Crypto mining is the process by which specialised computers compete to add the next batch of transactions to a blockchain that uses Proof of Work (PoW). The winner of each round earns newly created coins and the fees attached to the transactions it included. Mining is how networks such as Bitcoin (BTC), Litecoin (LTC) and Monero issue new units and keep their shared ledger honest without a central operator.
Mining is one answer to the problem of consensus: how thousands of strangers agree on a single transaction history. It is often contrasted with Proof of Stake (PoS), where validators lock up coins instead of spending electricity. The people and firms who do the work are covered in Miners; this entry describes the activity itself.
Crypto mining in plain terms
Picture a public notebook that everyone can read but nobody owns. Every ten minutes or so, a new page is added. To win the right to write that page, participants play a lottery in which the only way to buy tickets is to do pointless-looking arithmetic as fast as possible. Whoever draws the winning ticket writes the page, and everyone else checks it in an instant.
The arithmetic is hard to do but easy to check, a bit like a combination lock: guessing takes ages, testing a guess takes a second. Because cheating would mean redoing all that work faster than everyone else combined, the notebook becomes very expensive to forge. The lottery prize is what pays people to keep playing.
How mining works
A miner collects pending transactions from the mempool, usually prioritising those that pay the highest transaction fee. It assembles them into a candidate block whose header includes a reference to the previous block, a summary of the transactions and a counter called the nonce. The miner then runs the header through a hash function, in Bitcoin's case double SHA256, over and over, changing the nonce each time.
The goal is an output number below a target set by the network. Because hash outputs are unpredictable, the only strategy is brute force. How many guesses the network makes per second is its hashrate, and how hard the target is to hit is the mining difficulty, which Bitcoin recalibrates every 2,016 blocks to keep the average block time near ten minutes.
When a miner finds a valid hash, it broadcasts the block. Each full node checks the proof and every transaction, then adds the block to its copy of the chain. If two miners find blocks at almost the same moment, the network briefly splits and one of the competing blocks ends up as a stale block.
Rewards and economics
The winning miner claims the block reward: a fixed subsidy of new coins plus all fees in the block. Bitcoin's subsidy started at 50 BTC and is cut in half every 210,000 blocks in an event called the halving; since April 2024 it has been 3.125 BTC. This schedule is what caps supply at the 21 million bitcoins limit.
A miner's main costs are hardware and electricity. On Bitcoin, general-purpose chips were long ago replaced by the Application-Specific Integrated Circuit (ASIC), while some other coins chose ASIC resistant algorithms that keep the graphics processing unit (GPU) or ordinary processors competitive. Because a single small operator may wait years to win a block, most miners join a mining pool and share rewards in proportion to their work. Individuals who do not want to run equipment can rent capacity through cloud mining, a market with a long record of fraud.
Security and the 51% problem
Mining makes rewriting history expensive. To reverse a confirmed payment and achieve double spending, an attacker would need to out-compute the honest network, which is the scenario known as a 51% attack. On a large network the hardware and power required make this impractical; smaller networks that share an algorithm with a bigger one have been attacked repeatedly with rented hashpower. Ethereum Classic (ETC) suffered several such reorganisations in 2019 and 2020.
The security a miner provides is also why waiting for several transaction confirmations is standard practice: each new block buried on top makes reversal exponentially harder.
Energy use, regulation and the move away from mining
Proof-of-work mining consumes large amounts of electricity, which has drawn criticism from environmental groups and governments. China banned crypto mining in 2021, pushing much of the industry to the United States, Kazakhstan, Russia and elsewhere. Supporters argue that miners can use stranded or surplus power and can switch off quickly to help balance grids.
Some networks abandoned mining entirely. Ethereum (ETH) switched from proof of work to proof of stake on 15 September 2022 in an upgrade known as the Merge; ethereum.org estimates that it cut the network's energy use by about 99.95%. Coins that can still be produced by miners are described as mineable; most newer tokens are issued in other ways, such as an Initial Coin Offering (ICO) or a fixed supply created at launch.
Mining income is generally taxable, and large mining companies in the United States are publicly listed and report to the Securities and Exchange Commission (SEC). Mining itself is not usually a licensed activity, although some jurisdictions restrict it on energy grounds.