What is mining? Unveiling the invisible guardians of the Bitcoin network

If you want the simplest explanation of what mining is, it’s actually: “Helping the Bitcoin network verify transactions and record the ledger, then earning rewards.” But this seemingly simple sentence hides a complex and ingenious mechanism behind it. Bitcoin has no banks, no central bank, and no single person in charge, yet it enables thousands of transactions worldwide to occur securely every day. The maintenance of this order relies on a group of people called miners.

Mining, in technical terms, is: verifying whether each transaction is legitimate, packaging a batch of transactions into a new block, adding it to Bitcoin’s public ledger (the blockchain), and protecting the entire system from attacks. These tasks may seem ordinary, but they sustain the operation of the entire decentralized network.

What exactly are miners doing: a dual role of network validation and bookkeeping

In traditional banking systems, there is a central ledger managed by banks, which makes all the decisions. Bitcoin breaks this model — there’s no boss, no central authority, but someone still needs to keep records, verify transactions, and ensure no one spends the same money twice or cheats. That’s the mission of miners.

They perform three core tasks. First, verifying each transaction’s legitimacy — checking if the sender has enough balance and if the transaction signature is valid. Second, packaging verified transactions into a new block, making the transactions permanent on the blockchain. Third, providing substantial computational power to protect the system from malicious attacks.

This workflow isn’t done with shovels (“mining” can be misleading), but with thousands of specially designed computers — now called ASIC miners. These machines perform intensive calculations to find answers that meet certain criteria. Once a miner successfully packages a new block, they are rewarded with newly issued Bitcoin and collect transaction fees. This set of rules is called Proof of Work (PoW).

Miners are still active: from individual mining to industrial-scale operations

Many people think of mining as a fading trend. That’s a common misconception. As long as Bitcoin exists, miners will too — because without miners, transactions wouldn’t be verified, the network wouldn’t be maintained, and the system would stop.

In the early days, individual miners could participate by running a few computers at home. Now, mining has evolved into a professional industry. Participants generally fall into three levels:

Individual and small-scale miners still exist, but rarely operate alone. Most join “mining pools” — combining their hash power from around the world to increase the chances of winning a block, then sharing the rewards proportionally based on contribution. This approach offers more stable income and reduces the risk of losing everything due to bad luck.

Mining pools are essentially risk-sharing and profit-sharing mechanisms. They aggregate hash power globally, greatly increasing the probability of finding a valid block, then distribute the rewards proportionally among participants.

Professional mining farms and large corporations are now the main players. They build dedicated facilities, deploy thousands or tens of thousands of ASIC miners, carefully control electricity and cooling costs, and employ specialized technical and operational teams. For them, mining is a fully commercialized industry, requiring meticulous planning around scale, efficiency, and cost management.

How Bitcoin determines “who records the ledger”: the core mechanism of Proof of Work

In a decentralized world, the key question is: when multiple parties submit blocks simultaneously, whose version is the “true” ledger? Bitcoin solves this with Proof of Work (PoW).

Simply put, all miners collect the latest transactions on the network around the same time, verify each one, and then package them into a new block. But this new block can’t be immediately added to the ledger — a fierce competition ensues.

Whoever finds a “special number” that meets certain conditions first can broadcast their block. Other nodes verify it, and once confirmed, the block is officially added to the blockchain, and the miner receives a reward. Everyone then moves on to the next round. This process repeats roughly every 10 minutes.

SHA-256 and difficulty adjustment: a clever design to prevent issuance from spiraling out of control

Miners use a tool called SHA-256, a cryptographic hash function, to find that “special number.” Think of it as a magical meat grinder: no matter what input you give, it outputs a seemingly random string of numbers (called a “hash value”).

This function has several key properties. First, it’s one-way: you can only compute the hash from the input, but reversing it to find the input from the hash is nearly impossible. Second, changing even a single bit of the input completely alters the hash. Third, different inputs almost never produce the same hash.

Mining is based on these properties. Miners take the block data (transactions + previous block’s hash) and add a variable called nonce. They then run SHA-256 on this combined data. The system sets a “target value,” and miners must find a nonce so that the resulting hash is less than this target.

Since there’s no shortcut, miners resort to brute-force — trying different nonce values repeatedly until they find a valid hash. This process consumes a lot of electricity and time, but verifying the answer is quick — just a one-second check.

To prevent mining from being dominated by a few entities and to keep issuance steady, Bitcoin adjusts the difficulty every two weeks (roughly every 2,016 blocks). If miners’ combined power increases and blocks are found too quickly, the system raises the difficulty (making the target harder to meet). If hash power drops and blocks are found too slowly, difficulty decreases. This dynamic adjustment ensures Bitcoin’s issuance rate remains stable, regardless of technological advances.

Why mining protects Bitcoin: the economic security explanation

Many ask: “Is all this electricity consumption and resource waste worth it?” The answer lies in the economics of security.

Bitcoin’s security fundamentally depends on the high cost of tampering. To alter past records, an attacker must not only change the transaction data but also recalculate all subsequent blocks — because changing data alters hashes, invalidating the chain. They must redo proof of work for all affected blocks and surpass the cumulative hash power of the entire network — which is prohibitively expensive at current scales.

Therefore, honest participation is the most rational choice. “Electricity and hash power are the moat of Bitcoin’s security” — this seemingly wasteful design uses economic incentives to ensure system trustworthiness.

The truth about mining rewards: costs, risks, and actual profits

Mining, from an economic perspective, is a game of costs versus gains. Rewards are real. The system grants two types of income to successful miners:

First, block rewards — when a miner successfully packages a block, they receive a certain amount of newly issued Bitcoin. This is the only way new Bitcoin enters circulation. Second, transaction fees — each transaction includes a fee, which is awarded to the miner who includes it in the block. During busy periods, fees can surpass the block reward.

But here’s the harsh reality: Mining doesn’t guarantee profits for everyone.

Factors affecting actual earnings include: electricity costs — the most critical factor. Mining is essentially converting electricity into potential Bitcoin. If electricity prices are high, profits are slim or negative. That’s why many mining farms are located where electricity is cheap or excess energy is available. Hardware investment and depreciation — ASIC miners are expensive, powerful, but have short lifespans and rapid depreciation. High equipment costs and long payback periods mean inefficient machines often can’t break even.

Network difficulty and total hash rate — as more miners join, difficulty increases, making it harder for individual miners to earn rewards. Bitcoin price volatility — ultimately, earnings are denominated in Bitcoin. When prices rise, the same amount of Bitcoin is worth more; when prices fall, many miners may operate at a loss.

This explains why many miners lose money not because of technical failure, but due to costs and market conditions.

The real risks of mining: more than just technical issues

Financial and cost risks are the most immediate threats. Rising electricity prices, rapid depreciation of mining hardware, increasing difficulty, and volatile Bitcoin prices can turn seemingly profitable plans into losses overnight.

Hardware risks are also significant. ASIC miners operate under high load, with higher failure rates than regular computers. Cooling, noise, and maintenance costs are real concerns. Equipment failures can be costly, and sometimes repairs cost more than the hardware’s value.

Policy and regulatory risks are a major concern for large-scale operations. Mining consumes vast energy resources and is subject to local energy policies. In some regions, mining has been outright banned. Tightening environmental policies or government crackdowns can suddenly make previously viable sites unviable, posing serious business risks.

Platform and network risks — many individual miners rely on mining pools. If a pool shuts down or is compromised, earnings are affected. Hacks, network outages, or data leaks can cause direct financial losses.

Opportunity and time costs — mining appears passive, but it requires constant monitoring, adjustments, and risk management. With limited capital, time, and effort, mining may not be the best investment. For many, buying Bitcoin directly might be simpler and more profitable.

The reality of mining risks: more than just technology

Financial and cost risks are the most direct threats. Rising electricity costs, hardware depreciation, increasing difficulty, and market volatility can turn a seemingly profitable operation into a loss.

Hardware risks — ASIC miners run at high loads, with higher failure rates. Cooling, noise, and maintenance are real issues. Equipment failures can be costly, and repairs may sometimes wipe out profits.

Policy and regulatory risks — government policies on energy and mining can change abruptly. Bans or restrictions can make operations unviable overnight.

Platform and network risks — dependence on mining pools introduces risks if pools shut down or are attacked.

Opportunity costs — time and capital invested in mining might yield better returns elsewhere, especially given market volatility and operational costs.

Conclusion: what mining is depends on how you participate

Mining, in the end, is both a technical and an economic activity. Technically, it’s the core mechanism that keeps the Bitcoin network running and secure. Economically, it’s a high-risk, high-cost business requiring precise calculations.

While many miners are active today, the landscape has shifted from “home hobbyists” to “professional operations.” Profitable miners are often those who carefully manage costs, control expenses, choose optimal locations, or participate in pools. For most individuals, simply buying Bitcoin might be easier than engaging in mining. But understanding what mining is and how it works is essential for anyone wanting to participate in or understand the Bitcoin ecosystem.