How Does Bitcoin Mining and Other Cryptocurrencies Work?

How to mine Bitcoin or other Cryptocurrencies and How does it all work? This is a common question, so below we’ll explain in an understandable way how the entire Cryptocurrency Mining process works and what Bitcoin mining actually is. In short, Mining is a specific and ingeniously designed activity where new cryptocurrency coins are controlledly “produced.” And that:

In a pre-determined amount (exactly 328,500 Bitcoins are mined annually)

And regardless of whether one or 10 million miners worldwide are mining the cryptocurrency.

The mining process works using computational power (powerful computers – miners). Today, there are 5 different ways to obtain mining power and thus mine Bitcoin but also cryptocurrencies like Ethereum, Zcash or Monero.

We cover all 5 of these ways (sales / production / service / rental) since 2015.

The most profitable are ASIC and GPU miners. But which one is worth it the most?

Here are 8 main Differences between ASIC and GPU miners

And What is Mining? What do all those miners do?

Miners Verify Transactions = Cryptocurrency Mining

If you send money to a friend through a bank, the bank verifies the payment, checks if you have sufficient balance and accounts it (deducts money from your account and credits to the friend).

Bitcoin however has no owner or director (center). Cryptocurrencies are decentralized and therefore verification of payments is not done by one center like in a bank, but by Hundreds of Centers (computers) around the World = mining.

And as a reward for that they receive fees (which you pay when sending BTC to someone) and they also receive newly created coins of the cryptocurrency. In translation: they mine cryptocurrency.

And thanks to the fact that cryptocurrencies are not controlled by any “director,” it can’t happen that your BTC payment will be rejected (that it’s a risky transaction), as it happens in banks (if e.g. sending money abroad, or high amounts, the bank simply Cancels and Does Not Send your payment, or can report to the financial office ..)

The Most Profitable Miners

But What About Mining Profits? How Much Will I Earn?

Ok, ok ok … that’s theory. But I’m interested in mining profits. How much will I earn and is it worth mining cryptocurrencies at all? Mining is definitely worth it, because you literally get cryptocurrencies at a discount. The question is only the exact amount of profits. How to find out? Simply by comparing:

Mining costs (miner price and consumed electricity)

Yields (how many coins you mine)

Calculations, how much exactly each miner earns for you now (including electricity costs) you’ll find 👇below.

How Much Does Mining Earn?

PS: Data Center: If you can’t have the miner at home, you can use Housing in Data Center

Is It Still Worth Mining? [e-book]

▪ 8x Why NOT to Invest a Cent in Mining!

▪ + 8x Why It Really Is Worth It.

8x Why NOT a Cent in Mining

(Also) Cruel Conclusions from 4 Years of Our Investing.

Cryptocurrency Mining as a Cipher

Cryptocurrency Mining – How Bitcoin and Other Cryptocurrencies Mining Works

Mining you can imagine as a cipher you have to decode. The more powerful your miner (powerful computer) is, the faster it decodes the cipher and the faster you get the reward in the form of mined BTC coins.

The whole this principle is described also in the so-called White Paper of each cryptocurrency, which is perhaps the most important document of each digital currency.

Below you’ll find detailed explained important terms that directly relate to mining.

How is Bitcoin and Other Cryptocurrencies Mined? [procedure]

how is bitcoin and other cryptocurrencies mined

Mining involves 2 chronologically arranged steps:

Verification of transactions from the previous block.

At the same time generating new coins of the new (next) block as a reward for the miner.

Cryptocurrencies are mined using powerful hardware and specialized software, which together perform thousands of mathematical calculations.

Mining – Confirmation of transactions

Mining cryptocurrencies is nothing else than comparing and checking the correctness of transactions that are in the last block. Just as in banks every payment goes through control, also in cryptocurrency payments there is control, so that no errors occur in cryptocurrencies like ..

Duplicate transaction (one transaction is sent by mistake 2x)

Or impossibility of transaction due to low balance (you send Bitcoin to someone, even if you own none).

Thanks to miners no such errors ever occur in cryptocurrencies.

Why are Miners so Needed for Cryptocurrencies?

Thanks to miners new cryptocurrency coins get into circulation.

Thanks to miners the whole cryptocurrency network is 100% verified and secure. Accuracy and infallibility is guaranteed. There is no way to bypass blockchain and transaction verification, as it can happen in banks.

Exactly this is the point of cryptocurrencies. To provide fast transactions without the need to wait for approval by bank as central institution.

In cryptoworld, transactions are verified by the network users themselves (miners). Thanks to that, transactions are multiple times faster and with substantially lower to zero fees.

Finally, explanation of the amount in which cryptocurrencies are mined.

Cryptocurrencies are mined in so-called blocks. Miner thus can mine whole one block, or none (no quarters or smaller parts). However to mine 1 whole BTC block (6.25 BTC at current value approx 100 000€) you need at current mining difficulty enormous amount of computational power for mining worth tens of thousands of euros.

mining pool (pool)

If you decided to mine alone with small power, mining 1 BTC block would take multiple times longer time. Miners however came with a simple solution in the form of Mining POOL. By the way “invention” of the very first Bitcoin mining pool comes from our brothers from Czech.

Mining POOL (pool)

Mining pool combines large number of miners into one whole, who contribute to mining with their power, thus creating huge clusters of mining power.

With multiple larger computational power, from large number of miners, the probability of mining whole one Bitcoin block dramatically increases, unlike autonomous mining alone.

In mining in a mining pool, the principle of equivalence applies:

The more power the miner puts into the pool, the larger share of the mined Bitcoin block he gets.

Mining Algorithm

As we already mentioned, mining takes place using specialized hardware and software. The algorithm is the program (software), through which mining takes place.

It is a program that can perform mathematical operations and thus mine cryptocurrency. There are approximately 60 mining algorithms, but each can mine only a certain type of digital currencies.

What Cryptocurrencies Does Your Miner Mine?

Each ASIC miner is made for 1 algorithm.

Each this algorithm however “contains” approx 10 to 100 different cryptocurrencies.

In translation: With each ASIC miner you can thus mine every single coin that the given algorithm contains (see list below).

Example:

Antminer S19 110 TH/s is a miner for algorithm SHA-256. Algorithm SHA-256 includes up to 191 cryptocurrencies.

With this Antminer S19 you can thus mine any of these 191 cryptocurrencies.

You can switch mining to another coin manually in the miner’s app (question of 30 seconds), or you can set a program (pool) like Nicehash, which switches mining (itself – automatically) always to the most profitable coin that can be mined with your miner.

Notes:

#1 Often you can hear the phrase “BTC miner” or “ETH miner.” But that doesn’t mean it’s a miner that mines only Bitcoin and nothing else. People just call it that. BTC miner means miner for algorithm SHA-256, which thus mines Bitcoin as the main cryptocurrency but plus another 191 cryptocurrencies, to which you can switch this BTC miner. BTC miner is just a name, because the main cryptocurrency of those 191 coins is Bitcoin. Therefore people call it BTC miner. Same with “ETH miners” “Zcash miners” etc.

#2 Dual-Mining – on miners dual mining is possible, i.e. mining 2 cryptocurrencies at once. This mining however mostly doesn’t make sense, because when mining 2 cryptocurrencies, logically, mining 1 of them is always more profitable than the other (half of the machine’s power goes to mining one cryptocurrency, and half to the second). Therefore at first glance it seems that when mining 2 coins at once you earn more, but the exact opposite is true. You earn a bit less.

#3 Since Bitcoin is mined on algorithm SHA-256, Ethereum on alg. Ethash, Litecoin on alg. Scrypt, Zcash on alg. Equihash. that means that on “BTC miners” you can’t mine ETH nor Litecoin, or Zcash. They work on different algorithms (i.e. also different miner). On ETH miners you thus also can’t mine BTC, LTC, Zcash etc.. These main (largest / most popular cryptocurrencies) thus work on separate (different) algorithms

Below you’ll find a list of cryptocurrencies that individual miners can mine.