What Is Bitcoin Mining?

What does Bitcoin mining do?

Bitcoin mining is the process of creating blocks from valid transactions and making these blocks comply with the computational conditions required for the network to accept them. Miners repeatedly hash the block header with different values; that is, they calculate its digital digest. The goal is to find a result below the target set by the network. This method is called proof of work (Proof of Work).

Mining is not just about producing new BTC. It contributes to the ordering of transactions and makes it costly to alter history. New production and transaction fees incentivize miners to perform this work. However, if a miner proposes a block containing an invalid transaction or an excessive reward, full nodes will reject it.

Why is the computational race necessary?

Since there is no easy way to find the appropriate hash result in advance, many attempts are made. More computational power increases the probability of finding a block within a certain period; it does not guarantee a definitive result. When a suitable result is found, other participants can verify it with relatively few operations.

An attacker wanting to modify a past block must also reproduce the work after that block and race against the honest network. Bitcoin relies on the total accumulated work among alternative valid chains. Therefore, it is not just the number of blocks that matters, but the work those blocks carry.

What income does a miner earn?

A miner who produces a valid block can receive two main income items: the amount of new BTC allowed by the protocol for that period and the transaction fees in the block. The new production is called the block subsidy. In daily language, the term “block reward” is sometimes used only for the subsidy and sometimes for the sum of the two; attention should be paid to the context.

The subsidy is halved every 210,000 blocks. This is called halving. Since the average block time is about ten minutes, the interval is roughly four years; the exact calendar day is not fixed in the protocol. Fee income varies based on transaction demand on the network.

The block found by the miner can also be excluded in a short-term chain race. Therefore, not every calculated candidate or published block generates definitive income. The method used in pool payments determines how this variability is reflected to the participants.

Relationship between hashrate and difficulty

Hashrate is the speed of computational attempts per second. The hashrate of the device and the estimated hashrate of the entire network are different metrics. The network estimate is derived from block production; short-term fluctuations do not directly prove that all devices are being turned on or off.

Difficulty describes how hard it is to find a suitable result. Bitcoin adjusts according to the target time every 2,016 blocks. If the network’s computational power increases and blocks are formed quickly, the difficulty tends to rise. This steers the long-term average time toward approximately ten minutes.

Even if a device’s power remains the same, if the total power of the network increases, the device’s relative share may decrease. For this reason, it is not realistic to assume today’s income rate will remain constant for years in profitability calculations. Both difficulty and BTC price, as well as fee income, can change.

Which hardware is used?

Bitcoin mining is today predominantly done with ASIC devices designed for SHA-256 calculations. Ordinary phones or laptops cannot compete economically with large-scale specialized devices. What an “Earn Bitcoin with your phone” app actually does should be examined separately; the points shown may not be direct mining income.

When choosing a device, not only hashrate but also energy efficiency is important. If a faster device consumes much more electricity, its net result may be worse. Cooling, noise, electrical infrastructure, and maintenance are also part of the operation. There may be a difference between the label power of the device and its actual continuous consumption.

Electricity cost example

Assume hypothetically that a device continuously draws 3 kilowatts and the total cost of electricity is 4 TL per kilowatt-hour. Daily consumption is 3 × 24 = 72 kWh, and the daily electricity cost is 288 TL. In thirty days, the electricity for the device alone reaches 8,640 TL. These figures are not current tariffs or device recommendations.

The costs of cooling, internet, maintenance, pool fees, and the cost of the device spread over time are not included in this example. Furthermore, when income is generated in BTC, the TL equivalent changes. Even if daily gross income appears higher than electricity, the investment as a whole may not be profitable.

How does a mining pool work?

A pool aims to make payment distribution more regular by bringing together the contributions of many miners. Participants send shares that show the work they have done. The pool makes payments based on contribution or found blocks, depending on the payment method it uses. Pool fees and payment thresholds may also apply.

Joining a pool does not eliminate the physical operation of the device. The pool’s connectivity, honest reporting, and payment regularity also become important. Payment methods distribute different risks between the participant and the pool; comparing the apparent daily rates of two pools without knowing the difference in methods is incomplete.

What is purchased in cloud mining?

Under the name of cloud mining, a computational power or revenue-sharing contract can be purchased from a company. In this case, you do not manage the hardware directly; you rely on the service provider actually operating the capacity and complying with the contract. Fees, duration, termination terms, and payment accounts should be understood.

A guarantee of fixed and high earnings may not be compatible with the variable economic structure of mining. Hashrate, difficulty, and price risks continue. Seeing an increasing balance on a panel does not prove that withdrawable BTC has been generated. Claims that withdrawals cannot be opened without making more payments should also be questioned.

Buying Bitcoin and mining are not the same decision

Buying Bitcoin carries price and storage risk. Mining adds device, energy, maintenance, and operational risks to these. To earn mining income, it is not enough to just wait for the price to rise; the device must operate efficiently and continuously.

When preparing a feasibility study, different scenarios for BTC price, electricity cost, and difficulty should be calculated. The second-hand value of the device and downtime should also be included. Projecting a single day’s profitability screen over the entire investment period would be assuming the most important variables are constant.

Sources

• Bitcoin: Mining and pools
• Bitcoin: Difficulty and block reward
• Bitcoin.org: Mining explanation