Understanding Bitcoin Mining

Above all, remember Bitcoin mining is not magic.

If you want to invest in Bitcoin or any other cryptocurrency, and you don’t understand how Bitcoin mining works – it’s all voodoo and black magic – you have a serious handicap in understanding  the whole industry and you will make poor investments decisions.

So please, really, really invest some time in understanding how Bitcoin mining “works.” I promise that once it gets in your head, that foundational knowledge will prove to be useful and profitable, perhaps VERY PROFITABLE.

What is Bitcoin Mining?

Mining is the process of spending computing power to process transactions, secure the network, and keeps everyone in the system synchronized together. Click here to read more.

How Does Bitcoin Mining Work?

Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.

Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady.  Click here to read more.

I don’t understand the technical terms “Proof of Work” and “Hashcash” Please Help Me.

This is where a LOT of regular, non-techie people give up. TRY to shoulder your way through this and understand these concepts. It will help a LOT in evaluating future cryptocurrency investments.

Proof-of-work is fancy work of saying the Bitcoin miner(s) need to solve a mathematical puzzle before they are allowed to process a transaction (and get Bitcoins Hashcash as a reward).  Read more about it here.

The key concept to grasp is that you can’t make it easy for miners to process transactions. You have to make it HARD and then even HARDER as more miners (computer servers) join the network. More miners, the more powerful the network and the more it’s secure and un-hackable. Read more about it here.

Now the last really difficult thing to understand is hashcash. First thing to understand about hashcash is that it was invented back in 1997! Hashcash is an algorithm (a computer program) that is used in lots of software and not just Bitcoin mining. It’s been used for decades to help with counter spam email.

But okay, what does it do? The job of hashcash is to make simple things harder for computers to perform. Did that make sense? No? Let me put in context.

When you send out an email, hashcash is used in the header of the email to make it slightly more difficult for the email program to send out. It’s a very minor irritant to any email server. Unless of course you are a spammer trying to send out millions of emails at once. Then it’s a MAJOR irritant.

Samething with Bitcoin mining Hashcash algorithm is used to MAKE THINGS harder. As matter of fact Bitcoin is programmed in such a way that each block transaction MUST take place in ten minutes. If more computational power (miners) is added to the network, hashing difficulty is increased. If miners are taken off the network, hashing is decreased. Finally, you can read about it here.


Congratulations if you made it this far and followed some of the links and understood more than half of the concepts here.  If you still don’t get it, no problem this not easy stuff.

But when you do get most of it, you will look at Bitcoin and cryptocurrency in a whole new different light. No more black magic and voodoo