How does Bitcoin mining work? A step-by-step look at today’s rigs

Bitcoin mining today is a race where specialized machines guess trillions of times a second to find the next valid block. The process secures the network, issues new coins, and rewards operators who own the fastest, most efficient hardware. Current network hashrate sits near 990 EH/s after the 2024 halving cut the subsidy to 3.125 BTC per block, while AI data-center demand is reshaping who can afford power and where machines are placed.

Block creation rules

Miners collect pending transactions into a candidate block and add an 80-byte header that includes a nonce. They run the header through double SHA-256 until the result is below the current target. The first valid solution wins the block and its reward, which combines the subsidy and transaction fees.

Difficulty recalibrates every 2,016 blocks to keep the average interval at ten minutes. With roughly 144 blocks produced daily, the network now creates about 450 new Bitcoin each day. That predictable schedule underpins supply forecasts and miner revenue models.

The target is expressed as a 256-bit number that shrinks as total hashrate rises. Today’s difficulty of 132.72 T means each machine must test far more nonces than it did only a few years ago, which is why older rigs no longer break even at most electricity rates.

Hashing sequence

Once the block header is assembled, the miner increments the nonce and re-hashes the same 80 bytes. The loop repeats at speeds measured in terahashes per second. A single modern rig can exceed 500 TH/s, so the same header is tested billions of times every minute.

If the hash is still above target, the nonce rolls over and the extraNonce field inside the coinbase transaction is adjusted. This expands the search space without changing the transactions inside the block. Only when a hash lands below target does the miner broadcast the solution for network verification.

Verification takes milliseconds. Every other node checks that the block follows protocol rules and that the hash meets the target. The winner then claims the coinbase reward plus fees, and the cycle restarts with a new set of unconfirmed transactions.

ASIC hardware today

Current flagship rigs are built around chips that perform only the SHA-256 function. The Bitmain Antminer S23 Hyd reaches 580 TH/s at 9.5 joules per terahash and draws roughly 5.5 kW. Its successor, the S23 XP Hyd, is slated for November shipment at 600 TH/s and 8.9 J/TH.

Competitors include MicroBT’s Whatsminer M70 series and Canaan’s Avalon A16 XP. These machines trade a few efficiency points for lower purchase prices, giving operators flexibility when electricity costs vary by region. Hydro or immersion cooling keeps temperatures stable and extends hardware life in 24-hour facilities.

Retail buyers can still find smaller open-source units such as the Bitaxe, which produces 1–3 TH/s on household power. These devices rarely turn a profit but demonstrate the protocol’s accessibility and occasionally solve blocks outright, proving solo mining remains theoretically possible.

Pool versus solo choice

Most operators join pools to smooth revenue. Foundry USA currently accounts for about 25 percent of network hashrate, followed by AntPool at 21 percent and F2Pool at 17 percent. Pools assign work units and distribute rewards through full pay-per-share or similar formulas, so a 100 TH/s rig earns daily fractions rather than waiting months for a full block.

Solo mining still exists for hobbyists or those testing new firmware. A Bitaxe user in October found a block worth the full 3.125 BTC plus fees, an event that circulates quickly on social channels and reignites conversations about decentralization. Such wins remain statistical long shots.

Stratum V2, now running on roughly 3–5 percent of hashrate, lets individual miners select their own transaction sets. The change reduces pool operator influence over block contents, though adoption is slow because older firmware must be updated and some pools have not yet enabled the new protocol.

Power cost equation

Electricity dominates operating expense. At six cents per kilowatt-hour, an S23 Hyd can net around thirty dollars daily after power. Raise the rate to eight cents and margins shrink quickly, which explains why large operators chase curtailed wind, stranded gas, or behind-the-meter deals.

Hashprice, the market value of one petahash per day, hovers near thirty-eight dollars. When the figure drops, older machines are powered down first, trimming network hashrate and easing difficulty for remaining rigs. The feedback loop keeps the system responsive to price signals.

Public companies that once expanded aggressively are now weighing AI hosting contracts that pay more per megawatt. Some sites have already converted part of their load, illustrating how Bitcoin mining competes for the same substations and transformers as other compute workloads.

AI data-center pressure

Hashrate peaked above 1,100 EH/s in late 2025 and has since eased to roughly 990 EH/s. The decline tracks miner exits from high-cost regions and the reallocation of power contracts to AI tenants promising steadier revenue. Difficulty has adjusted downward in response, but the bar remains higher than any pre-2024 level.

Operators that stay in Bitcoin emphasize sites with low or negative power pricing, often near flare gas or curtailed renewables. These locations are harder to replicate at AI scale, giving Bitcoin miners a narrow but defensible niche even as headline data-center demand surges.

Equipment makers are also hedging. Bitmain and MicroBT both discuss dual-purpose firmware that could pivot chips toward other SHA-256 workloads if Bitcoin economics weaken further, though no commercial product has shipped yet.

Transaction fee role

Subsidy now supplies only part of the reward. On high-volume days, fees can add 10–20 percent to block revenue. During the October congestion tied to a popular token launch, several blocks cleared more than one Bitcoin in fees alone, temporarily boosting daily miner income.

Fee share is unpredictable, so models assume conservative baselines. Pools that use transaction-sensitive payout schemes pass that variability directly to members, while others smooth it through reserves. Operators therefore watch mempool depth as closely as the spot price of Bitcoin.

Long-term security discussions hinge on whether fee growth will offset future subsidy cuts. The next halving, expected in 2028, will drop the reward to 1.5625 BTC, renewing focus on organic transaction demand.

Regulatory variables

U.S. states continue to set different tones. Texas links mining to grid-stabilization programs that pay machines to curtail during peaks, while New York’s moratorium on new permits has pushed developers toward nuclear co-location deals in the Midwest. Policy swings affect where the next container farms appear on the map.

Permitting timelines now stretch into years for large sites, giving early movers with existing substation rights an advantage. Smaller players focus on behind-the-meter opportunities at landfills or wastewater plants where local officials welcome the added tax base.

Tax treatment of mined coins remains consistent at the federal level, yet depreciation schedules for hydro-cooled racks are still evolving. Accounting firms circulate updated guidance after each model year, and operators adjust capex forecasts accordingly.

Next hardware cycle

Prototypes already promise single-machine hashrates above 700 TH/s at efficiencies near 8 J/TH. If those chips reach volume production before the 2028 halving, the capital barrier for new entrants will rise again. Existing fleet owners will face accelerated write-downs on current generation rigs.

Immersion cooling is spreading beyond flagship units as dielectric fluid prices fall. The technique allows higher clock speeds without extra fans, trimming noise complaints at urban-edge sites and improving board longevity under constant load.

Secondary markets for last-generation machines remain active. When a large operator upgrades, containers of 100 TH/s rigs move to regions where electricity stays below five cents, illustrating how geography and efficiency interact to set the global production frontier.

Outlook

Bitcoin mining now operates at the intersection of semiconductor limits, energy markets, and competing compute demand. Operators who secure cheap power and keep fleets current can still extract margins, yet the window narrows each cycle. The network’s security rests on that ongoing calculation, and the next twelve months will show whether AI-scale loads permanently crowd out marginal miners or leave pockets where Bitcoin retains the advantage.