Mining

What is mining in simple words

Mining is the process of cryptocurrency extraction in which computers solve complex mathematical problems to confirm transactions in the blockchain. For this, miners receive a reward in the form of new coins and transaction commissions. To put it as simply as possible, it is a way to convert electricity into cryptocurrency.

Imagine that there is a gold mine. Instead of shovels and pickaxes, miners use computers. Instead of searching for gold nuggets, they solve mathematical problems. Whoever is the first to find the correct answer receives the reward. Mining cryptocurrencies works the same way: computers compete in solving problems, and the winner receives coins.

Read about what cryptocurrency is in the article Cryptocurrency.

How mining works

1. Collecting transactions: Miners collect the unconfirmed transactions of network users.
2. Forming a block: Transactions are combined into a block.
3. Solving the problem (Proof of Work): Miners compete to be the first to find the correct value (the nonce) that makes the block hash less than a given target.
4. Verification: Other miners check the correctness of the solution.
5. Adding to the blockchain: If everything is correct, the block is added to the chain.
6. Receiving the reward: The miner who found the solution receives a reward (new coins + transaction commissions).

Read about hashing and Proof of Work in the article Hashing.

What is needed for mining

• Equipment: ASIC miners (specialized devices) or graphics cards (GPU). ASICs are more powerful, but more expensive and consume more energy.
• Electricity: Mining requires large amounts of electricity. This is one of the main cost items.
• Internet: A stable connection for working with the network.
• Software: Special programs for mining.
• A wallet: For receiving the reward.

Read about choosing equipment in the article Cryptocurrency.

Ways of mining

• Solo mining: Mining alone. High risk — you may not find a block for a long time, but if you do, the entire reward is yours.
• Pools: Combining miners to jointly search for blocks. The reward is distributed in proportion to the contributed power. The most popular method.
• Cloud mining: Renting computing power from a provider. Does not require equipment, but there is a risk of fraud.
• Mining on graphics cards: Suitable for some cryptocurrencies (Ethereum before the transition to PoS, Monero, Ravencoin).
• ASIC mining: The most efficient equipment for Bitcoin and other popular cryptocurrencies.

Mining in Russia: legality and taxes

Since January 1, 2025, mining in Russia is legalized, but strictly regulated:

• Individuals are allowed to mine without registering in the registry if the electricity consumption does not exceed 6000 kWh per month.
• Individual entrepreneurs and legal entities need to be included in a special registry of the Federal Tax Service.
• Taxes: Taxes must be paid on mining income.
• Declaration: All mined cryptocurrency and wallet addresses must be declared.

Penalties for violations: For illegal mining or exceeding limits — fines up to 2 million rubles with confiscation of equipment. Criminal liability — up to 5 years of imprisonment for organizers.

Read about legislation in the article Cryptocurrency.

Mining profitability

Mining profitability depends on many factors:

• Network difficulty: The more miners, the harder the tasks.
• The cryptocurrency rate: The higher the rate, the higher the income.
• The cost of electricity: The main cost item.
• Equipment: Power and energy efficiency.
• Pool commissions: Usually 1-2% of income.

Important: The reward for mining Bitcoin is halved roughly every 4 years (halving). The next halving will occur in 2028, which will reduce mining profitability.

Read about halving in the article Bitcoin.