Mining
Mining: Crypto mining is the process of adding new blocks of transactions to a proof of work blockchain such as Bitcoin. Miners run specialised computers that compete to solve a puzzle, and the first to succeed adds the block and earns newly created coins plus transaction fees. Mining both secures the network and issues new supply.
How mining works
Miners collect waiting transactions, build a candidate block and hash it over and over until they find a result that meets the network’s difficulty target. This is the proof of work system described in the Bitcoin developer documentation. Bitcoin adjusts its difficulty roughly every two weeks so that a new block is found about every 10 minutes, however much computing power joins or leaves.
How miners get paid
The winning miner receives the block reward: a set number of new coins plus the fees paid by the transactions in that block. On Bitcoin the new-coin part halves roughly every four years at the halving, so miners rely more on fees over time. Most individuals join a mining pool, which combines computing power and shares rewards, because winning a block alone is unlikely.
Hardware, energy and who mines today
Bitcoin mining is now dominated by ASICs, machines built only for mining, running in large facilities with cheap electricity. Home mining with a normal computer is rarely viable for Bitcoin, though some smaller proof of work coins can still be mined with graphics cards. Electricity, hardware cost and the coin’s price decide whether mining is profitable, and all three change.
Mining and Australian tax
The ATO’s crypto mining guidance says that if you carry on a business of mining, the coins you receive are trading stock of that business, and GST can apply. Whether you are in business depends on your circumstances, such as whether you mine in a planned, regular and profit-seeking way. Keep records of rewards and costs. This is general information, not tax advice.
Frequently asked questions
Can you still mine Bitcoin at home?
You can, but with a normal computer the chance of earning a meaningful reward is close to zero. Profitable Bitcoin mining needs ASIC machines and low-cost power.
Is mining the same as staking?
No. Mining uses computing power on proof of work chains. Staking locks up coins on proof of stake chains. Both secure a network and earn rewards, but the costs and risks differ.
What is a mining pool?
A group of miners who combine their computing power and share the rewards based on how much work each contributed. It gives smaller miners a steadier income.