How does bitcoin mining work?
🏦 In our daily lives, every financial transaction is processed by a trusted intermediary, such as a bank.
‼️ The 2008 financial crisis exposed the power that this concentration created. Institutions failed, took risks with other people's money and required public bailouts. Some people started asking: what if we didn't need them at all?
🥸 In 2008, an individual or group of individuals using the name Satoshi Nakamoto published a proposal. Instead of one institution keeping the ledger, what if everyone kept the ledger simultaneously in public?
🧾 But outsourcing bookkeeping to a community creates a new problem: who do you trust? Anyone could record false transactions. Satoshi's solution was to make bookkeeping computationally difficult.
♾️ In order to add a new page to the ledger, a mathematical puzzle must first be solved. The only way to solve it is to make repeated guesses. (Click here if you want to know more about how the puzzle works.)
💰 Every guess is like buying a lottery ticket. The faster you guess, the more tickets you hold. The winner adds the next block and collects the cryptocurrency reward. Most contemporary miners use ASIC (Application-Specific Integrated Circuit) miners. All it does is buy lottery tickets millions of times per second.
Many companies are packaging mining itself as a financial product. Invest, and it can feel like buying a stock that generates a steady stream of dividends. However, mining is not just numbers on a screen. The materiality of mining means that the returns are never as steady as they seem; they are unstable, contingent and local.
The stories we usually hear...
In these headlines, dollar figures have taken center stage. The media has repeatedly reported on ordinary people who have become millionaires overnight thanks to a stroke of luck, and on digital artworks fetching staggering prices. Prices seem to have taken on a life of their own, while the infrastructure that underpins the market—such as energy, hardware, and labor—has receded into the background.
However, while Bitcoin’s price has surged dramatically, many investors have never realized these gains. Retail investors often enter the market during rapid price rallies and exit when the market declines.
Would you start mining?
Source: Yahoo Finance
This chart illustrates the growth indices of the three most successful cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), and XRP. Each curve starts at 100. A value of 800 means the initial investment has increased eightfold. For example, if you had invested $100 in Bitcoin in early 2018, its value would have reached approximately $850 by 2026.
Now, choose a specific point in time when you would like to enter the cryptocurrency mining industry.
Keep in mind: Setting up a mining farm typically takes one to three months. By the time your equipment is up and running, market conditions may have already changed.
Hold on... does a rising price really mean profit?
Source: Hashrate Index
However, even if you’re lucky enough to enter the industry during a cryptocurrency price rally, fierce competition may erode the profits you originally hoped to earn.
As the chart shows, periods of rapid Bitcoin price increases are often accompanied by a surge in hash rate. As competition intensifies and mining difficulty rises, you’ll need to invest more money in equipment, while the rewards per unit of equipment decrease.
By 2026, profits from cryptocurrency mining had become meager. For many mining rigs, mining revenue wasn’t even enough to cover electricity costs, let alone the cost of purchasing the equipment. The only way to turn a profit was to find cheap or nearly free electricity.
How much do you pay per kWh? Drag the slider to see how electricity costs affect the revenue of different mining rigs. (Data captured on June 15, 2026)
The coins we forgot...
The cryptocurrencies featured in previous sections are among the rare success stories of the crypto world.
Most cryptocurrencies follow a very different trajectory. As the chart on the left shows, many experience a brief period of rapid growth that attracts investors, followed by a long decline in price. Some eventually disappear altogether.
Click here to explore the graveyard of failed cryptocurrencies.
Click here to learn more about ICO booms and crypto scams.