What is Bitcoin Mining?
If you're new to Bitcoin, you'll have come across terms like 'Bitcoin Mining' and you likely won't know what any of these mean. This guide explains what these terms mean, why mining is needed and how you can get involved with it.
What is Bitcoin?
Well to start, Bitcoin is a digital currency, sometimes it's also called a cryptocurrency. It's essentially a digital asset, similar to holding money in a PayPal account or in your bank account - except it's considered more secure and decentralised.
If any of this information is new, take a look at our guide on different ways to invest in Bitcoin - mining isn't the only one!
Just to make one thing clear, in the vast majority of countries Bitcoin is 100% legal. See this article for more details on specific countries (or this page on Wikipedia). In South America for example several countries have made it illegal. Most of North America, Europe and Asia have started accepting it more widely.
What is Bitcoin Mining Actually Doing?
The above said, when you send Bitcoin to another person, this transaction is added to a public ledger. This means you can follow the movement of any Bitcoin right back to when it was created.
Bitcoin Mining is the process of verifying Bitcoin transactions, adding each new transaction to a block. This is done through completing computational tasks on a computer CPU, GPU or specialised mining hardware called an ASIC, and you're rewarded for doing this in the form of Bitcoin.
Each block takes around 10 minutes to create and is a fixed size, currently 1MB for Bitcoin (this varies between different cryptocurrencies). Each time a new block is created, new Bitcoin is created and given to the miners (currently 12.5 bitcoins per block). Miners also get a small fee each time they add a transaction to one of these blocks. We explain both of these mechanisms in this guide.
The phrases 'Bit Mining' and 'Cryptocurrency mining' are both referring to the above process, potentially referring to different cryptocurrencies.
Is Bitcoin Mining Legal/Taxable?
This is a more complex area, as most countries will take a stance on Bitcoin but on Bitcoin Mining itself. In rare cases they do; Ecuador for example took a stance against production of digital currencies (cryptocurrencies) and released their own (possibly to avoid competition).
Other countries like Iceland have restricted trading between their local currency (Kroner) and Bitcoin in an attempt to protect their currency, but still allow Bitcoin mining.
So in conclusion; Bitcoin Mining is 100% legal in most countries, but in some cases it isn't. Do some research via national news/resources to get specific details. If you find it is legal, remember that income from Bitcoin Mining is most likely taxable (sometimes capital gains tax is applicable, in others personal/business income taxable), so it's good idea to keep a record of how much you're earning from mining every few weeks (often many transactions will go in/out of wallets, so doing this say once a year can be very tedious).
You can use our Crypto Coin Tracker to automatically track your mined coins (via the public key of a crypto wallet). We monitor both the coin & fiat value, so can see how many coins you're mining and the fiat (USD) value needed for tax reporting.
What is Bitcoin Mining Hardware/Cloud Mining?
There are lots of ways to mine Bitcoin, and depending on your personal situation the ideal one will vary. Methods for mining Bitcoin:
- CPU/GPU mining is a great place to start with mining, which involves mining it on your desktop/laptop. If you search for some videos on 'how to mine Bitcoin on CPU' there are loads of tutorials on where to start. Learning the basics can be easy, but getting this to be profitable can be more difficult, i.e. where specific hardware may need to be purchased. After a search, the GeForce GTX 1080 and GeForce GTX 1070 seem to be popular for GPU mining (these are affiliate links), although do some research into the profitability of these if you intend to buy one!
- Cloud Mining is an easier way to start mining Bitcoin, where you buy mining capacity from services such as HashFlare. Many people consider cloud mining a scam; that if you want to mine Bitcoin you should do it yourself. You'll have to make this decision for yourself. We made a calculator to try and make cloud mining profitability more transparent.
- ASIC mining is another option. An ASIC is specialised hardware that is far more efficient at mining than a normal computer. We've posted a few relevant guides, one on ASIC profitability, and another explaining what an ASIC is & where they can/can't be used.
Is Bitcoin Mining Profitable?
This will vary very often, the main factors affecting Bitcoin Mining profitability are the current fiat value of Bitcoin, the current difficulty, the current block reward, pool fees & the cost of electricity when mining. Where electricity is cheap, in the US & Asia, it's most likely profitable; but in other areas like the UK where electricity is more expensive it may not be.
We've posted many guides and videos for working our Bitcoin Mining profitability, so see our relevant guides/videos if you'd like more information.
DISCLAIMER: This site cannot substitute for professional investment or financial advice, or independent factual verification. This guide is provided for general informational purposes only. Bitcoin Kit is UK-based and not regulated by the FCA (Financial Conduct Authority). The group of individuals writing these guides are cryptocurrency enthusiasts and investors, not financial advisors. The ideas presented are our analysis, learning & opinions on a range of cryptocurrency topics. Trading or mining any form of cryptocurrency is very high risk, so never invest money you can't afford to lose - you should be prepared to sustain a total loss of all invested money.
This website is monetised through affiliate links. Where used, we will disclose this and make no attempt to hide it. We don't endorse any affiliate services we use - and will not be liable for any damage, expense or other loss you may suffer from using any of these. Don't rush into anything, do your own research. As we write new content, we will update this disclaimer to encompass it.
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Never invest money you can't afford to lose.
All information on this website is for general informational purposes only, it is not intended to provide legal or financial advice. We encourage you to consult your own legal & financial advisors before making any cryptocurrency-related purchase.