What is mining?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Mining is the work of bundling transactions into a block and appending it to the ledger, rewarded with newly issued coins plus fees. Because participants spend real resources competing, rewriting the ledger becomes prohibitively expensive — which is what keeps the network secure.
Key points
- Bundling transactions into blocks and appending them
- Paid in newly issued coins plus transaction fees
- Only exists on Proof-of-Work chains
- Electricity and hardware costs dominate the economics
Definition
On a Proof-of-Work blockchain, competing through computation for the right to produce the next block, in exchange for a reward.
A miner assembles pending transactions into a candidate block and repeatedly varies a number until the block's hash meets the network's condition. The first to find a valid value broadcasts the block and collects the reward. The more competition there is, the harder the condition automatically becomes, keeping block intervals roughly constant.
On Bitcoin the reward is the newly issued coins plus the fees of the included transactions. Issuance halves roughly every four years, so by design fees make up a growing share over time.
Home computers sufficed in the early years; today Bitcoin mining is dominated by operators running purpose-built ASIC machines. Profitability depends on hardware prices, electricity rates, the coin's price and total network hashrate — all of which move. Any individual calculation rests on assumptions that can change quickly.
Watch out for
- · Cloud-mining offers promising fixed returns for deposited funds have a long history of fraud
- · Electricity and hardware costs shift, so profitability estimates age quickly
- · In Japan, mining rewards raise tax questions that need to be handled properly