Bitcoin mining and Crypto mining: How does it work?

21 November 2023/inCrypto, Crypto academy

This article discusses how Bitcoin mining and crypto mining work. What exactly does this process entail, how does this process work and how can you apply this process? In this article we answer all these questions and provide a lot of clarity about this process.

Index

What is Bitcoin Mining?

Bitcoin mining is the process of verifying, storing and securing Bitcoin transactions that are recorded in a digital ledger known as the Blockchain. New Bitcoins are also created in this process.

Crypto Mining

A crypto miner is a computer (node) that is operated by humans. In the Blockchain, the transactions are verified by Bitcoin users. These are users who are part of the crypto network, also called crypto miners. They are, as it were, powerful computers that constantly use their computing power to verify transactions and secure the crypto network.

Using computing power costs money, such as electricity costs and hardware costs. However, the miners do not do this process for free – they receive a reward for their work in the form of a newly created Bitcoin.

New Bitcoins can be created on the basis of the Bitcoin mining process. This process will be described more clearly later in this article.

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How does Bitcoin Mining work?

To be able to mine Bitcoins you just need to own a powerful computer and install Bitcoin Mining Software on it. From that moment on it is a matter of an automatic process.

In Bitcoin mining, all miners keep a record of all transactions that have taken place in the past. When you have sent a Bitcoin, all Bitcoin miners can check in their ‘old transaction database’ whether or not you are the owner of the Bitcoin you have sent. It should not be the case that a person can send Bitcoins somewhere that they do not own.

If the sender does not appear to be in possession of the relevant Bitcoins, this means that the transaction is not verified and the purchase cannot take place.

What is a Blockchain?

The word Blockchain includes the word ‘Block’. This is a very important word when it comes to the mining process.

Bitcoin transactions are sent continuously. These transactions are formed in groups known as ‘blocks’. The miner’s job is to verify these groups of transactions, so the miner must validate the transactions before sending them.

After a block (group) has been verified, it must be added to the blocks that have already been verified. This eventually creates a kind of chain of all verified blocks. This is also where the name Blockchain comes from: blocks that are connected to each other like a kind of chain.

Practical example

Imagine that you want to buy a new refrigerator and use Bitcoins for it. If the fridge cost €250, it would be worth 0.0053 Bitcoins at the time of writing. The moment you buy the refrigerator, there are a lot of people worldwide who also make a purchase on the basis of Bitcoins.

The mining nodes are notified when the relevant Bitcoin transaction takes place.

At that point it is therefore essential for your purchase that the transaction is approved by the miner. If the transaction is not approved, you can’t take the fridge home either, so you have to do it with ordering pizzas.

Before going further into this example, it is very important to consider how such a transaction is verified. Bitcoin miners use a Bitcoin mining software that can solve complicated mathematical formulas. You can see this software just like a computer software that solves a complex Sudoku puzzle. Each block with different transactions has its own puzzle that must be solved.

All miners around the world try to be the first to solve a specific puzzle. The miner who solves the puzzle first receives a reward, namely; Bitcoins.

The first crypto miner to solve the puzzle – let’s call that miner Amir in this case – tells the rest of the nodes that he has solved the puzzle. Then the other crypto miners check whether Amir’s solution is actually correct. If 51% or more than 51% agree with Amir’s solution, the transaction of 0.0053 Bitcoins is verified and sent. Then Amir will also verify the rest of the transactions within the block. After this process, your transaction is complete and you can enjoy your fridge.

Automatically

A process that initially seemed complicated has now become a lot more tangible. It also appears that someone who wants to mine crypto does not necessarily have to solve the puzzles themselves or be good at math. In principle, the person concerned only needs to own a powerful computer and install the Bitcoin Mining Software on it. From that moment it is a matter of a completely automatic process.