: Bitcoin isn’t created out of thin air. Miners convert energy into computational work to secure the network. This creates a physical cost function, ensuring new Bitcoin is hard to produce and inherently valuable—like digital gold.
Decentralized Security: Anyone, anywhere, can participate in Bitcoin mining. This ensures the network remains decentralized, with no gatekeepers or privileged actors. Whether you’re mining in a warehouse or a home, the rules are the same.
Fair and Transparent Incentives: No matter how rich you are, your gains in Bitcoin depend on your effort and participation in the system. There are no special privileges—everyone plays by the same rules.
Censorship Resistance: Miners can’t censor or manipulate transactions because Bitcoin’s PoW system objectively enforces rules through the longest proof-of-work chain. This ensures Bitcoin remains open and censorship-resistant, even under external pressures.

Proof of Stake: Decentralized in Name Only

Proof of Stake (PoS) was introduced as an alternative to PoW, promising lower energy use. But while it may sound appealing, PoS fundamentally undermines the principles of fairness, decentralization, and trustlessness that make Bitcoin revolutionary.

Here’s the reality of PoS:

Centralized Power: In PoS, decision-making and rewards are concentrated in the hands of the wealthiest participants. The more coins you stake, the more control you have. Over time, this system disproportionately benefits the rich, creating an unequal and centralized network.
No Skin in the Game: Unlike PoW miners who invest in hardware, energy, and infrastructure, PoS participants risk nothing. They simply move tokens from a wallet, stake them, and collect rewards—making the system vulnerable to manipulation and collusion.
Censorship Vulnerability: Since PoS networks rely on validators with large stakes, these systems are more susceptible to external influence. For example, Ethereum—now a PoS system—has validators compliant with OFAC (Office of Foreign Assets Control) sanctions. This means Ethereum transactions can be censored by governments, eroding the very principles of decentralization.
Dependent on Trust: In PoS, users must trust validators not to collude or manipulate the system. This introduces the same trust problems as traditional banking systems, undermining blockchain’s purpose.

Why Proof of Work Matters

Bitcoin’s Proof of Work isn’t just a consensus mechanism—it’s the foundation of digital sound money. Here’s why PoW is indispensable:

Byzantine Fault Tolerance: Before Bitcoin, distributed systems could only tolerate up to 33% dishonest participants. Bitcoin’s PoW raises this threshold to 50%, using an external physical signal (energy) to create a secure, tamper-resistant system.
Objective Consensus: PoW allows for an objective fork choice—the longest proof-of-work chain. This ensures no single actor or group can arbitrarily change the rules or decide which transactions are valid.
Economic Alignment: Miners in PoW systems have true “skin in the game.” They invest real capital (hardware, energy, infrastructure) to secure the network. To profit, they must follow the rules and contribute to the system. PoS, by contrast, offers returns without effort or meaningful risk, more akin to a parasitic system.
Energy Anchors Trust: Critics argue that PoW’s energy use is a “waste.” But this misses the point. Energy consumption anchors Bitcoin to physical reality, ensuring it’s costly to attack and impossible to counterfeit. Gold’s value lies in its production cost, and Bitcoin replicates this digitally.

Why Ethereum’s Switch to PoS Undermines Decentralization

Ethereum once used PoW, but its shift to PoS has centralized its network:

Censorship: Over 50% of Ethereum validators comply with U.S. sanctions, proving they are vulnerable to state control.
Infrastructure Dependency: Ethereum validators often rely on centralized cloud services like Amazon Web Services (AWS), making the network dependent on corporations.
Power Concentration: The largest stakers (often insiders and early adopters) now wield disproportionate control, making Ethereum a “Decentralized In Name Only” system.

Bitcoin: A Truly Decentralized System

Bitcoin is the only major blockchain that has successfully maintained true decentralization. With no administrators, no privileged insiders, and no central points of failure, Bitcoin is the purest realization of blockchain’s original vision: a trustless, open, and fair monetary system.

Proof of Work is fundamental to this vision. It provides the physical, economic, and decentralized foundation that no other system can replicate. Bitcoin’s energy use isn’t a flaw—it’s a feature, ensuring the network’s security, fairness, and resistance to corruption.

The “Halving”

The network is designed so that only 21 million BTC will ever exist Each divided into 1-hundred million units or Satoshis (sats) - with the last expected bitcoin to be mined (created) around 2140.

Because Bitcoin is a public blockchain network or in other words an openly distributed ledger of transactions), the total number of BTC in existence can be verified by anyone at any time. The rate of BTC generated through cryptocurrency mining is programmed to cut in half every four years (known as "the halving" or "the halvening").

What Do I Need to Mine Bitcoins?

Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time.

In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so. However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem.

For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2,016 blocks, or roughly every two weeks.

When there is more computing power collectively working to mine for bitcoins, the difficulty level of mining increases in order to keep block production at a stable rate. Less computing power means the difficulty level decreases. To get a sense of just how much computing power is involved, when Bitcoin launched in 2009 the initial difficulty level was one. As of Nov. 2019, it is more than 13 trillion.

All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU (graphics processing unit) or, more realistically, an application-specific integrated circuit (ASIC). These can run from $500 to the tens of thousands.