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Mining – we explain in simple terms!

Cryptocurrency mining is mostly associated with the Bitcoin network. Although it is a very popular concept in the world of digital assets, some people can sometimes have difficulty understanding, e.g.,  what role consensus algorithms play in it and why it is the foundation of Bitcoin's operation. These and other questions will be answered in the article, where we explain this complex process in simple terms!

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zondacrypto Team
10 квітня 2024
16 березня 2025
Mining – we explain in simple terms!

Mining hardware and miners - what happens inside the network? 

Let's start with the mining process itself. This is how it defines the steps that miners have to perform using dedicated hardware with a certain computing power to verify and record transactions in a block and then attach it to the chain. For this service, they are rewarded with bitcoins unlocked from the supply, as well as transaction fees. 


The role of BTC miners is to secure the network. As they dig up more bitcoins from a limited supply of 21 million, they solve mathematical riddles by performing complex calculations that require a significant amount of computing power. The miner who is the first to perform the calculations will receive the aforementioned prize. 


Dedicated hardware is used for BTC mining these days. These can be graphics cards or Application-Specific Integrated Circuits (ASICs) that are created to perform calculations in the SHA-256 algorithm – the one on which Bitcoin runs. Historically, ordinary processors (CPUs) in computers have been used, but with today's competition in the mining market, such a method may not be enough. For miners, what matters most is the power of the hardware in question and its electricity consumption. 

 

Proof-of-Work and mathematical riddles

'Solving math riddles' is a rather generic, yet very common, nomenclature for what miners must do to add a block to the chain. Here's what exactly happens in the chain to achieve this objective. 


During mining, miners try to find a hash value according to the aforementioned SHA-256 (Secure Hash Algorithm 256-bit) hash function that meets certain criteria. The miners perform a series of matching attempts with a so-called „nonce” – it's a number used only once, which is also the block's header. Modifying the nonce is the only way to find the correct hash. Time plays a key role in this operation. The one who performs the correct calculation first will be rewarded. 


Proof-of-Work is the consensus algorithm on which the mining operation is based. The solved mathematical riddle described above is precisely the proof-of-work that has been done on matching the nonce to find the correct hash. 

 

Can cryptocurrencies other than bitcoin be mined? 

There are many cryptocurrencies that can be mined because they are based on Proof-of-Work consensus. Such examples include Litecoin, Dogecoin, Dash, Bitcoin Cash or Zcash. Miners who decide to mine a particular cryptocurrency must take several factors into account. These include competition, the amount of mining supply that remains, the amount of reward, the cost of energy and the difficulty of mining. In the case of BTC, one must also take into consideration halving, which occurs every four years or so, and its potential effects. 

 

Summary

Before cryptocurrencies became so popular, mining was much easier. Today, you can also do it yourself, but there are many dedicated institutions on the market that do mining. They are then equipped with top-quality equipment that enables them to perform calculations faster. Anyone considering starting out as a miner should do their own analysis of possible future opportunities and risks. 

DISCLAIMER

This content does not constitute investment advice, financial advice, trading advice or any other type of advice and should not be considered as such; zondacrypto does not recommend buying, selling or owning any cryptocurrency. Investing in cryptocurrencies involves a high degree of risk. There is a risk of losing invested funds due to changes in cryptocurrency exchange rates. 

 

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