Mining¶

Mining is the full process of competing to create new Bitcoin blocks: assembling candidate blocks, searching for valid proof-of-work, and (if successful) broadcasting the result to earn the block reward. This chapter covers mining as an economic activity and operational process, building on the pure mechanics already covered in Proof of Work.

What a miner actually does, end to end¶

Connects to the network as a full node (or relies on a pool's node, see Mining Pools), staying synced with the current chain tip and mempool.
Selects transactions from the mempool to include in a candidate block, typically prioritizing by fee rate (see Transaction Fees) to maximize revenue, subject to the block weight limit.
Constructs the coinbase transaction, paying itself the block subsidy plus the sum of included transactions' fees (see Coinbase Transactions).
Runs the proof-of-work search described in Proof of Work, using specialized hardware (see ASICs).
Broadcasts the block immediately upon finding a valid hash, since any delay increases the risk another miner finds a competing block first and the effort is wasted (see Block Propagation and Chain Reorganizations).

Mining economics¶

A miner's revenue is the block subsidy plus transaction fees for every block they successfully mine (see Block Rewards); their costs are the capital expense of mining hardware (see ASICs) and the ongoing cost of electricity to run it, plus facility, cooling, and maintenance overhead. Because mining is a competitive, probabilistic process (a miner with X% of the network's total hash power finds roughly X% of blocks over a long enough period, but with genuine, sometimes substantial variance over shorter periods) profitability depends on the relationship between a miner's own costs (largely electricity price and hardware efficiency, in hashes-per-joule) and Bitcoin's price, current difficulty, and current fee levels. This relationship is dynamic and self-correcting: rising Bitcoin prices attract more mining investment, which raises total network hash power, which the difficulty adjustment responds to by raising the target difficulty, pushing marginal, less-efficient miners back toward unprofitability, an ongoing equilibrium-seeking process rather than a fixed, static state.

Variance and why pools exist¶

An individual miner with a small fraction of total network hash power might, by pure chance, go a very long time without finding any block at all, even if their expected long-run share of rewards is accurately reflected by their hash power share (this is the same kind of variance inherent in any low-probability-per-trial, many-trials process. Mining Pools exist specifically to smooth this variance: many individual miners combine their hash power, and whichever pool participant actually finds a valid block shares the reward across all contributing participants proportional to their contributed work, converting a high-variance, infrequent windfall into a smaller, more predictable, more frequent payout) a real and understandable reason pools became dominant, discussed further (including the centralization concerns this raises) in that chapter.

Stale and orphaned blocks¶

A miner who finds a valid block that ultimately isn't included in the winning chain (because a competing block, found nearly simultaneously, was extended first. See Chain Reorganizations) receives no reward at all for that block, all the electricity and hardware time spent finding it was, from a pure revenue perspective, wasted. This is a real, ongoing cost of Bitcoin's probabilistic, propagation-delay-sensitive consensus mechanism, and it's part of why well-connected miners (with faster, more reliable propagation to the rest of the network) have a genuine, structural advantage over poorly connected ones, a centralization pressure worth taking seriously rather than treating mining purely as an equal, hash-power-proportional lottery.

Common misconceptions¶

Mining does not involve "solving complex mathematical puzzles" in the sense of clever problem-solving. It's brute-force, memoryless trial and error (see Proof of Work). The "difficulty" is entirely about how many attempts are needed on average, not about any attempt requiring more insight or cleverness than any other.

A miner's hash power share does not guarantee that exact share of blocks over any specific short period. It's a probabilistic expectation that holds accurately only over a long enough sample. Short-run outcomes can and do deviate meaningfully, which is precisely the variance problem mining pools exist to address.