Crypto mining is the process by which new transactions are verified and added to a blockchain that uses the Proof of Work consensus mechanism. Miners use specialized computer hardware to solve complex mathematical puzzles, and the first miner to find the solution gets to add the next block of transactions to the chain.
In return for their work, miners receive two types of compensation:
- Block rewards – A set amount of newly created cryptocurrency. For Bitcoin, this reward is halved approximately every four years in an event called the "halving."
- Transaction fees – Small fees paid by users who send transactions on the network.
Mining serves two essential functions: it creates new coins and enters them into circulation, and it secures the network by making it extremely expensive for any single party to manipulate the transaction history.
Over the years, Bitcoin mining has evolved significantly:
- CPU mining – Early miners used regular computer processors.
- GPU mining – Graphics cards proved far more efficient.
- ASIC mining – Purpose-built machines now dominate Bitcoin mining, offering maximum efficiency.
Mining requires substantial electricity, which has led to environmental concerns. This is one reason Ethereum switched to Proof of Stake, an alternative that does not require energy-intensive computation. Bitcoin, however, continues to rely on mining as its core security model.
For more about how miners are taxed, see our crypto tax guide.