What is crypto mining?

When people talk about crypto mining, they're describing how certain cryptocurrencies confirm transactions and issue new coins without a bank or central authority in charge. 

It's one of the foundational ideas behind Bitcoin, and understanding it helps make sense of how decentralised networks work. This guide explains the process step by step, what mining involves in practice, and the ways UK investors can gain exposure to crypto without running any hardware themselves.

What is crypto mining?

Crypto mining is the process of validating transactions on a blockchain and adding them to the permanent record, while simultaneously releasing new units of the cryptocurrency into circulation. It applies specifically to cryptocurrencies that use a system called proof of work, the best-known of which is Bitcoin.

The core problem mining solves is trust. 

In a traditional payment system, a bank sits in the middle and confirms that transactions are valid and that nobody is spending money they don't have. A cryptocurrency like Bitcoin has no central authority, so it needs another way for thousands of independent participants to agree on which transactions are genuine. 

Mining is that mechanism. It forces participants to expend real computing power and electricity to add transactions to the ledger, making it extremely expensive to cheat the network while simultaneously rewarding those who play by the rules.

How does crypto mining work?

Mining BTC is technically complex, but here's the brief overview — it starts when you send a transaction, which enters a waiting area known as the mempool.

Miners pull pending transactions from this pool and bundle them into a ’block.’ Before that block can join the blockchain, the miner must solve a cryptographic puzzle; find a number (a nonce) that, combined with the block's data and run through Bitcoin's SHA-256 hash function, produces a result below a target set by the network.

There's no shortcut for this. It's pure trial and error, with mining machines making billions of attempts per second. As a result, more computing power means a better chance of finding the solution first. 

The winning miner broadcasts their block, other participants verify it follows the rules, and once accepted, it's added to the chain and the miner collects the reward. Each new block also contains a reference to the previous one's data, linking them together in sequence, which is where the term ‘blockchain’ comes from.

To keep new blocks arriving roughly every ten minutes, the network adjusts the puzzle's difficulty about every two weeks, making it harder as more computing power joins and easier as it leaves.

If the above feels like word salad, the truth is that learning about cryptocurrency does require some memorisation of new concepts.

What does mining involve in practice?

In Bitcoin's earliest days in 2009, mining could be done on an ordinary home computer, with the very first block generated 50 BTC, worth essentially nothing at the time. 

That era is long gone. Today, mining major cryptocurrencies is an industrial-scale activity, requiring a few key components.

To start with, the hardware is specialised. Competitive Bitcoin mining now requires purpose-built machines called ASICs (application-specific integrated circuits), designed to do nothing but compute hashes as efficiently as possible. Because the chances of winning are so low with home GPU mining, it’s no longer viable as an investment proposition (though some enthusiasts do occasionally get very lucky — similar to a hobbyist panning a river for gold). 

Electricity is the single biggest ongoing cost, and long-term profitability depends heavily on access to cheap power, which is why large mining operations cluster in regions with low energy prices. Because a single miner has a small chance of solving a block alone, many join mining pools, combining their computing power and sharing the rewards proportionally for a steadier income.

Mining has grown into a multi-billion-dollar global industry, and the total computing power dedicated to the Bitcoin network, its ‘hashrate,’ has repeatedly reached record highs, recently exceeding 1,000 exahashes per second. This makes it extraordinarily difficult for small operators to compete, and effectively impossible to alter the network's history after the fact.

Is crypto mining still profitable?

For an individual sitting at home, mining major cryptocurrencies is largely no longer viable. Profitability comes down to a simple equation: the value of the coins you can mine against the cost of the electricity and hardware needed to mine them. 

As more computing power has joined the Bitcoin network, difficulty has risen correspondingly, meaning a given amount of hashing power earns a shrinking share of the available rewards over time. Combine that with the cost of specialised ASIC hardware, which depreciates quickly as newer, more efficient models are released, and the economics rarely work in a typical home, where electricity is priced for domestic use rather than industrial bulk rates.

This is why mining today is concentrated among large-scale operators with access to cheap, often subsidised power, who can run thousands of machines around the clock and absorb the cost of constantly upgrading hardware. 

Even mining pools, which let smaller participants combine their computing power for steadier rewards, mainly smooth out income rather than fix the underlying economics. For most individuals, the more realistic way to benefit from movements in crypto prices is not to mine at all, but to gain exposure through other means, covered below.

Is crypto mining legal, and how is it taxed in the UK?

Crypto mining is legal in the UK. There's no prohibition on running mining hardware or earning rewards from it, though anyone doing so at scale should be mindful of electricity supply agreements and, in some cases, local planning rules for larger operations.

Tax is a separate question. HMRC's guidance treats mining income differently depending on how it's carried out. Occasional, small-scale mining is generally treated as a miscellaneous income, taxed on the value of the coins at the point you receive them. Where mining is conducted with a degree of organisation, regularity and commerciality that resembles running a business, HMRC may instead treat it as trading income, which is taxed under different rules and allows certain costs to be deducted. 

On top of this, when you later sell or exchange coins you've mined, any further increase in value between receipt and disposal is often subject to capital gains tax. Because the line between ‘hobby’ and ‘trading’ depends on the specifics of how the activity is carried out, and because rules in this area can change, anyone mining at any scale should check current HMRC guidance or speak to an accountant rather than assume how their situation will be treated.

Proof of work vs proof of stake

Of course, not all cryptocurrencies are mined. Mining is specific to proof-of-work networks like Bitcoin. Many other cryptocurrencies use an alternative system called proof-of-stake, which does away with mining entirely.

Instead of miners competing with computing power, proof-of-stake networks select participants to validate transactions based on how many coins they've committed, or ‘staked,’ as collateral. This consumes a tiny fraction of the energy mining does.

The most well-known example is Ethereum, which transitioned from proof of work to proof of stake in 2022, dramatically reducing its energy use. The energy intensity of proof-of-work mining is one of the main criticisms levelled at Bitcoin, and a major reason many newer networks have opted for proof of stake instead.

However, there are arguments for and against both methods.

How to get exposure to crypto without mining

Mining is a capital-intensive business with real risks, requiring significant upfront investment in hardware, ongoing electricity costs, and exposure to both crypto price swings and rising network difficulty. For most people interested in cryptocurrencies, mining is not a practical route.

There are more straightforward ways to gain exposure to crypto price movements. With us, you can trade on the price of major cryptocurrencies through spread bets and CFDs, speculating on whether prices will rise or fall without owning or storing any actual coins, and without any mining hardware. 

You can also gain indirect exposure through crypto-related equities, such as shares in mining companies or exchanges, and through certain ETFs. 

It's important to understand that cryptocurrencies are highly volatile and largely unregulated in the UK. Spread bets and CFDs are leveraged products, meaning both profits and losses are magnified and can exceed your initial deposit. In line with FCA rules, retail clients cannot trade crypto derivatives with us; these are available to eligible professional clients only. For more on the wider crypto landscape, see our guides on what is bitcoin and what is blockchain.

What is crypto mining summed up

• Crypto mining is how proof-of-work blockchains like Bitcoin verify transactions and create new coins, with miners competing to solve a cryptographic puzzle and earning a block reward for succeeding
• The process relies on real computing power and electricity to make cheating prohibitively expensive, with the network adjusting difficulty roughly every two weeks to keep blocks arriving about every ten minutes
• Mining has evolved from a laptop hobby in 2009 into an industrial business dominated by specialised ASIC hardware, cheap electricity and mining pools; not all cryptocurrencies are mined, as proof-of-stake networks like Ethereum use a far less energy-intensive alternative
• Mining is capital-intensive and high-risk, so most investors seeking crypto exposure use other routes, though crypto itself remains highly volatile and access to crypto derivatives is restricted for UK retail clients

Cryptocurrencies are highly volatile and largely unregulated in the UK. This article is for information purposes only and does not constitute investment advice. Crypto derivatives are not available to retail clients.

To learn more about the wider crypto market, explore our guides on what is bitcoin, what is blockchain, and cryptocurrency trading.