Crypto
2 min read

Mining

The process by which proof-of-work blockchains add new blocks: miners compete to find a hash below a target value, expending energy in exchange for newly issued coins and fees.

How mining works

The basic loop:

  1. Collect transactions from the mempool.
  2. Bundle into a candidate block.
  3. Compute hashes repeatedly, varying a nonce, trying to find a hash below the target.
  4. First to find a valid hash wins the right to add the block.
  5. Receive block reward — newly issued coins plus transaction fees.

Because finding valid hashes is computationally expensive, the cumulative work secures the chain. Rewriting historical blocks would require redoing all the proof-of-work since the rewrite point.

Mining hardware evolution

Bitcoin mining has gone through phases:

  • CPU mining (2009-2010) — early adopters with regular computers.
  • GPU mining (2010-2012) — graphics cards far outperformed CPUs.
  • FPGA mining (briefly, 2011-2012) — short-lived intermediate technology.
  • ASIC mining (2013-) — purpose-built chips dominate. Modern ASICs produce 200+ TH/s at high efficiency.

Each generation obsoleted previous hardware. Competing today requires latest ASICs.

Mining economics

Profitability depends on:

  • Bitcoin price — direct revenue impact.
  • Network hash rate — share of rewards depends on share of total hash power.
  • Electricity cost — primary operating expense; varies by location.
  • Hardware efficiency — joules per hash; newer hardware is dramatically better.
  • Mining difficulty — adjusts every 2016 blocks to target ~10 minute block times.

The economics are cyclical. Bull markets bring high revenue and new entrants; bear markets squeeze marginal operators.

Mining beyond Bitcoin

Different proof-of-work chains use different algorithms:

  • Bitcoin — SHA-256.
  • Litecoin — Scrypt.
  • Ethash (Ethereum, pre-Merge) — memory-hard; favored GPUs.
  • Various smaller chains — assorted algorithms, often designed to resist ASIC dominance.

Most major chains have moved away from PoW; Bitcoin and a few others remain mining-based.

Environmental considerations

Bitcoin mining's energy consumption is heavily debated:

  • Total energy use at the level of a small country.
  • Renewable share — disputed; estimates vary.
  • Specific positive cases — flared gas capture, stranded renewables, grid balancing.
  • Critics argue it's wasteful; defenders argue the security guarantee justifies the cost.

The debate is ongoing; both sides have legitimate points.

What mining provides

The economic logic:

  • Network security. Cost of attack scales with mining cost; attacking Bitcoin would require enormous resources.
  • Censorship resistance. Distributed miners worldwide make individual censorship impossible.
  • Predictable issuance. Mining produces new bitcoins on a fixed schedule.

Whether these benefits justify the energy use is the central question in PoW debates.

Mining stocks

Several public companies are dedicated miners (Marathon Digital, Riot Platforms, CleanSpark, Hut 8). They:

  • Provide leveraged Bitcoin exposure.
  • Have cyclical economics — periods of profitability followed by stress.
  • Differ in strategies — some hold BTC; some sell production.

For investors wanting Bitcoin-correlated exposure with operational complexity, mining stocks are an option. For pure Bitcoin exposure, ETFs or direct holdings are simpler.