How does Bitcoin mining work?

Mining is fundamental to validating transactions – or blocks – on Bitcoin's blockchain. A new block can only be added to the blockchain once miners confirm whether the information it contains is correct.

Each miner competes with other miners to solve challenging mathematical equations called hash puzzles. Miners use advanced computer hardware to do this in return for receiving block rewards in the form of newly-created Bitcoin.

The barrier to entry is high for Bitcoin miners. The resources needed to mine Bitcoin include a constant supply of electricity, plenty of physical space, and high-end computer hardware that must have the capacity to store the entire history of Bitcoin's record of transactions.

Anyone can mine Bitcoin as long as they have the right equipment. But Bitcoin mining is a highly-competitive industry. Large corporations are responsible for mining the largest quantities of Bitcoin because of the capital at their disposal.

What is Bitcoin hashrate?

Hashrate is a metric that measures the computational power used to mine cryptocurrency on Proof of Work blockchains like Bitcoin.

Bitcoin's hashrate has consistently grown since its inception and as of 2022 is estimated to be 209 exahashes per second (EH/s). This means that miners are processing 209 quintillion hashes every second today compared to just 15 EH/s in January 2018.

A hash is basically an attempt at solving a complex mathematical puzzle which confirms that a block of transactions is valid. Each block represents a set of transactions that can be added to the blockchain once it is validated by a miner.

Miners use advanced computer hardware to achieve this and earn block rewards in the form of Bitcoin (or other cryptocurrency) for doing so.

It can take miners thousands, millions, or billions of guesses – or hashes – to solve a block depending on the difficulty of the Bitcoin network.

The difficulty of the Bitcoin network is determined by the number of miners competing against one another to solve blocks. So, hashrate is directly proportional to network difficulty.

A higher hashrate makes it harder to mine Bitcoin while a lower hashrate makes it easier to do so. A higher hashrate also translates into more network security, because the more mining machines there are online and dedicated to processing transactions and confirming blocks, the harder it is for malicious actors to disrupt the network.

Which country mines the most Bitcoin?

The United States mines the most Bitcoin in the world. According to the Cambridge Bitcoin Electricity Consumption Index , the US is home to 38% of the Bitcoin network hashrate – the computational power needed to mine Bitcoin.

So, this means America generates over a third of the Bitcoin mined daily around the globe.

In particular, it is southern states like Georgia, Texas, and Kentucky that lead the pack as mining hubs in the US.

China mined the most Bitcoin in the world until 2021 when the government banned the practice. However, data indicates that 21% of the Bitcoin network hashrate can still be attributed to mining operations in the country.

Miners in Kazakhstan, Canada, and Russia also produce substantial quantities of Bitcoin.

About ETC Group

ETC Group has been created to provide investors with the tools to access the investment opportunities of the digital assets' and blockchain ecosystem. The company develops innovative digital asset-backed securities including ETC Group Physical Bitcoin (BTCE) and ETC Group Physical Ethereum (ZETH) which are listed on European exchanges including XETRA, Euronext, SIX, AQUIS UK and Wiener Börse.

With a track record of over three years, ETC Group is made up of an exceptional team of financial services professionals and entrepreneurs with experience spanning both digital assets and regulated markets. With product quality and safety at the core of our product creation approach, the company aims to continuously launch best-in-class institutional-grade exchange traded products.

As a company, ETC Group has previously launched BTCE - the world’s first centrally cleared Bitcoin exchange traded product on Deutsche Börse XETRA, the largest ETF trading venue in Europe, and also listed DA20, the world’s first crypto ETP tracking an MSCI index signalling a move towards investment management products. DA20 provides broad market exposure to investors by tracking an index of 20 cryptocurrencies which cover 85% of the total crypto market capitalisation.

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