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July 17, 2023

What Is Blockchain Mining? Everything You Need to Know

Blockchain Mining
Katya Richardson

Written by Katya Richardson

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Growing in adoption, many people are delving into the world of cryptocurrency mining; earning rewards for verifying transactions and creating new blocks on the blockchain network through solving mathematical riddles. But what exactly is a blockchain, how does blockchain mining work and how can you get started? In this post, we will be examining all things about blockchain and everything you need to know to start mining. 

What Is Blockchain Mining?

As you may have guessed from the name, blockchains are made up of a series of ‘blocks’ and ‘chains.’ These ‘blocks’ store data of recent transactions occurring on the network that are yet to be validated and represent an explicit encryption of a particular code authentication on the network software with the ‘chains’ connecting blocks together. Once a block is verified, that block is closed with a new one created for new transactions that are to be validated next. 

Mining is the term for this transaction-verification procedure explained above and is called “mining” because it is comparable to the mining of commodities like gold and silver, which involves a lot of work and resources but has a finite supply, thus the annual amount of gold produced essentially stays the same.

The people who secure and verify these transactions are known as blockchain miners, and they operate in a maze of computational hardware and software such as adding Bitcoin transaction data to Bitcoin’s global public ledger of past transactions, with the primary goal of authenticating the movement of Bitcoin from one computer in the network to another. 

At its core, the term ‘blockchain mining’ is used to describe the process of adding transaction records to the blockchain. This process of adding blocks to the blockchain is how transactions are processed and how cryptocurrency moves around securely. Additionally, the procedure has a reward. The mining process is not managed by a single user, rather, several users compete for the benefits via unified authentication. Cryptocurrencies are added as a bonus after each mining accomplishment.

Types Of Mining

With the complexity of work in the mining process, working with a regular desktop or PC is not feasible. The blockchain mining process requires unique sets of computer hardware and software that will meet the necessary level of skill. The mining process can be divided into three categories:

  • Individual Mining
    In individual mining, the user has to register as a miner. Every user in the blockchain network is given a mathematical problem to solve as soon as a transaction is completed. The first person to solve a complex mathematical problem gets rewarded. When a solution is discovered, every other miner in the blockchain network will verify the decrypted value and then add it to the blockchain. Confirming the transaction as a result.
  • Pool Mining
    In pool mining, several users will operate together (group) to approve the transaction. Numerous transactions occur every second and the complexity of the data can make it difficult for the individual miner to decrypt the encoded data alone. So the entire team of miners in the network operates together to solve the complex numerical data. After the final result has been validated, the reward will be given to all users evenly.
  • Cloud Mining
    Cloud mining is a method of participating in cryptocurrency mining without having to acquire or operate mining hardware. Users instead rent mining capacity from a business that owns and operates the mining hardware and process. When rented mining hardware mines a block, the earnings are split between the users and the company.

If you’re new to the world of cryptocurrency, understanding the differences between individual mining, pool mining, and cloud mining is essential. Explore the advantages and disadvantages of the different methods commonly used.

How Does Blockchain Mining Work?

New blockchain transactions are transferred to a pool called a memory pool when they are made. It is the responsibility of a miner to check the validity of these pending transactions and group them into blocks. After that, the miner tries to turn this candidate block into a valid, confirmed block. The miner needs a lot of computing resources to solve a challenging problem in order to accomplish this. However, the miner receives a block reward made up of fresh coins for each successfully mined block. Let’s take a closer look at how it works.



  • Step 1 : Hashing Transactions
    The first stage in mining a block is to collect the memory pool’s pending transactions and submit each one one at a time using a hash function. An output of fixed size known as a hash is produced each time a piece of data is sent through a hash function. Each transaction’s hash, which serves as an identifier in the context of mining, is made up of a string of numbers and letters. The transaction hash is a representation of all the data in the transaction.

  • Step 2 : Creating a Merkle Tree
    After each transaction is hashed, the hashes are then arranged into a hash tree known as a “Merkle tree”. Transaction hashes are paired up and then hashed to create a Merkle tree. The process is then repeated until a single hash is produced, after which the new hash outputs are grouped into pairs and hashed once more. The final hash, also known as the root hash or Merkle root, serves as a representation of all the earlier hashes that were used to create it.

Creating a Merkle Tree
  • Step 3 : Finding a valid block header (block hash)
    A miner must put the root hash, the hash of the block before it, and a nonce through a hash function to validate their candidate block. They have to keep doing this until they can generate a valid hash. Miners must alter the nonce value numerous times before a valid hash is discovered since the root hash and the hash of the prior block cannot be altered. The result (block hash) must be smaller than a predetermined target value established by the protocol in order to be regarded as genuine. The number of zeros that the block hash must contain to begin is known as the mining difficulty in Bitcoin mining.

  • Step 4 : Broadcasting the mined block
    As we have already seen, miners must repeatedly hash the block header using various nonce values. They continue doing this until they discover a legitimate block hash, at which point the miner who discovered it broadcasts that block to the network. In order to add a new block to their copy of the blockchain, all other nodes must first determine whether the block and its hash are valid. The candidate block is now a confirmed block, and all miners proceed to mine the following block. The mining race restarts when miners that failed to find a valid hash in time.

Uses Of Blockchain Mining

  • Validating Transactions
    Decentralized digital currencies are maintained and exchanged from one user to another via a blockchain network. Each new transaction adds a new block to the blockchain which is then validated by miners.

  • Confirming Transaction
    Cryptocurrencies are integrated in the blockchain network, specifically inscribed in the blocks. Miners use the blockchain mining process to determine if a transaction is authentic or not. Transactions are confirmed when they have been included in the block.

  • Securing Network
    Cryptocurrency miners will collaborate to secure the transaction network. As more people mine the blockchain, blockchain network security improves. Network security ensures that no fraudulent activity involving cryptocurrency takes place.

How Do Blockchain Miners Make Money?

The miners work in a maze of computational hardware and software such as adding Bitcoin transaction data to Bitcoin’s global public ledger of past transactions, with the primary goal of authenticating the movement of Bitcoin from one computer in the network to another.

The miners will get paid after confirming a fresh block of Bitcoin transactions, Bitcoin miners receive incentives that are paid in Bitcoin. As of May 2020, the price is 6.25 bitcoins per block, which are awarded to miners who successfully validate a block, The price of Bitcoin may change once more in 2024, depending on events like the Bitcoin halving.

How Can I Start Blockchain Mining?

  • Purchase Mining Equipment
    Purchasing a mining rig and attempting to mine cryptocurrencies, such as Bitcoin, is one way to get started, however, with the amount of computing power needed to operate these devices, and the growing cost of electricity, it is often not profitable with the output costing more than the reward.

  • Choose a Mining Pool
    To minimise output costs, many miners will join a mining pool where several miners will work as a team to validate transactions and secure the network. By working together, they share output costs and have a higher chance of calculating these mathematical riddles and getting paid. When deciding on a pool, one must be very careful and consider the pool’s reputation, how established it is and whether there are any hidden costs or membership fees.

  • Invest Through a Blockchain Mining Company
    One of the easiest and fastest ways to get started in blockchain mining is to use a reputable and established blockchain mining company. These companies are highly experienced and present a profitable solution for those wanting to start blockchain mining but either aren’t sure how to get started or can’t afford the output costs of mining. Blockchain mining companies, such as Hiddup, do the mining for you, offering minimum fixed-rate mining packages with returns of 6-16% per annum.

Now that you have a better understanding of blockchain mining, you might be wondering about its practical application, especially in specific regions like Australia. If you’re based in Australia or interested in the Australian crypto mining landscape, our article Is It Worth Mining Crypto in Australia? offers an in-depth look into the feasibility, costs, and benefits of mining in this region. This guide will provide you with a localized perspective and help you assess if mining is a viable venture in the Australian context.

The information presented on this website is general information only. It should not be taken as constituting professional advice from the website owner – Hiddup PTY LTD (Hiddup). Any information regarding past performance and returns contained on this website should not be construed or interpreted as a prediction or opinion as to future performance and returns. Hiddup is not a financial adviser. All views and observations expressed by Hiddup on this website are for information purposes only, are general in nature and should not be treated as investment or financial advice of any kind.