Crypto mining secures blockchain networks and rewards participants with cryptocurrency. Whether mining individually or through a pool, understanding the process is vital for evaluating profitability and risks.

In exchange for computing power, crypto miners receive new tokens as a reward. By providing processing power, crypto miners help secure and maintain blockchains and are rewarded in return.

Not all cryptocurrencies rely on or support mining, or “proof-of-work” (PoW). Some depend instead on “proof-of-stake” (PoS), which is more energy efficient and involves putting some amount of crypto at risk to submit a new block and earn a reward. Ethereum notably converted to PoS in 2023, for example.

“Crypto mining can be lucrative and comes with tax challenges every miner needs to understand. Miners operating in the US must know the IRS considers mined crypto taxable income, which needs to be reported. I recommend crypto miners keep complete records of their mining activities and stay informed about the latest tax rules. This will allow effective management of tax liabilities and hopefully avoid surprises down the road.”

— Ty Gaines, EA, Tax Expert at TokenTax

What is Bitcoin mining?

Bitcoin mining relies on fleets of purpose-built ASIC machines that bundle pending transactions into blocks, secure the Bitcoin network, and release new BTC. Since the April 2024 halving trimmed the reward to 3.125 BTC, miners must contend with slimmer margins, high electricity costs, and stiff hardware outlays, so most solo operators now pool resources to stay competitive. In the US, the fair-market value of every coin you earn is ordinary income on the day you receive it, and any later sale for a higher price triggers a separate capital gain.

Why is Bitcoin mining important?

Mining is an essential part of the crypto ecosystem and blockchain technology. Cryptocurrency mining:

In short, crypto mining uses enormous amounts of computation power to create and stack blocks of transactions in the right order and in a fashion that can be mathematically proven and traced. Without this, users would not be able to securely transfer their funds and Bitcoin would not exist.

Is Bitcoin mining profitable?

The profitability of Bitcoin mining remains uncertain despite its potential success. High initial equipment costs and ongoing electricity expenses could outweigh earnings.

According to a 2019 report by the Congressional Research Service, the electricity consumption of one ASIC can rival that of half a million PlayStation 3 devices.

Moreover, as Bitcoin mining becomes more challenging and intricate, the necessary computing power continues to escalate.

Bitcoin mining currently draws about 150 terawatt-hours (TWh) of electricity per year, according to the Cambridge Bitcoin Electricity Consumption Index. That demand is similar to the annual usage of countries such as Malaysia or Argentina and remains the core cost driver for miners, even though today’s figure is lower than the 2022 peak.

Mining a single bitcoin in early 2025 uses roughly the same electricity an average US household consumes in six to seven years, underscoring why power prices largely dictate whether a farm turns a profit.

Benefits of joining a mining pool

One way to share some of the high costs of mining is by joining a mining pool. Mining pools allow crypto miners to share resources and add more capability, but shared resources also mean shared rewards which lowers the payout when working through a pool.

The ongoing volatility of Bitcoin’s price also makes it difficult to calculate exactly how much you’re working for.

How to start Bitcoin mining

Here are the basics you’ll need to start mining Bitcoin:

• A crypto wallet. This is where any Bitcoin you earn as a result of your mining efforts will be stored. A wallet is an encrypted online account that allows you to store, transfer and accept Bitcoin or other cryptocurrencies. Check out the best crypto wallets reviewed by our experts.

• Mining software. In order to mine Bitcoin you’ll need a crypto mining software many of which are free to download and can run on Windows and Mac computers. Once the software is connected to the necessary hardware, you’ll be able to mine Bitcoin. We reviewed the best Bitcoin mining software for you already.

• Computer equipment. The most costly aspect of Bitcoin mining involves the hardware. You’ll need a powerful computer that uses an enormous amount of electricity in order to successfully mine Bitcoin. Pricing for hardware to mine crypto can run around $10,000 or more. Here’s an overview of the best crypto mining hardware for you to consider.

Different methods of Bitcoin mining

Here’s a brief overview of the different methods of crypto mining. Miners can either mine crypto on their own or join a mining pool and share resources (and rewards) with other miners. Many companies offer software services and hardware to support new and established crypto miners in their efforts.

CPU Mining
In the past, Bitcoin miners used central processing units (CPUs) to mine crypto. They used mining software like cpuminer to efficiently mine hash rates up to 10MH/sec. Now, however, mining with CPUs is not profitable for popular cryptocurrencies like Bitcoin. Some coins such as Monero (XMR) can still be mined profitably using CPUs.

GPU Mining
As demand for increased, miners looked to graphics processing units (GPUs) along with CPUs. GPU mining is much more powerful and efficient than CPU mining. 

FPGA Mining
Field-programmable gate array miners (FPGA) are even more efficient than GPU miners. They are also flexible and adaptable and can be programmed to mine different cryptocurrencies, but they are energy-intensive.

ASIC Mining
Application-specific integrated circuit miners (ASICs) are specifically designed for Proof of Work (PoW) computations, and they perform far faster than general-purpose computing devices like GPUs or CPUs and are more energy efficient than FPGA miners. ASIC-based mining has a high barrier to entry in terms of cost, and units cannot be used for any task other than mining a particular coin.

Cloud Mining
Cloud mining allows people to mine crypto without buying, installing, or maintaining hardware or software. Miners can rent an ASIC and use cloud computing to augment or replace local computing resources.

Bitcoin mining risks

Here are some of the risks associated with Bitcoin mining:

1. Price Volatility: Since its inception in 2009, Bitcoin’s price has experienced significant fluctuations, breaking the $100k milestone in 2024. Bitcoin is notably volatile, which impacts miners’ profits.

2. Regulatory Uncertainty: Crypto has not been universally embraced by governments, and many remain skeptical due to their decentralized nature.

There is a constant risk governments might impose restrictions or bans on Bitcoin mining and other cryptocurrencies. In 2021, China prohibited Bitcoin mining, citing financial risks and excessive speculation.

These factors underscore the unpredictable nature of Bitcoin mining, affecting its profitability and operational viability.

Do you pay taxes on crypto mining?

Yes – crypto mining rewards are as income upon receipt. Income from mining (rewards) is not taxed twice unless the crypto is disposed of later, at which point the usual capital gains rules apply.

Crypto mining taxes vary by region, and there are some crypto tax free countries where crypto mining may not be taxed. US-based crypto miners will typically pay crypto mining tax on both income from rewards and capital gains upon the sale of coins from mining activity.

Crypto mining taxes typically differ between hobbyists and those who mine professionally. Miners who operate under a business may, for example, be eligible for tax deductions.

Report cryptocurrency mined as a hobby on your Form 1040 Schedule 1 on Line 8 as “Other Income.” This income is taxed at your income bracket’s tax rate. Report crypto mined as a business activity as income on Form 1040 Schedule C.

Read on how to calculate crypto taxes.

Bitcoin mining statistics

Here’s a breakdown of some key statistics around Bitcoin mining.

1. Current Reward: Following the Bitcoin halving in April 2024, miners now earn 3.125 Bitcoin per block. At a Bitcoin price of around $61,000, this is approximately worth $190,625.

2. Electricity Consumption: Bitcoin mining draws about 150 TWh annually, on par with nations like Malaysia.

3. Energy Efficiency: The electricity cost per Bitcoin mined is expected to increase to approximately $34.9k post-halving, with an average cost of around $0.046/kWh.

4. Price Volatility: Bitcoin’s price peaked at $73,750 in March 2024. As of October 2024, it trades at around $62,000.

5. Mining Difficulty: After the April 2024 halving, network difficulty cooled from its record high and sits near 88 trillion as of May 2025, still well above pre-2023 levels.

6. Leading Mining Countries: The US continues to lead in Bitcoin mining, with about 37.8% of the global hash rate, followed by China and Kazakhstan.

7. Average electricity cost per BTC: Post-halving models place the all-in power expense between $30,000 and $38,000 per bitcoin, depending on a farm’s kilowatt-hour rate.