Crypto Mining: What the Hardware Is Actually Doing
The process behind Proof of Work, why it consumes so much electricity by design, and what mining actually secures beyond just creating new coins.
By Firoz Khan|9 September 2026|Updated 25 September 2026|4 min read
Mining gets described casually as 'creating new coins', which is true but incomplete, and skips the actual job the hardware is doing: competing to secure the network and confirm transactions, with new coins as the reward for winning that competition rather than the point of the exercise itself.
What a miner is actually computing
Miners repeatedly guess at a numeric puzzle tied to the pending block's data, checking whether each guess meets a target difficulty, until one is found that does. It's deliberately brute-force, there's no clever shortcut, which is exactly why solving it requires real, sustained computing power rather than a clever piece of software.
Why difficulty adjusts automatically
As more miners join a network like Bitcoin's, blocks would be found faster than the intended pace, so the protocol automatically raises the puzzle's difficulty to bring the block time back to roughly its target, and lowers it if miners leave. This keeps issuance and block timing predictable regardless of how much total computing power is pointed at the network at any given moment.
On Bitcoin the target is one block every 10 minutes, and the difficulty is reset every 2,016 blocks, which is about two weeks. If the previous 2,016 blocks took longer than two weeks, difficulty falls. If they took less, it rises, in proportion to how far off the pace they were. Say the last 2,016 blocks took 12 days instead of 14. The next puzzle would be about 17% harder, because 14 divided by 12 is roughly 1.17. The days here are an example.
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How miners are paid
A miner who finds a valid block earns newly issued coins plus the transaction fees in it. On Bitcoin the new coins halve every 210,000 blocks, roughly every four years, and have been 3.125 bitcoin per block since the April 2024 halving.
Why it uses so much electricity, by design
The energy cost is the security mechanism, not a side effect. Making block production expensive is precisely what makes attacking the network expensive, an attacker would need to out-spend the combined computing power of every honest miner, which becomes prohibitively costly as a network grows. Bitcoin mining's global electricity use has been estimated at levels comparable to some mid-sized countries, a genuine and widely debated trade-off. Ethereum.org estimates that Ethereum miners collectively used about 70 terawatt-hours a year before the Merge in September 2022, roughly the same as the Czech Republic.
What mining doesn't do that people sometimes assume
It doesn't process every crypto transaction, networks running Proof of Stake, including Ethereum since 2022, don't use mining at all. And it doesn't guarantee profitability, electricity costs, hardware costs and network difficulty all move constantly, and plenty of mining operations run at a loss during periods of low prices or high difficulty.
How mining is taxed in the UK
HMRC asks whether mining amounts to a trade, looking at the degree of activity, organisation, risk and commerciality. If it does not, the sterling value of the tokens at the time you receive them is taxable as miscellaneous income, with appropriate expenses reducing the amount chargeable. If you keep the tokens, you may owe Capital Gains Tax when you later dispose of them. HMRC also says mining costs, and any costs already deducted against Income Tax profits, are not allowable deductions for Capital Gains Tax.
Say you receive 0.001 bitcoin worth £60 when it arrives. That £60 is income. If you later sell it for £90, the £30 above the £60 already taxed is what is left to consider for Capital Gains Tax, against your annual exempt amount of £3,000 for 2026/27. The amounts are examples. Because trading status is a question of fact, larger or more organised mining is worth taking advice on.
A reminder
The FCA risk warning still applies to higher-risk crypto content. Always assess how much risk you are willing to take before buying.
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