Bitcoin mining is the process by which transactions are officially entered on the blockchain. It is also the way new bitcoins are launched into circulation.

Mining is conducted by miners using hardware and software to generate a cryptographic number that is equal to or less than a number set by the Bitcoin network's difficulty algorithm.

The first miner to find the solution to the problem receives bitcoins as a reward, and the process begins again. This reward is an incentive that motivates miners to assist in the primary purpose of mining: to earn the right to record transactions on the blockchain for the network to verify and confirm.

Before committing to investing your time and purchasing expensive equipment, read on to see whether mining is really for you.

How the Bitcoin Mining Process Works

Mining is a complex process, but in a nutshell, when a transaction is made between wallets, the addresses and amounts are entered into a block on the blockchain. The block is assigned some information, and all of the data in the block is put through a cryptographic algorithm (called hashing). The result of hashing is a 64-digit hexadecimal number, or hash.

The Hash

Here is an example of a hash:

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits. As you probably noticed, that number consists not just of numbers but also letters. Why is that?

The decimal system uses factors of 100 as its base (e.g., 1% = 0.01). This, in turn, means that every digit of a multi-digit number has 100 possibilities, zero through 99. In computing, the decimal system is simplified to base 10, or the numbers zero through nine.

Hexadecimal, on the other hand, means base 16 because "hex" is derived from the Greek word for six, and "deca" is derived from the Greek word for 10. In a hexadecimal system, each digit has 16 possibilities. However, our numeric system only offers 10 ways of representing numbers (zero through nine). A 10-digit figure would have 1010 possibilities (10 billion)—cryptography requires many more possibilities than this for security purposes.

That's why there are letters used—specifically, the letters A, B, C, D, E, and F. Using this combination, there are 1664 possible combinations (1.1579 novemvigintillion) that can be generated using a hash function that generates a 64-digit hash. One novemvigintillion is a 1 followed by 90 zeros.