Bitcoin Mining: Explanation, How it Works & Examples

Key takeaways: Bitcoin mining and how bitcoins are created

• Bitcoins are created through mining: Instead of a central bank, a decentralized network of miners generates new coins—by bundling transactions and adding new blocks to the Bitcoin blockchain.
• Proof of Work secures the system: Miners solve computationally intensive tasks (SHA-256 algorithm). Whoever finds a valid solution first receives new bitcoins as a reward — currently 3.125 BTC per block (as of: after the most recent halving in April 2024).
• Fixed rules, limited supply: On average, new bitcoins are created every 10 minutes. The reward halves about every 4 years (halving). The maximum total supply is capped at 21 million BTC — hard-coded in the Bitcoin protocol (Nakamoto, 2008).

What is Bitcoin mining?

Bitcoin mining refers to the process through which new bitcoins are created while transactions on the network are verified at the same time. Miners provide computing power to add new blocks to the blockchain and secure the system.

Unlike traditional currencies, there is no central authority like a bank that can simply create bitcoin at will. Instead, a decentralized network takes on this task. Working together with so-called nodes, miners ensure the Bitcoin network is secure and runs smoothly.

How does Bitcoin mining work? (Step by step)

Bitcoin mining is the process through which new bitcoins are created while the entire network is secured at the same time. To understand how bitcoins are created, you need to know three basic building blocks: hash, nonce, and mining difficulty (difficulty).

Hash, nonce, and SHA-256 — the basics

In Bitcoin mining, specialized devices continuously perform calculations using the SHA-256 cryptographic algorithm (NIST, 2015). The result of this calculation is called a hash. It’s a unique fixed-length string that changes completely as soon as even a single character in the input differs.

So miners can generate new hash values without changing the actual transaction data, each block header contains a so-called nonce (number used once) — a freely adjustable numeric value. Miners continuously increase the nonce and compute billions of hashes per second until a valid hash is found.

What a valid hash must look like is determined by the difficulty (mining difficulty): the hash value found must be below a certain target value—the lower this target value, the harder the mining. The network automatically adjusts the difficulty every 2,016 blocks (about every two weeks) so that, on average, a new block is created every 10 minutes.

What is the hashrate?

The hashrate describes a miner’s computing power—i.e., how many hash calculations they can perform per second. The higher the hashrate, the greater the chance of being the first to find a valid block.

Common units:

• TH/s (terahashes per second) — typical for a single ASIC miner
• EH/s (exahashes per second) — typical for the entire Bitcoin network

The total hashrate of the Bitcoin network is currently over 800 EH/s, making it a direct measure of the network’s security: the higher the hashrate, the more expensive and complex an attack would be.

How is a new Bitcoin block created?

Creating a new block follows a fixed process:

1. Collect transactions: Miners select pending transactions from the mempool and bundle them into a new block. Transactions with higher fees are prioritized.
2. Compute the hash: Miners continuously change the nonce in the block header and use SHA-256 to compute new hash values — until a value falls below the current difficulty target.
3. Broadcast the block: If a valid solution is found, the miner immediately sends the block to the network.
4. Verify the block: Independent nodes check whether all transactions and rules have been followed. Invalid blocks are rejected.
5. Add the block to the blockchain: If verification succeeds, the block is appended to the blockchain — immutable and publicly viewable.
6. Reward: The successful miner receives the current block reward (3.125 BTC) plus all transaction fees in the block.

What is Proof of Work (PoW)?

Proof of Work (PoW) is the consensus mechanism that Bitcoin mining is based on. The concept was described as early as 1993 by Dwork and Naor and was used by Satoshi Nakamoto in 2008 in the Bitcoin whitepaper as the foundation for Bitcoin.

This allows Bitcoin to solve a fundamental problem of digital currencies: so-called double spending. Digital data can be copied endlessly — without a suitable system, bitcoins could theoretically be spent multiple times without anyone noticing. In traditional financial systems, banks prevent exactly that as a central control authority. Bitcoin has no central bank — instead, Proof of Work takes on this role: transactions are only valid if they are processed by miners according to fixed rules and confirmed by nodes.

The basic principle: anyone who wants to add a new block to the blockchain must first prove they actually performed computational work — hence the name “Proof of Work”. This work consists of finding a valid hash that meets the current network requirements.

Why does that make sense? Computational work consumes real resources: electricity and hardware. Anyone who wanted to attack or manipulate the network would need more computing power than all honest miners combined: a so-called 51% attack. The higher the network’s total hashrate, the more expensive and unrealistic that becomes.

PoW thus simultaneously fulfills two tasks: It regulates how new Bitcoins are generated and protects the entire transaction history from retroactive manipulation.

Proof of Work vs. Proof of Stake: Other cryptocurrencies like Ethereum have relied on Proof of Stake (PoS) since 2022—an alternative consensus mechanism that uses significantly less energy but is based on a different security model. Bitcoin has deliberately stuck with Proof of Work.

Bitcoin mining explained simply: the dice game example

How are bitcoins created, and why is the process so resource-intensive? A simple analogy helps make it easier to understand.

Imagine lots of participants rolling dice at the same time. Only the one who rolls a specific combination first wins—for example, rolling a six five times in a row. The harder the required combination, the longer it takes on average for someone to win.

Bitcoin mining works the same way: each “roll” corresponds to a hash calculation. The goal is to find a result that is below a certain target value. All miners worldwide try their luck at the same time. Whoever finds a valid solution first gets to add the next block to the blockchain and receives new bitcoins in return.

To keep the game fair, the network automatically adjusts the difficulty: if more miners join in, the required combination becomes harder, so on average there’s still a winner every ten minutes. This mechanism is called mining difficulty.

Bitcoin mining rewards: block reward and halving

Anyone who successfully adds a new block to the blockchain receives a reward in two forms: the block reward (newly created BTC) as well as all transaction fees from the transactions included in the block.

The current block reward is 3.125 BTC. This value isn’t fixed: the Bitcoin protocol specifies that the reward is automatically halved every 210,000 blocks (about every four years). This mechanism is called the Bitcoin halving. It ensures that the amount of newly created bitcoins steadily decreases and that the total supply remains permanently capped at 21 million BTC.

You can learn everything about the halving history, its impact on the Bitcoin price, and the next halving in 2028 in our in-depth Bitcoin halving article.

How many Bitcoins are there and why is the supply limited?

Bitcoin’s total supply is capped at 21 million BTC. This rule is permanently embedded in the Bitcoin protocol (Nakamoto, 2008). Combined with the halving mechanism, this limit ensures that Bitcoin can’t be increased at will — a key difference from traditional currencies.

Why Satoshi Nakamoto chose this limit, which bitcoins are lost forever, and what that means for long-term value is explained in detail in our article on Bitcoin’s limited supply.

What hardware do you need for Bitcoin mining?

In Bitcoin’s early years, it could still be mined with normal CPUs or graphics cards. That’s no longer possible today, because the network difficulty is simply too high.

Profitable Bitcoin mining today requires so-called ASIC miners (Application-Specific Integrated Circuit). These are specialized chips developed exclusively for the SHA-256 algorithm, delivering many times the performance of a graphics card.

For reference, here are three current devices compared:

Model	Hashrate	Power consumption	Efficiency
Antminer S21 Pro	234 TH/s	3,510 W	15 J/TH
Antminer S21	200 TH/s	3,500 W	17.5 J/TH
Whatsminer M60S	186 TH/s	3,441 W	18.5 J/TH

Besides the upfront cost (CHF 1,000–10,000), electricity consumption is the key cost factor: an ASIC miner runs around the clock and uses as much electricity as several households. If you’re considering getting into crypto mining, the first metric you should check is your local electricity price.

Is Bitcoin mining still worth it in 2026?

The short answer: for most individuals, no. High hardware costs, rising network difficulty, and electricity prices averaging CHF 0.25–0.35/kWh in Germany and Switzerland make profitable solo mining nearly impossible. Industrial mining farms with access to cheap electricity (below CHF 0.05/kWh) dominate the network. In our article on mining profitability, we take a closer look.

Energy consumption and criticism of Bitcoin mining

Bitcoin mining consumes enormous amounts of energy: the Cambridge Centre for Alternative Finance (CCAF) estimates the network’s annual consumption at 100–150 TWh, comparable to the yearly consumption of a mid-sized country.

This energy use isn’t a flaw in the system — it’s intentionally designed that way: the high computational effort makes attacks on the blockchain prohibitively expensive and thus secures the network’s integrity. Still, the environmental footprint remains a valid point of criticism—especially when the electricity comes from fossil sources.

On the other hand, supporters argue that a growing share of mining electricity comes from renewable sources. According to the CCAF, that share is over 50%. The debate is complex and is discussed intensely within the industry.

Conclusion: What you should know about Bitcoin mining

Bitcoin mining is the process through which new bitcoins are created while the entire network is secured at the same time. Instead of a central authority issuing new coins, a decentralized network of miners takes on this task.

Through mechanisms like Proof of Work, automatic difficulty adjustment, and regular halving, the system remains stable over the long term and limits the number of new bitcoins.

At the same time, mining is now far more complex and costly than it was in the early days. High electricity costs, specialized hardware, and strong competition make it difficult for many individuals to mine profitably.

Important: Bitcoin mining isn’t just about creating new coins — it’s above all the foundation for the security and functioning of the entire
cryptocurrency.