How Crypto Mining Works

As we explained before, essentially mining, is the processing of transactions into a block in exchange for a pay out. Mining isn’t an option for every cryptocurrency, some are only mined or issued by the company that created the crypto currency, creating a pseudo-decentralized system. For the purpose of this post we are going to focus on how mining works for bitcoin because most major crypto coins follow similar systems, if not exactly the same with differently named contracts and software.

For decentralized peer to peer cryptocurrencies like Bitcoin, mining is crucial to the survival of the currency. Crypto mining serves three main purposes: issuing new coins, confirming the transactions and security.

Mining is important for creating new crypto currencies because miners are paid out in new coins, and the algorithms prevent users from being able to create crypto out of thin air. Each crypto has set in code an issuance rate and frequency to ensure the same amount is paid out every time for the same work.

In addition to creating new coins, mining helps to verify transactions and prevent double spending. With real money, when you use a $20 bill to pay for something, you can’t use that same bill to pay for something else at another store, and mining makes sure that you don’t do the same with crypto. Every transaction is recorded on a block that was hashed by the miner, and it is then attached to the chain that is nearly un-hackable making sure that your transaction is recorded and the crypto transferred between the correct accounts.


Thanks to proof of work, you can make sure that all nodes in the system are contributing honestly. Proof of work helps prevent hackers from editing blocks and from double spending on crypto that they have already used.

When bitcoin first starter, you could just download some software on your computer and start mining, but now our computers are too slow to complete the complex blocks and require something like ASIC miner in addition to your software. Mining larger cryptos like bitcoin at home with just a computer will give you nothing but cents every year and will cost you thousands in electric so it is not worth it to mine without the proper hardware set up. If you are just starting you can look for used pieces on amazon and eBay so that they are not as expensive and you start turning a profit quicker.

In addition to getting the mining hardware and software you may consider joining a mining pool. Solo mining can be rewarding, but if you’ve got less powerful rigs, it may take you some time to see a profit as you only get paid if you find the block on your own. On the other hand, if you join a mining pool, a group of you will all work together to find blocks, and after a certain time you will all be paid out according to your hash rate. This way even if you don’t have a large set up yet, you can still get rewarded for the work that you do and build up your hash power to start earning more money.

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