What Is Crypto Mining? A Plain-Language Guide

Mining is the process in which specialized computers confirm transactions on a blockchain and secure the network by solving computational puzzles, receiving a reward in coins in return. Put simply, miners act as the "accountants" of a decentralized currency: they check that nobody has spent the same money twice, record payments in a shared ledger and are paid in newly issued coins and fees for that work. This overview is for people new to the topic; below we walk through each step and the real risks.

Why cryptocurrencies need mining

Ordinary money has a central intermediary: a bank or payment system keeps the books and confirms that you have enough funds. Bitcoin and similar cryptocurrencies have no such intermediary. The books are kept by the blockchain, a chain of blocks recording every transaction, with a copy held by thousands of independent participants. The question is how to agree on which set of transactions is correct when nobody can be trusted.

Bitcoin's answer is called Proof of Work. To add a new block, a participant must spend real resources, electricity and computation, and present proof. The proof is easy to verify and practically impossible to forge: rewriting history would require outpacing the rest of the network. This makes the blockchain reliable without a central authority. Mining is that work: miners compete for the right to add the next block.

What mining consists of

In simplified form the process looks like this.

1. Collecting transactions. A miner takes unconfirmed transactions from the queue and assembles a candidate block.
2. Searching. The device computes a hash, a "fingerprint" of the block, again and again, changing one number in it (the nonce) until it gets a value that satisfies the network's conditions. The right value cannot be guessed, only searched for.
3. Finding a block. The first to find a suitable hash broadcasts the block to the network. Other nodes verify it, and if everything is correct, the block is added to the chain.
4. Reward. The finder receives a reward: new coins plus the fees from the block's transactions.

The mechanism, with numbers and terms such as nonce, difficulty and halving, is explained in detail in How Bitcoin mining works. The key idea for now: your chance of earning a reward is proportional to your share of total network computing power, and that power is measured as hashrate, the number of hashes per second.

Kinds of mining: algorithms and hardware

Different coins use different hashing algorithms, and that determines the hardware.

• SHA-256 is Bitcoin's algorithm. It is mined exclusively on ASICs, specialized devices built for a single task.
• Scrypt is the algorithm of Litecoin and Dogecoin. It reached ASIC-level mining long ago, and the two coins are mined together.
• Other algorithms for some coins are still suitable for graphics cards (GPUs), but returns, competition and relevance change from coin to coin.

Bitcoin could once be mined on a home CPU, then on a graphics card. As the network grew, those methods stopped making sense: ASICs are orders of magnitude more efficient per unit of energy consumed. A comparison of approaches is in the article "ASIC vs GPU".

Historically, mining appeared together with Bitcoin in 2009. The first blocks were mined on ordinary computers, and the network's computing power was negligible. Increasingly specialized solutions followed: first graphics cards, then programmable chips (FPGAs) and finally ASICs. Each leap raised network difficulty and pushed older hardware out. This cycle of "new generation, rising difficulty, obsolescence of the old" continues today, which is why planning should focus not on a device's price but on its efficiency and useful life.

What a mining pool is

If you own a few ASICs, your share of the network is tiny. You can find a block alone, but it is a rare and unpredictable event: you could run for years with nothing to show. So most miners join pools. A pool combines participants' hashrate, searches for blocks together and divides the reward in proportion to each contribution. You get regular earnings instead of a rare lottery, and you pay the pool a small fee.

In practice you enter the pool address and your login (subaccount and worker name) into the ASIC and start working. RuPool offers pools for Bitcoin, Litecoin and Dogecoin; the payout scheme is FPPS and the pool fee is 1%. How to choose a pool is covered in How to choose a mining pool.

Put very briefly: the pool pays you for your contribution to finding blocks, and you pay for electricity and hardware. Everything else in this article details those two flows.

What determines profitability

Mining profitability depends on several variables, and almost all of them are outside your control.

• Hashrate and hardware efficiency. The higher the hashrate and the less energy the device spends per terahash (measured in J/TH), the better.
• Electricity price. This is the largest recurring cost and most often decides whether mining makes sense at all.
• Network difficulty. It rises with the combined power of participants, so your device's share shrinks over time.
• Coin price. Rewards are paid in coins while costs are paid in fiat. The price can swing sharply.
• Halvings. In Bitcoin and Litecoin the block reward is periodically cut in half; Dogecoin has a fixed block reward.
• Pool fee and equipment cost.

Rather than guess, use the profit calculator: it takes your parameters and shows a calculation under current conditions. Remember that the result describes today and does not guarantee future income.

A common misconception is that mining "prints money out of thin air". In reality you convert electricity and equipment wear into coins, and whether that conversion pays off depends on the market. When prices are low, a large share of participants run at a loss or switch off; when prices rise, new capacity joins the network and profitability evens out. That is why experienced miners think of mining as production with a variable margin, not as a guaranteed source of income.

Risks and limits

Mining is not passive income and not a guaranteed way to earn. The main risks:

• a fall in coin price while electricity costs stay the same;
• rising network difficulty, which lowers the return on your hardware;
• rapid ASIC obsolescence: newer models are more efficient, and older ones stop covering their energy cost;
• physical risks: overheating, noise, wiring load, failures;
• legal and tax obligations.

In Russia mining was legalized by Federal Law No. 221-FZ, effective 1 November 2024. Sole proprietors and legal entities must be in the Federal Tax Service's miner registry, while individuals who are not registered may mine within an electricity consumption limit (6,000 kWh per month). Mining income is taxable; for individuals that means personal income tax and a 3-NDFL return. In addition, mining is banned in a number of regions, either all year round or during peak grid load. Rules change, so check the current version of the law or consult a tax adviser before you start.

Where a beginner should start

1. Learn the basics and decide whether you can accept the risks: price, difficulty, electricity.
2. Find out your electricity tariff and placement options: at home, rented space or hosting.
3. Run the economics in the calculator under several price scenarios, not one optimistic case.
4. Choose hardware for the coin's algorithm, considering efficiency, noise and service availability.
5. Pick a pool, create an account and subaccount, connect the device and check the statistics in your dashboard.
6. Understand your tax obligations before the first payout, not after.

Who miners are and what roles they play in the ecosystem is covered in Who are miners.

FAQ

Can I mine on an ordinary computer or phone?

Technically yes, but for Bitcoin, Litecoin and Dogecoin it makes no sense: the network is so powerful that a CPU or graphics card will not produce a return that covers the electricity. These coins are mined on ASICs.

Is mining legal?

In Russia, yes, provided you meet the legal requirements: registry entry for sole proprietors and legal entities, the consumption limit for unregistered individuals, and paying taxes. Regional restrictions and rules can change, so verify current information.

How much can I earn mining?

There is no universal answer: the result depends on price, network difficulty, electricity cost and your hardware. Run your own scenario in the calculator and do not treat the result as a guarantee.

What is a halving?

An event in which the block reward is cut in half. In Bitcoin it happens roughly every four years; the mechanism is described in "How Bitcoin mining works".

How does mining differ from buying cryptocurrency?

Buying means exchanging money for coins at the market price. Mining is a production activity: you pay for hardware and electricity, and the outcome depends on market conditions.