Bitcoin mining explained – process, benefits, and challenges

On January 3, 2009, the Bitcoin network launched when Satoshi Nakamoto, its unknown creator, mined the first block, known as the ‘genesis’ block. What began with a single block also set in motion the process that would guard Bitcoin’s public ledger system. From that moment forward, mining became the wall of energy around Bitcoin, converting electricity into cryptographic assurance that validates transactions and makes attacks economically impossible.

For more than sixteen years, miners have secured the Bitcoin blockchain and validated transactions, rewarded every ten minutes with block subsidies that halve every four years, from 50 BTC to 3.125 BTC, leaving around 19.9 million BTC in circulation on September 9, 2025.

What started with a single computer running on Satoshi Nakamoto’s machine has grown into an industry spanning continents, powered by specialized hardware and vast energy resources. 

What began as an experiment and hobby, among cypherpunk adopters, has grown into one of the core industries driving the digital asset economy. Bitcoin mining is both a technological breakthrough and an economic engine, using game theory to align incentives, energy and security beyond any analogue system.

This article explains what Bitcoin mining is, how it works, why mining matters, the motivations behind miners, the requirements, risks, where Bitcoin mining is permitted or banned and finally what the future may hold for this industry.

What is Bitcoin mining?

Bitcoin mining powers the blockchain and miners use machines to run calculations, searching for a valid hash that locks a block of transactions into place. Once that hash is found, the block is sealed onto the chain and the process starts all over again. 

In simple terms, Bitcoin mining is a lottery where miners spend electricity and computing power on tickets. Approximately every ten minutes, one winning miner earns the block subsidy and transaction fees, gains the right to attach the next block to Bitcoin’s history which (via the subsidy) slowly increases the circulating supply.

The functions of Bitcoin mining can be understood in three parts:

• Transaction validation: Checking that each transaction is genuine, signed and consistent with the blockchain’s record. Validation of transactions prevents double-spending and keeps the ledger accurate.

• Block creation: Gathering validated transactions and organizing them into new blocks that extend the chain. Each ten-minute block produces an ordered, permanent record of activity that all participants can reference on the Bitcoin public ledger.

• Issuance of new bitcoins: New currency enters circulation through the block reward, created in a special coinbase transaction, along with transaction fees. Issued roughly every ten minutes, the issuance mechanism incentivizes miners and sustains Bitcoin’s monetary system with a predictable supply schedule.

As of September 2025, Bitcoin’s network secures itself with 1,041,437,128,989 terahashes per second of computational power.
This throughput represents an astronomical number of calculations, far beyond what most advanced centralized computing systems can sustain. Such scale in hashrate makes the it very difficult for any attacker to outpace the collective effort of Bitcoin miners worldwide, reinforcing Bitcoin’s decentralized narrative.

What is Proof of Work and how does it relate to Bitcoin mining?

Proof of Work (PoW) is the consensus mechanism that supports Bitcoin mining. By turning electricity into computation, miners make it expensive to alter the blockchain. As mining is decentralized, no single miner has control, instead, security is provided by the collective work of thousands of participants worldwide. 

The more mining power is distributed, the harder it becomes for anyone to manipulate the record of transactions.

PoW secures the Bitcoin protocol by linking the protocol's integrity to real-world cost. Any attempt to rewrite transactions or double-spend would require surpassing the combined hash power of honest miners, an undertaking so resource-intensive that it becomes economically self-defeating. 

In this way, PoW turns energy expenditure and computational effort into a barrier that protects the public ledger from tampering, a mechanism best understood by looking at the mining process step by step.

How does the Bitcoin mining process work?

The mining process is technical but can be explained step by step.

The role of hashing (SHA-256)

Bitcoin uses a cryptographic algorithm called SHA-256. A “hash” is the output of this algorithm being a fixed 256-bit number derived from input data. 

The important point is that SHA-256 is one-way and unpredictable. Even a tiny change in the input produces a completely different hash. The strength of SHA-256 lies in its unpredictability, making it impossible to reverse-engineer or manipulate and this property is what secures every Bitcoin block and transaction from tampering.

Target hash and the nonce

For a block to be valid, its hash must be lower than a target set by the Bitcoin protocol. Miners attempt to find this winning hash by adjusting a variable called the ‘nonce,’ a number that can be changed repeatedly to produce new hashes until one satisfies the target.

Each change reshuffles the block’s hash, like pulling a fresh lottery ticket. Bitcoin mining offers no tricks, only trial and error, so miners must attempt to run through trillions of guesses until one works. 

The system is tuned so that, on average, one random winner emerges roughly every ten minutes to add the next block. 

Mining difficulty and adjustments

Since computing power on the network is always changing, more miners may join with powerful machines or switch off rigs when costs rise. 

Bitcoin employs a unique feature known as the difficulty adjustment. Approximately every 2,016 blocks, or about every two weeks, the Bitcoin protocol self-reviews how quickly blocks were found.

If the average time was faster than the ten-minute target, difficulty is raised and if slower, difficulty is lowered. This self-correcting mechanism gives Bitcoin an almost living like quality, constantly adapting to total hashrate to keep block production steady at ten minutes, every two weeks.

Block rewards and halving events

When a block is mined, the successful miner receives the block reward. Miner revenue consists of two parts: the block subsidy (newly created bitcoins recorded in the coinbase transaction) and the transaction fees attached to transactions included in that block.

The block subsidy halves every 210,000 blocks, or roughly every four years, in an event known as the “halving.” On April 20, 2024, the reward dropped from 6.25 BTC to 3.125 BTC. These halvings ensure Bitcoin’s supply will never exceed 21 million coins, as the subsidy asymptotically declines toward zero.

In 2009, the initial block reward was 50 BTC issued roughly every ten minutes. With each halving, this reward is cut in half, reducing issuance over time. As the number of bitcoins created per block can only decrease according to this schedule and never rise, the supply curve remains entirely predictable.

The cumulative effect of repeated halvings forms a geometric series that converges on Bitcoin’s fixed supply of 21 million coins or 2.1 quadrillion satoshis.

Once the final reward subsidy drops to zero, expected sometime around the year 2140, no more new bitcoins will ever be created. At that point, miners will be compensated solely through transaction fees. 

This design ensures absolute scarcity, unlike fiat currencies that can be inflated at will, Bitcoin’s issuance cannot exceed the 21 million cap without rewriting the protocol’s fundamental rules. Rewriting Bitcoin’s layer one rules would require overwhelming consensus across the entire network.

Why Bitcoin needs miners

Miners are indispensable to Bitcoin’s security and operation. Without miners, the blockchain would have no way to confirm which transactions are valid, in what order transactions belong or how new Bitcoin should be issued.

Securing the network

At its core, mining protects against double spending, which is an attempt to use the same Bitcoin in more than one transaction. PoW makes this nearly impossible by requiring immense computational effort to alter the blockchain.

Each block of transactions is stacked on top of the last, linked cryptographically through the Merkle root. 

Altering even a single transaction would change the block’s hash and invalidate all subsequent blocks. To rewrite history, an attacker would need to redo all that work and catch up to the present chain, which would require controlling a majority of global hash power, known as a 51% attack.

The PoW design, therefore, converts energy into economic security. 

The more miners participate, the higher the hashrate climbs and the more expensive it becomes to attack the system. As new blocks are added roughly every ten minutes, past transactions become increasingly irreversible, since rewriting them would also require redoing the PoW for every subsequent block.

Validating transactions

Mining is also the mechanism that keeps the ledger consistent across the network. When a miner proposes a new block, every transaction inside that block has already been checked for authenticity in the form of reviewing proper digital signatures, available balances and adherence to the protocol’s rules. 

Once the block is accepted, the block is broadcast to every node, updating copies of the blockchain. 

Nodes are computers running Bitcoin software that maintain a full copy of the blockchain and enforce its rules. When a new block is broadcast, nodes independently verify it before updating individual ledgers, ensuring consensus across the network without relying on any central authority.

This decentralized verification process prevents fraud without requiring any central authority. 

Instead, the rules are enforced collectively, with each miner and node acting as an auditor. The result is a ledger where participants worldwide can agree on the state of balances, even if miners and nodes don’t know or trust each other.

Incentives for participation

Mining provides the economic motivation that powers Bitcoin as a global monetary system, with each successful miner earning a block reward and the transaction fees from included transactions. These payouts offset any real-world costs of electricity and hardware. 

The incentive structure aligns profit motives with network security where miners compete individually for rewards, yet in doing so miners collectively defend the blockchain.

Why do people mine Bitcoin?

Mining attracts participants for a variety of reasons.

Potential profits

Economic gain remains the primary driver. Miners must weigh the value of block rewards and fees against the costs of electricity, hardware and operations. Although rewards decline after each halving, profitability can remain viable when Bitcoin’s market price rises, helping offset shrinking margins.

Contribution to the network

By running machines that validate and secure the blockchain, miners collectively keep the network robust and censorship-resistant. Some participants mine to support Bitcoin’s broader vision as a decentralized financial asset that protects holders against money printing.

Speculative and strategic reasons

Mining can also serve as a method of acquiring Bitcoin directly through operational expenditure rather than purchasing it on exchanges. 

Some participants choose to retain rewards as part of a long-term holding strategy, treating mined Bitcoin as a portfolio diversifier. At the institutional level, mining operations are sometimes incorporated into broader investment approaches, where the coins produced are managed alongside traditional assets.

Virgin bitcoins, newly created coins with no prior transaction history, are often seen as especially valuable. Such coins can command interest from institutions because they carry clear provenance, simplifying compliance and avoiding concerns tied to KYC histories. In some markets, this perception of “clean supply” has even led to premiums for freshly mined coins.

What you need for Bitcoin mining

Mining requires a combination of hardware, energy, software and infrastructure.

Mining hardware

Early miners used CPUs and GPUs, but these quickly became inefficient because the network’s rising difficulty demanded far more hashes per second than general-purpose chips could provide. Today, mining is dominated by Application-Specific Integrated Circuits (ASICs), designed solely for SHA-256 hashing. 

A miner relying on older CPUs or GPUs would consume vastly more electricity for far fewer hashes, making profitable mining impossible compared to the efficiency of modern ASICs. Modern ASICs achieve extremely high hash rates with improved energy efficiency, measured in joules per terahash (J/TH).

Mining pools

Solo mining refers to an individual miner attempting to find blocks on their own, without joining a pool. With today’s difficulty, solo mining has become nearly impossible. Most miners instead join pools, where participants combine hash power and share rewards proportionally, creating more predictable income streams.

The current distribution shows a large share of blocks, around 56%, attributed to ‘Unknown,’ meaning the exact origin could not be identified. Among the identifiable pools, AntPool leads with nearly 16% of blocks, followed by ViaBTC (11%) and F2Pool (11%). Smaller contributors include SBI Crypto and Braiins Pool (each about 2.4%), while Poolin and BTC.com each account for less than 1%. 

Solo mining, however, remains possible in theory. Hobbyist devices like Bitaxe consume little more electricity than a household light bulb. The odds of success are astronomically low, yet rare cases of individual miners striking a block highlight how even the smallest contribution of energy still enters the lottery for Bitcoin’s rewards.

Energy requirements

Electricity is the largest operating cost when mining Bitcoin. Mining consumes vast amounts of power, often measured in gigawatts across the global network. Facilities are often located where electricity is cheap or renewable, such as hydro-rich Canada, wind farms in Texas or surplus energy regions like Paraguay.

Software and wallets

Mining software coordinates the hardware and connects it to the Bitcoin network or to pools. Commonly used options include CGMiner, BFGMiner and EasyMiner, which range from advanced command-line programs to more user-friendly interfaces. 

Software tools are typically free to download, though miners often invest in stable wired connections and firmware updates to maintain performance. Once rewards are earned, they are deposited into a Bitcoin wallet, usually secured with hardware devices or multi-signature protections.

Downsides and risks of Bitcoin mining

Mining also carries several challenges.

High energy consumption

Bitcoin’s PoW requires substantial energy, raising ongoing debates about emissions and sustainability. Fossil fuels, particularly coal and natural gas, still power much of the hashrate. At the same time, renewable integration is advancing, with hydroelectric providing a reliable source of energy without the daily fluctuations seen in solar and wind.

Costs vs. Rewards

As difficulty rises and rewards halve, profitability for miners shrinks. Only miners with efficient hardware and cheap electricity will operate sustainably. Smaller participants will often struggle to compete.

Regulatory uncertainty

Some governments support mining, while others restrict or ban it. Policy changes on taxation, licensing, or energy use can directly affect mining operations.

Centralization risks

Large mining farms and pools may dominate global hashrate, raising concerns about a 51% attack. While unlikely, if a small number of players controlled the majority of power, they could attempt double-spends or censor transactions, reducing trust in the network’s resilience.

Where is Bitcoin mining legal or restricted?

Bitcoin mining in 2025 is shaped as much by geography and regulation as by technology. With only about 450 new bitcoins added to circulation each day, roughly $50 million in value, the margins for miners hinge on access to cheap power, stable infrastructure and favorable policy. 

Locations that combine these elements have become magnets for industrial-scale operations, while others push mining out through bans or strict regulation.

Countries supporting mining

• United States: scale and innovation

The United States is the world’s largest hub for Bitcoin mining, with Texas leading through its deregulated power grid, abundant renewables and openness to flared-gas capture, while the Pacific Northwest provides hydro resources for a diverse energy mix. 

Publicly listed companies such as Riot Platforms, Marathon Digital Holdings, CleanSpark, Cipher Mining and TeraWulf secure a major share of global hashrate and give investors regulated equity-market access to Bitcoin’s infrastructure. 

Riot’s vertically integrated Texas sites, Marathon’s capital-light expansion and district heating programs and CleanSpark’s sustainability-first model showcase how U.S. miners drive innovation in energy use, grid balancing and community impact. For diversified exposure, the CoinShares WGMI ETF offers a regulated way to access this sector, positioning U.S. mining stocks as a gateway for traditional investors to the digital asset economy.

• Canada: Hydropower Advantage

Canada benefits from vast hydropower resources in provinces like Québec, Manitoba and British Columbia, alongside a cool climate that reduces cooling costs and extends hardware life. While Québec has capped the amount of electricity available to miners, the country still offers competitive energy prices and a transparent regulatory framework. 

This mix provides miners with operational stability, though large-scale expansion depends on regional energy policies.

• Paraguay: Hydropower Surplus

Paraguay is emerging as a Latin American hub for mining thanks to surplus renewable energy from the Itaipú Dam, one of the world’s largest hydroelectric facilities. While the country generates more power than it consumes, the national utility ANDE maintains monopoly control and requires miners to negotiate special contracts or pay surcharges. 

This adds complexity to operations, but Paraguay’s abundant, low-carbon electricity still gives it a strong environmental advantage.

• Kazakhstan: Coal, Hydropower, and Mixed Fortunes

Kazakhstan rose to prominence after China’s 2021 mining ban, at one point hosting nearly a fifth of the global hashrate. Abundant coal power and initially permissive policies drew miners in, but grid instability, new electricity taxes, and stricter licensing have eroded its appeal. By 2025, Kazakhstan’s share has settled at around 13% of global mining, a sharp drop from its peak but still substantial. The country illustrates how quickly favorable conditions can reverse when infrastructure and regulation shift.

Countries with Restrictions or Bans

• China: From Dominance to Zero

Once home to more than 60% of global mining power, China effectively removed itself from the industry in 2021 with a sweeping ban on large-scale mining. This triggered a migration of miners to North America, Central Asia and Russia. 

Small-scale, unauthorized mining still exists, but China’s dominance is firmly in the past.

• Algeria and Morocco

In both Algeria and Morocco, mining is prohibited outright. Energy policies and strict controls over financial activity prevent any legal mining operations, blocking regional growth in this sector.

• Iran: Policy on Pause

Iran once promoted mining as a way to monetize excess energy, offering subsidized electricity and issuing licenses. However, recurring blackouts and pressure on the national grid have led authorities to impose seasonal bans and sudden shutdowns. 

The result is an unpredictable environment where miners face cycles of approvals followed by restrictions, limiting Iran’s ability to attract stable large-scale investment.

• Malaysia: Taxation Instead of Ban

Malaysia allows mining but treats it as taxable income under the country’s standard corporate and progressive tax system. This framework can cut into profitability for smaller operators, while larger miners still benefit from relatively affordable power. 

Some facilities have drawn scrutiny for unlicensed electricity use, yet Malaysia remains more open than countries with outright bans, positioning taxation as its primary control mechanism.

Emerging hubs strengthening the global Bitcoin mining landscape

• United Arab Emirates (UAE)

By 2025, the UAE has emerged as a strategic player in sovereign-held Bitcoin. Through Citadel Mining, a facility funded by the Abu Dhabi royal family's International Holding Company and built on Al Reem Island in just six months, the UAE has mined an estimated 9,300 BTC, of which around 6,333 BTC are held in government-controlled wallets. 

• Ethiopia

Ethiopian Electric Power (EEP) tapped into excess hydropower to generate $55 million in revenue over a 10-month period by selling this surplus energy to Bitcoin miners. Initially hailed as a promising expansion of Ethiopia's energy monetization, to the tune of 2.25% of the global hashrate and $200 million in short-term earnings, EEP has now halted new crypto mining power permits. The decision stems from concerns over grid strain and balancing mining demand with the energy needs of millions still lacking electricity. 

• Argentina

In 2024, Argentina was leveraging stranded natural gas, gas flared off during oil extraction, as a source for Bitcoin mining. A partnership between YPF Luz (a subsidiary of state-owned YPF) and Genesis Digital Assets (GDA) is powering a mining facility in Neuquén Province using this otherwise wasted energy. 

The site operates approximately 1,200 mining machines, conserving emissions and demonstrating an innovative utility for byproduct gas. Beyond reducing flaring, this model generates revenue and promotes sustainability by turning pollution into productive energy use.

How regulation shapes mining

Energy availability is essential, but by itself it does not determine mining success. Clear and consistent regulation is now just as critical. Countries such as the U.S. and Canada have attracted institutional-scale investment by providing transparent rules and property rights. In contrast, the uncertain policies in Kazakhstan, recurring restrictions in Iran, and outright prohibitions in China or Algeria show how instability pushes miners to relocate.

Governments are also integrating mining into their broader energy agendas—whether that’s using stranded gas in Texas and Oman, harnessing hydro surpluses in Paraguay and Ethiopia, or tapping geothermal energy in Iceland and El Salvador.

The global trend is unmistakable: Bitcoin mining flourishes in environments where low-cost energy meets regulatory clarity. When either element is absent, miners redirect their machines to jurisdictions offering a more secure foundation for long-term operations.

Future of Bitcoin mining

The future of mining is shaped by predictable halvings, sustainability efforts and industrial participation.

Impact of halvings

Each halving reduces rewards and forces miners to innovate. The April 20, 2024 halving reduced the reward from 6.25 BTC to 3.125 BTC per block, which has already pressured less efficient miners to exit in 2024-2025. 

Future halvings will likely accelerate consolidation into larger operations with optimized energy costs.

Sustainability and renewable energy

Mining is moving steadily toward cleaner power sources, with studies estimating that more than half of global operations now run on renewables. Integration with wind, solar and hydro projects are expanding as miners pursue both cost efficiency and environmental responsibility. 

Among these, hydropower has proven the most reliable, offering consistent output to keep rigs online around the clock. By contrast, wind and solar, while increasingly adopted, often require fossil fuel or natural gas backup to ensure 24/7 uptime for mining hardware.

Mining and network security

Hashrate continues to reach record highs in September 2025, making the network more secure against attacks. Even as block rewards fall, over a predictable period of time, transaction fees are expected to become a larger incentive, keeping miners engaged in maintaining network security over the next century.

Institutional and industrial-scale mining

Institutional players are now at the forefront of Bitcoin mining in 2025. Publicly listed companies, energy firms and investment funds are integrating mining into broader business models. 

This professionalization brings capital, operational efficiency and regulatory alignment, transforming mining into a mature global industry. 

Some operators are pursuing hybrid strategies, combining Bitcoin production with expansion into adjacent data-center businesses. By leveraging mining rewards to build out infrastructure for high-demand sectors such as artificial intelligence, these firms are creating vertically integrated models that link Bitcoin mining with broader compute services.

Conclusion

Bitcoin mining is both the foundation of Bitcoin’s security and one of its most debated features. Mining validates transactions, secures the blockchain and governs the issuance of new coins. 

The Bitcoin mining process requires specialized hardware, large amounts of electricity and often participation in pools. Mining is motivated by profit, ideas and strategic positioning, but also challenged by high energy consumption, regulatory unknowns and centralization risks.

As halvings continue and sustainability becomes central to the economic model, mining will increasingly consolidate into clean industrial-scale and renewable-powered operations. Despite its challenges, mining remains essential to preserving Bitcoin’s decentralized design and long-term resilience.

Frequently asked questions (FAQ)

How long does it take to mine 1 Bitcoin?

It depends on hashrate and pool participation. On average, mining one Bitcoin individually could take years without industrial-scale hardware.

Can a normal person still mine Bitcoin?

Solo mining is nearly impossible today. Participation is usually through mining pools, which distribute rewards based on contribution.

Is Bitcoin mining traceable?

Mining rewards are recorded on the blockchain. While wallet addresses are visible, identities behind them are not directly revealed.

Is Bitcoin mining legal?

Legality depends on jurisdiction. Countries like the US and Canada permit it, while others like China prohibit it.