How Crypto Mining Works: A Comprehensive Guide for Newbies

What is really happening in the mining process?

Imagine there is a giant ledger distributed across thousands of computers around the world, recording every cryptocurrency transaction. This is the blockchain. But who ensures the accuracy of these records? Who guarantees that there is no cheating?

Here come the miners. These people ( or rather, specialized computers ) work tirelessly to confirm transactions and add them to the public ledger. In return, they receive rewards in new digital currencies.

This system is what makes Bitcoin and decentralization possible. Without mining, there would be no way for all parties to agree on the state of the blockchain without a central authority overseeing matters.

Workflow: From Start to Finish

When a transaction is sent, it does not go directly to the blockchain. Instead, it waits in a temporary area called “memory pool”. Miners collect these pending transactions and arrange them together in groups called “blocks”.

Then the real race begins. Each miner tries to be the first to solve a very complex mathematical puzzle. This puzzle involves finding a specific number ( called “nonce” that, when combined with the block data, results in a very specific hash.

The first player to find the solution is entitled to add their block to the chain and receive the reward. Other miners verify the correctness of the solution, and if it is correct, they add this block to their copy of the blockchain.

Detailed Steps: How Mining Actually Works

) Step 1: Hash each transaction

The miner takes every pending transaction and passes it through a specialized cryptographic function that gives it a unique result ### called “hash”(. This output acts as a digital fingerprint for the transaction - even changing a single character alters the fingerprint completely.

In addition to this, the miner adds his own special transaction through which he converts the block reward to himself ) called a “coinbase transaction”(. This is how new cryptocurrencies are created and added to circulation.

) Step 2: Build a Merkle Tree

Now it has hundreds or thousands of digital fingerprints. Instead of dealing with them one by one, it collects them into a structure called a “Merkle Tree.” This tree takes every two adjacent fingerprints, merges them, and produces a new fingerprint. This process is repeated until it reaches a single final fingerprint ### called the “Merkle Root” ( that represents all transactions in the block.

) Step 3: Solve the puzzle - find the correct hash value

Here the hard work begins. Mining takes:

• Merkel root from the current block
• Previous block hash
• A random number ###nonce(

All of this is combined and passed through a hashing function. The result must start with a certain number of zeros ) this number is what is called “mining difficulty” (.

The problem? You can't predict the outcome. Mining must try random numbers billions of trillions of times until it finds the correct result. This is “work” in “Proof of Work”.

) Step 4: Broadcasting and Verification

When the miner finds the correct result, he broadcasts his block to the entire network. Other miners verify the calculations in a matter of seconds. If they are correct, they accept it and add it to their chain.

The winning miner receives a reward: completely new cryptocurrencies + transaction fees from all transfers in the block.

Special Cases: What Happens During Competition?

Sometimes miners find the solution at almost the same time. The network temporarily splits into two different versions. The miners also split - some rely on the first block they received, while others on the second.

The race continues until a new block is mined on one of the copies. At that point, this copy becomes the “winner” and the other copy is excluded. Miners who bet on the losing copy are redirected to the correct chain.

Mining in Practice: Network Difficulty and Halvings

One of the greatest mechanisms in Bitcoin is the “halving” ###halving(. Every 210,000 blocks )approximately every 4 years(, the reward is cut in half.

When Bitcoin was launched, the reward was 50 BTC. Now ) as of December 2024(? Only 3.125 BTC.

Why? Because Bitcoin is designed to be scarce. Each coin has a maximum limit: only 21 million. Halvings ensure this.

In addition to this, the mining difficulty changes approximately every two weeks. The more miners there are or the more powerful they are, the higher the difficulty. The opposite is also true. This ensures that the block production rate remains constant at ) blocks every 10 minutes for Bitcoin(.

Types of Mining: Choose Your Weapons

) Mining with CPU ### This was the first option. In the early days of Bitcoin, anyone could mine cryptocurrencies using a regular computer.

Today? No chance. The electricity costs alone will exceed any profit you make.

( Mining GPU ) Stronger than regular processors and cheaper than specialized devices. Some small coins are still mineable with a GPU, but the profit is limited.

Mining with ASIC devices

These devices are completely specialized for mining - you can't run anything else on them. But they are insanely efficient. The problem? The price is very high, and they become outdated quickly with the advancement of technology.

( Mining pools Most individual miners do not have a chance to solve the block on their own. Their chances are very slim. So they join groups. Each group combines its computing power, and when it wins a reward, it distributes it to the members according to each one's contribution.

) Cloud Mining Instead of buying devices, you rent computing power from a specialized company. Easier? Yes. But the risks are present: fraud, reduced profits, the company decides to shut down the service.

Is mining profitable right now?

This depends on many factors:

Bitcoin Price: If the price is $88,180 ###, the latest available data ###, you are in a better position than when the price is low.

Electricity Costs: This is the number one killer for miners. If you pay $0.20 per kilowatt-hour, you might lose money. If you have cheap electricity ###$0.05(? Potential profit.

Device Efficiency: Modern ASIC device vs Old device = Huge difference in profit.

Mining Difficulty: The higher it is, the lower your profit ) with all other things being equal (.

Halvings: As we mentioned, rewards decrease by 50% every 4 years. This significantly reduces profits.

Who Controls Mining? And the Centralization Problem

There is a real problem in the system: some mining pools have become very large. They control a significant share of the network's power. Theoretically, if one group controls 51% of the mining power, it can execute a “51% attack” - taking control of the chain.

This contradicts the fundamental philosophy of Bitcoin: decentralization.

Some networks tried to solve the problem by transitioning to “Proof of Stake” )PoS( instead of Proof of Work. Ethereum did this in September 2022. The result? No more mining on Ethereum - it was replaced by a system based on who owns more coins.

Summary

Mining is the backbone of the blockchain that uses proof of work. It is what maintains security, confirms transactions, and creates new coins in an organized manner.

The good news: you can make profits from Mining.

The bad news: It requires capital, technical knowledge, and accurate calculations of electricity and equipment costs.

Before you jump into this field:

• Calculate the profit and loss ratios accurately.
• Find the cheapest source of electricity
• Follow the developments in mining difficulty and prices
• Understand that التعدين is not a guarantee - it is a bet on technology and the market.

And most importantly: this is not investment advice. Study the market, assess the risks yourself, and make informed decisions.