Mining
In simple terms
Mining is like solving difficult puzzles on a computer to help verify that cryptocurrency transactions are real and legitimate. When you solve the puzzle correctly, you earn some new cryptocurrency as a reward.
Definition
The process of using computing power to validate transactions and earn new cryptocurrency.
In depth
Mining is the process by which network participants (miners) use computational power to solve cryptographic puzzles and validate pending transactions in a blockchain. Miners compete to find a valid hash that meets the network's difficulty requirements, and the first to solve it gets to add a new block of transactions to the chain and receives block rewards plus transaction fees. This process secures the network through proof-of-work consensus, making it economically infeasible to attack or falsify the ledger since an attacker would need to control more than 51% of the network's hashing power.
How does Mining work?
Mining secures a proof-of-work blockchain. Pending transactions collect in a waiting area called the mempool. A miner selects some, assembles them into a candidate block, and repeatedly hashes the block header with a changing number called a nonce, searching for a result below a network-set target. Finding one takes an enormous number of attempts and specialized hardware, while verifying it takes milliseconds. The winner broadcasts the block, other nodes check it, and the miner collects a block subsidy plus transaction fees. The network periodically adjusts the difficulty target so blocks keep arriving at roughly the intended interval, about ten minutes on Bitcoin.
An example
A home miner runs one machine drawing 3,000 watts continuously. At an illustrative electricity rate of $0.12 per kilowatt-hour, that is 72 kilowatt-hours a day, so $8.64 in power daily and roughly $259 over a month. Solo mining rarely finds a block, so most participants join a pool and receive small proportional payouts instead. Whether those payouts cover electricity and hardware depends on difficulty, fees, and prices that all change constantly.
Figures are illustrative only.
What beginners get wrong
- Calculating profitability from hardware price alone ignores electricity, cooling, noise, and the fact that mining difficulty generally rises as more hardware joins.
- Mining solo with a single machine gives a realistic chance of finding a block that is close to zero over any practical timeframe.
- Confusing mining with staking, when only proof-of-work chains are mined and Ethereum stopped being mined when it moved to proof of stake in 2022.
- Mining income is generally taxable when received in the United States, and treatment varies, so a tax professional should confirm how it applies.
Related terms
Part of
What is cryptocurrency, and how does it work? — the subject page for cryptocurrency basics, with all 23 of its definitions in one place.
Educational only — not financial advice.