How is cryptocurrency mined? A beginner’s guide
Cryptocurrency mining verifies transactions and adds blocks; miners earn new coins and fees for the work. Rewards count as taxable income in the US.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
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- Mining needs a hashing device, power, software, a wallet, and a coin.
- Not every coin can be mined; some use staking instead.
- Record the date and value of each reward you receive.
Bitcoin and other proof-of-work coins use computers that race to add blocks, which helps make the transaction order hard to change. You need a hashing device, power, mining software, a wallet, and a coin; a pool is usual but optional.
What to prepare before mining
Mining takes a device that hashes at a useful rate, a power supply that carries the load, mining software, and a wallet for the coins you earn. The device can be a dedicated ASIC miner for one algorithm or a graphics card for some others, and it runs for long stretches.
How to mine cryptocurrency step by step
Bitcoin has been mined since 2009, and other proof-of-work coins work in a similar way. Each solved puzzle adds a block, and the winning miner gets new coins plus fees; coins that use staking are not mined.
- 1Pick a mineable coinBitcoin and other proof-of-work coins qualify; staking coins do not. Check that expected rewards cover your electricity cost.
- 2Join a mining poolA pool combines miners and splits rewards by work contributed. Copy the server address, create a worker name, and set a payout threshold, or mine solo.
- 3Configure the softwareMatch the program to your hardware and coin algorithm. Paste your wallet address and pool address, then check it.
- 4Start hashing and monitorWatch temperature, fan speed, and power draw. Stop the miner if it gets too hot, and check the pool dashboard for accepted shares.
After mining: records and safety
In the US, the IRS treats cryptocurrency as property, so each reward has a value on the day you receive it and counts as income that year, even if you hold the coins.
Mining mistakes and scams to avoid
Hardware and power often cost more than a small miner earns. Cloud mining offers can be scams and cannot guarantee profits.
Frequently asked questions
Usually not for major coins. A home computer runs mining software, but its hash rate is low and electricity often costs more than the reward.
Mining is generally legal at the federal level. Local rules on noise, zoning, and power can limit where you run hardware.
Each reward counts as income in the year you get it, even if you hold the coins. Selling later can create a capital gain or a loss.
A pool combines miners and splits rewards by work contributed. Mining alone works, but solo payouts arrive less often.
