What is Bitcoin mining?

Why does Bitcoin need mining?

Your bank keeps the books on who owns what, and you trust the bank. Bitcoin has no bank. Yet everyone still has to agree on one version of the books, the BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing..

Mining solves three problems:

• Who writes the next page of the books? Miners compete for the right to add the next BlockBlockA batch of transactions added to a blockchain in one go, together with a reference to the block before it. to the chain. No single party decides who wins.
• How is cheating prevented? To change past transactions, a cheat would have to redo all the work, faster than everyone else. That is enormously expensive.
• Where do new bitcoins come from? No central bank prints bitcoin. New coins are created as a reward for the people doing the work.

Satoshi NakamotoSatoshi NakamotoThe pseudonym of Bitcoin's creator, who published the Bitcoin whitepaper in 2008, launched the network in 2009 and disappeared soon after. compared this to gold mining in the Bitcoin whitepaper in 2008. Miners spend electricity and hardware, and in return new bitcoin enters circulation.

How does proof of work work?

The method is called proof of workProof of workA consensus method where the right to add the next block to a blockchain goes to whoever first solves a hard computing puzzle.. It relies on a HashHashA short fingerprint calculated from data, which changes completely if the data is altered by even a single character., a kind of digital fingerprint of a piece of data. A computer can calculate a hash in an instant, but there is no way to predict the result in advance.

The competition goes like this:

1. A miner gathers unconfirmed transactionsTransactionA record of crypto moving from one wallet address to another, signed with the sender's private key and stored permanently on the blockchain. into a candidate block.
2. A number that can be changed freely is added to the block, and the hash is calculated.
3. If the result is below a certain target, the puzzle is solved. Otherwise the number is changed and the miner tries again.
4. The first to find a solution broadcasts the block to the network. The nodesNodeA computer that runs a crypto network's software, keeps a copy of the blockchain and checks that new transactions and blocks follow the rules. check it in a fraction of a second and add it to the chain.

It is a bit like rolling a handful of dice and waiting for them all to land on six. The only way to win more often is to roll more often than everyone else. A solution is hard to find, but easy for anyone to verify.

The combined capacity of all the machines is called the HashrateHashrateThe total number of guesses a network's mining computers make each second, and a measure of how well the network is protected from attack.. In October 2026, the network was making roughly 1,000,000,000,000,000,000,000 guesses every second. To take control of the ledger, a cheat would need more than half of that capacity. That would cost enormous sums in hardware and electricity.

The difficulty adjusts itself

When more machines join, blocks are found faster. To keep a steady pace, the network recalculates the puzzle's difficultyMining difficultyA measure of how hard it is to find a new block; Bitcoin adjusts it every 2,016 blocks so that blocks are found about every ten minutes on average. every 2,016 blocks, which is about two weeks.

• If blocks came faster than one every ten minutes on average, the puzzle gets harder.
• If they came slower, it gets easier.

It works like a thermostat on a radiator: the system corrects itself. So it doesn't matter whether a thousand or a million machines take part. A new block is found roughly every ten minutes, and new bitcoin is issued on a schedule set in advance.

What do miners get for their work?

Whoever finds a block receives two things:

• New bitcoin. The amount is fixed in Bitcoin's rules and is called the block rewardBlock rewardWhat a miner receives for adding a block to the chain: newly created bitcoin plus the network fees in the block.. Since April 2024 it has been 3.125 bitcoin per block.
• The network feesNetwork feeA fee paid to a crypto network, not to a bank or company, for including your transaction in a block. that users paid for the transactions in that block.

The block reward is cut in half every 210,000 blocks, roughly every four years. This is called the HalvingHalvingThe event roughly every four years when the number of new bitcoin that miners receive for each block is cut in half., and the most recent halving was in April 2024. Read more in What is the Bitcoin halving?

Once all 21 million bitcoin have been issued, around the year 2140, fees will be miners' only income. Today they are a small part of it. In October 2026, fees made up less than 1% of what miners earned from blocks.

What hardware does it take?

In the early years you could mine on an ordinary home computer. Those days are long gone. Today miners use purpose-built machines called ASICs (application-specific integrated circuits). They do only one thing: calculate Bitcoin hashes as fast as possible.

A single machine often draws more power than a kettle left running around the clock. The machines are loud, run hot and become outdated within a few years as newer, more efficient models arrive.

What are mining pools?

A small miner could wait years to find a block, even with good machines. That is why most miners join forces in mining pools.

The pool shares the rewards among its members according to how much computing power each contributed. It is like an office lottery syndicate. Instead of waiting for the big win, each member gets a smaller but steadier share.

The downside is that a few large pools find a large share of all blocks. In October 2026, the three largest pools found about 60% of blocks. Critics see this as a threat to the network's DecentralisationDecentralisationWhen power and responsibility are spread across many participants, instead of one bank, company or government controlling a system.. On the other hand, the machines themselves belong to many different owners, who can move to another pool.

Energy use and the debate around it

Mining uses a lot of electricity. According to a 2025 study from the University of Cambridge, the Bitcoin network uses about 138 terawatt hours a year. That is around 0.5% of the world's electricity use, and nearly seven times Iceland's entire electricity production in 2023.

Energy use doesn't depend on the number of transactions. It depends on how profitable mining is, which comes down to the price of bitcoin and the reward.

Opinions on this are divided:

• Critics point out that the energy could be used for other things, that some of it comes from fossil fuels and that the hardware quickly becomes waste.
• Defenders of mining say the energy is exactly what makes the network secure. Mining can also use surplus power, and machines can be switched off when power is needed elsewhere. The Cambridge study found that about 52% of the energy came from renewables and nuclear power.

Whether the energy use is justified depends largely on how much people value a payment network that no single party controls. Views on that differ.

Bitcoin mining in Iceland

Iceland has long been seen as a good location for data centres. Almost all electricity here comes from hydropower and geothermal energy, and the cool climate makes cooling easier. In 2021, Landsvirkjun, the national power company, said the growth of data centres in Iceland had been driven by cryptocurrency.

Exactly how much electricity went to mining is not known. According to the National Energy Authority (Orkustofnun), about 4% of Iceland's electricity use went to data centres in 2020. In an answer to Alþingi in the 2023-2024 session, the minister responsible said there was no information on how much of that went to mining. Data centres sell services to many different kinds of customers.

In recent years, mining in Iceland has declined:

• In dry years, Landsvirkjun has had to curtail power to large users. In autumn 2024, the company said it had halved its sales to data centres to phase out cryptocurrency mining.
• The Federation of Icelandic Industries has pointed out that power for mining was sold as interruptible power, which would have been hard to sell to anyone else. According to the federation, all of Iceland's larger data centres aim to stop serving mining customers.
• Data centres have increasingly turned to other work, such as artificial intelligence. In October 2025, Landsvirkjun said Iceland's three international data centres used about 3% of the country's electricity generation.

Closing thoughts

Mining is the engine that runs Bitcoin. It confirms transactions, issues new bitcoin and makes faking the ledger extremely expensive, without any single party controlling the process.

The price of that security is a lot of energy, and opinions on it differ. In Iceland, mining has declined in recent years. Whether or not you own bitcoin, understanding mining helps you understand why Bitcoin works the way it does.