How to Start Earning Crypto: Everything About the Mining Process

Key aspects for understanding:

• Mining means participating in the process of verifying and organizing transactions in the blockchain, which simultaneously creates new units of digital currency.
• Although miners consume a huge amount of computational energy, it is this that ensures network security and decentralization.
• The miner collects unprocessed transactions, forms them into a block, and transmits it to the network – if validators approve it, they receive a reward.
• Success depends on the technical parameters of the equipment, electricity costs, market fluctuations, and protocol updates.

Do you understand what a digital transaction ledger is?

Imagine a global digital ledger where every crypto transaction is recorded. It is cryptocurrency mining that ensures the accuracy of this register and its security against manipulation.

Miners launch specialized computers that solve complex mathematical puzzles – essentially, they sift through numbers in search of the correct combination. The first one to find the answer receives a reward in the form of freshly mined crypto coins.

Mining means ensuring the reliability of cryptocurrencies such as Bitcoin (BTC). The miner's job is to verify user transactions and add them to the open blockchain ledger. This is a critical function that allows the Bitcoin network to remain truly decentralized – without intermediaries and central authority.

Coin creation is another mining feature. However, it is not the same as printing money. Crypto-mining is controlled by clear algorithmic rules embedded in the protocol, which make it impossible for anyone to arbitrarily multiply coins. The distributed network constantly checks compliance with these rules.

When miners apply computational power to cryptographic tasks, they create new units of crypto-asset. The first to solve the puzzle adds a new block of transactions to the chain and disseminates it across the network.

The Mechanics of the Extraction Process Step by Step

Quick explanation for beginners

Step 1: Operations are waiting in the “queue” When someone sends or receives crypto, this transaction goes into pending and is combined with others into a special “block”.

Step 2: The miner guesses the magic number The miner's computer tries to find a secret number – nonce, which when combined with the block data produces a result lower than the set target. It's like participating in a digital lottery.

Step 3: The block enters the chain As soon as the miner finds the correct hash, the block is added to the blockchain. Other computers in the network verify the correctness.

Step 4: Reward for Success The winner receives a freshly mined crypto coin plus fees from all transactions in this block.

Detailed analysis for those who want to understand more deeply

Every time new transactions occur, they are sent to a special storage – the mempool. There, specialized validator nodes wait to verify the correctness of each transaction. The role of the miner is to take these verified transactions from the queue, organize them into a block, and try to “solve” this block.

It should be noted that some participants simultaneously run validator nodes and engage in mining, but these are technically different functions.

A block can be imagined as a page in a book – it contains a dozen or so transactions and administrative information. Mining nodes collect raw transactions from the mempool and compile them into a block candidate. The miner then attempts to convert this candidate into an official, approved block.

To do this, it is necessary to solve a complex mathematical problem that requires a lot of computational power. But when the block is successfully mined, the miner receives a block reward – this is the newly created crypto plus fees from the transactions that were included in that block.

Step 1: Hashing each transaction

The first step is to take the pending transactions and pass them through a special mathematical function. At the output, each transaction is transformed into a short sequence of characters - a hash. This hash uniquely represents all the information in the transaction.

In addition to hashing regular transactions, a miner creates a special transaction – a coinbase transaction, which grants him a reward. This is the operation that “mines” new coins. It is usually recorded first in the block, followed by regular transactions.

Stage 2: Building the hash network ( Merkle tree )

All obtained hashes are organized into a special structure – a Merkle tree, which is also called a hash tree. The process is simple: two hashes are combined and hashed again, producing a new hash. This new hash is then combined with another hash, and the process is repeated.

In the end, there is one final hash - the root. It represents all the previous hashes and serves as the “fingerprint” of the entire block of transactions.

Step 3: Finding the Right Block Title

Each block has a unique identifier – the block header or block hash. To create it, a miner combines: the root hash of their block, the hash of the previous block in the chain, and a random nonce number. All of this is passed through a hash function.

Since the root and previous hashes are locked, the miner only changes the nonce – trying different values until it gets a hash that meets the requirement. And the requirement is simple: the block hash must start with a certain number of zeros ( this is called “mining difficulty” in Bitcoin).

Stage 4: Transfer of the mined block to the network

When a miner finally finds the correct hash, they immediately broadcast the block across the entire network. The other nodes instantly verify its correctness, and if all is well, they add the block to their copy of the chain.

Block candidate is now official. All miners who haven't found a solution drop their options and start the race for the next block from scratch.

What happens when two miners find a block at the same time?

It doesn't happen often, but it can occur: two miners transmit the correct block simultaneously. A conflict arises in the network – two competing blocks appear. Miners start mining the next block based on the one they received first, resulting in a temporary split in the chain.

This competition continues until a miner finds a block on top of one of the competitors. The block that ended up in the losing branch is called an “orphan” or stale block. It is discarded, and miners return to work on the winning branch.

Mining Difficulty: Why Doesn't It Get Easier?

The protocol continuously adjusts the difficulty of the task to ensure that blocks are created at a consistent average rate. The difficulty changes according to the total computational power that the network receives from all miners combined – the so-called hash rate.

When new miners join the network and competition increases, the difficulty automatically rises, preventing the acceleration of the process. Conversely, when miners leave the network, the difficulty decreases, simplifying the mining.

Such adjustments support a steady block creation rate, regardless of changes in network power.

Main methods of cryptocurrency mining

Over time, with the emergence of new equipment and algorithms, mining methods have also changed. In general, miners use specialized devices to solve crypto tasks. Let's consider the most common options.

Mining on CPUs

In the early stages, entering Bitcoin mining was easy – a regular computer processor was sufficient. The barriers to entry were minimal, anyone could give it a try.

But with the rise in popularity and the number of competitors, the power of processors has become insufficient. Specialized devices with higher performance have emerged, which have displaced CPU mining.

Today, using a processor is unprofitable – almost all serious miners have switched to specialized equipment.

( Mining on graphics cards )GPU###

Graphics processors were created for processing images and video games, but it turned out that they are quite suitable for mining. GPUs are cheaper and more flexible than specialized devices.

They can be used for mining some altcoins, but the efficiency depends on the specifics of the algorithm and the difficulty of the network.

( Mining on specialized chips )ASIC###

ASIC is a chip designed for a specific task. In the cryptocurrency world, an ASIC is a device specifically designed solely for mining.

ASIC mining is the most efficient but also the most expensive. The device is costly, and technologies are constantly improving, which causes old models to become obsolete quickly. Nevertheless, for large-scale mining, ASIC is the most profitable option.

( Mining in pools: the power of collaboration

Since only the first one who finds the block receives the reward, the probability of success for a single miner is negligible. Those with low power will practically have no chance.

Mining pools have solved this problem. This is a coalition of miners that combine their power. When the pool finds a block, the reward is divided proportionally to each participant's contribution.

For small miners, pools are cheaper and more convenient than solo mining. However, the dominance of pools raises concerns about the potential for 51% attacks and network centralization.

) Cloud Mining: Easy Access

Instead of buying expensive equipment, some rent computing power from a provider. This is an easier way to start, but it carries risks – from fraud to lower profitability.

If you decide to try, choose verified suppliers with a good reputation.

Bitcoin Mining: How Does It Differ?

Bitcoin is the most popular and stable coin for mining. Its mining is based on the Proof of Work consensus algorithm ###PoW###.

PoW is the original mechanism invented by Satoshi Nakamoto and described in the Bitcoin whitepaper of 2008. At the core of PoW is the idea that the network reaches consensus through the expenditure of energy and computational power. This makes attacks on the network economically unviable.

In the PoW network, miners compete to solve puzzles using specialized equipment. The first to find a solution can add a block and will receive a reward.

The reward size varies depending on the network. For Bitcoin, as of December 2024, it is 3.125 BTC per block. The amount is halved every 210,000 blocks (approximately every four years) through the halving mechanism.

Can you earn from mining?

Theoretically yes, but it requires thorough analysis and risk management. Mining is an investment with uncertain outcomes: equipment costs, price fluctuations, protocol changes.

Profitability depends on many factors:

Market price: When crypto prices rise, the mining rewards increase. When the price falls, so does the income.

Equipment Efficiency: An expensive ASIC yields more coins, while a cheaper GPU yields less. It's necessary to balance cost and potential return.

Cost of electricity: High tariffs can completely “eat up” profits. In regions with cheap energy, mining is more profitable.

Technology Updates: Equipment becomes obsolete quickly. New models are better, while older ones are less profitable.

Changes in protocols: The Bitcoin halving reduces the reward by half, which affects profitability. Additionally, some networks are transitioning to other mechanisms. For example, Ethereum stopped PoW in favor of Proof of Stake (PoS) in 2022, making traditional mining obsolete.

Conclusions

Mining means participating in a system that secures Bitcoin and other PoW networks while creating new coins under strictly established rules. It has its advantages – potential income – and disadvantages – high entry costs, technical risks, market dependence.

Before you start, do your own research, calculate costs and profits, and assess all risks. Mining is not a quick way to make money, but a long-term investment in equipment and energy.