How Digital Assets Are Mined and Monetised

The rise of cryptocurrencies has not only revolutionized financial transactions but also introduced a new digital industry: cryptocurrency mining. Originally a niche activity carried out by tech enthusiasts, mining has evolved into a global business with industrial-scale operations, powerful GPUs, custom mining rigs, and complex economics shaped by proof-of-work protocols and block rewards.

At Savings UK Ltd, we aim to equip investors and clients with knowledge that empowers them to navigate and participate in emerging financial technologies. This article offers a comprehensive guide to cryptocurrency mining—its mechanisms, equipment, profitability, environmental concerns, and future outlook.

What Is Cryptocurrency Mining?

At its core, cryptocurrency mining is the process of verifying and adding transactions to a blockchain, the decentralized ledger that underpins cryptocurrencies like Bitcoin, Ethereum (pre-2022), Litecoin, and many others.

Mining involves solving complex mathematical problems, which validates transactions and secures the network. Miners who successfully solve these problems are rewarded with newly minted cryptocurrency—this is known as a block reward.

The process depends on a consensus mechanism called proof-of-work (PoW). Under this model, participants compete to solve cryptographic puzzles using computational power. The first one to solve the puzzle earns the right to add a new block to the blockchain and receive a reward, often along with transaction fees.

How Proof-of-Work Functions

The proof-of-work system was popularized by Bitcoin, introduced in 2009 by the pseudonymous creator Satoshi Nakamoto. PoW ensures that blocks are only added to the blockchain through a verifiable and computationally demanding process, making it resistant to tampering or fraud.

Here’s how PoW works in mining:

1. Transaction Bundling: Transactions waiting to be confirmed are grouped into a block.

2. Hash Calculation: Miners compete to find a cryptographic hash (a string of characters) that meets certain criteria (e.g., a string that starts with a specific number of zeros).

3. Trial-and-Error: Miners make millions of guesses per second to solve the puzzle, using massive computing power.

4. Block Addition: Once a valid hash is found, the block is added to the blockchain.

5. Block Reward: The miner receives newly created cryptocurrency as a reward, plus transaction fees.

This process requires immense computational power, leading to the widespread use of GPUs (graphics processing units) and custom mining rigs.

Mining Hardware: GPUs and Mining Rigs

Early Bitcoin miners could use standard CPUs to mine, but as the network grew and competition increased, so did the need for more efficient hardware. This led to a shift from CPUs to GPUs, and eventually to ASICs (Application-Specific Integrated Circuits)—machines designed specifically for mining.

However, for many cryptocurrencies, especially those resistant to ASICs (like Ethereum Classic or Ravencoin), GPUs remain the preferred tool due to their flexibility and performance.

Types of Mining Hardware

• CPU (Central Processing Unit): Basic and outdated for mining; used only in early stages.

• GPU (Graphics Processing Unit): Highly parallel processors capable of solving mining puzzles faster; used for PoW coins that resist ASIC domination.

• ASIC (Application-Specific Integrated Circuit): Purpose-built devices offering extremely high hash rates; dominate Bitcoin mining.

• FPGA (Field-Programmable Gate Array): A middle ground between GPU and ASIC, offering better power efficiency but limited flexibility.

To optimize performance, miners often build mining rigs—custom setups with multiple GPUs, specialized cooling systems, and optimized power supplies. A standard rig may include 6–12 GPUs and cost anywhere from £2,000 to £10,000 or more, depending on scale and configuration.

Energy Consumption and Environmental Impact

One of the most controversial aspects of cryptocurrency mining is its energy consumption. Mining is inherently energy-intensive due to the trial-and-error nature of proof-of-work algorithms. Bitcoin mining alone consumes more energy than some countries.

Key Statistics:

• Bitcoin’s annual energy consumption is estimated at over 100 TWh (terawatt hours).

• A single Bitcoin transaction can use as much electricity as an average UK household does in a month.

• Mining farms in China, the USA, Russia, and Kazakhstan have been known to consume power equivalent to entire towns.

This has led to widespread criticism from environmental groups, investors, and policymakers.

Mitigation Strategies:

• Green Mining: Using renewable energy sources like hydro, solar, and wind to power mining farms.

• Energy-Efficient Equipment: Upgrading to newer, more efficient ASICs and GPUs.

• Geographic Diversification: Locating mining operations in regions with surplus renewable power.

Savings UK Ltd supports sustainability and encourages crypto mining investors to explore green-powered operations or consider offsetting their carbon footprint.

Profitability: Costs and Rewards

The profitability of mining depends on multiple factors:

1. Block Rewards

The block reward decreases over time in many cryptocurrencies. For example, Bitcoin halves its block reward roughly every four years (a process known as “halving”). As of now, Bitcoin miners receive 3.125 BTC per block (as of the 2024 halving), down from the original 50 BTC.

2. Network Difficulty

As more miners join a network, the algorithm increases the difficulty level to maintain consistent block times, reducing individual profitability.

3. Hardware and Maintenance Costs

Mining rigs require significant upfront investment and ongoing maintenance. Cooling systems, electricity, and space rental can quickly eat into profits.

4. Electricity Prices

This is the most significant operational cost. Mining is generally only profitable in regions with low energy costs or subsidized power.

5. Market Prices

Cryptocurrency prices are volatile. A miner may earn coins today, but if their value drops tomorrow, the operation can become unprofitable.

Despite the challenges, many miners continue to view the practice as a long-term investment strategy—accumulating crypto assets now with the expectation of price appreciation.

Mining Pools: Teaming Up for Rewards

Because of increasing competition and declining odds of solving blocks individually, many miners join mining pools. A mining pool is a collective group of miners who combine their computational power to increase the chances of finding a block.

When a pool successfully mines a block, the block rewards are distributed among participants based on their contributed computing power. This provides a more consistent income stream for small-scale miners, although the individual share of each reward is smaller.

Some of the largest mining pools include Foundry USA, Antpool, F2Pool, and ViaBTC.

The Shift Away from Proof-of-Work?

The debate around energy usage and scalability has prompted some networks to move away from proof-of-work in favour of alternatives like proof-of-stake (PoS). Ethereum, for example, transitioned from PoW to PoS with its “Merge” upgrade in 2022, significantly reducing its energy consumption.

PoS relies on validators who lock up coins (stake) rather than compete in energy-intensive computations. This model is more sustainable but changes the nature of participation—from miners to stakeholders.

Nonetheless, proof-of-work remains relevant and dominant in networks like Bitcoin and Dogecoin, where mining still plays a vital role in maintaining decentralization and security.

Legal and Regulatory Considerations

Governments worldwide are taking a closer look at cryptocurrency mining:

• China banned all crypto mining in 2021 due to energy concerns.

• Kazakhstan imposed stricter licensing after a boom in mining activity.

• USA and Canada have regions where mining is welcomed, especially where surplus renewable energy exists.

• UK regulators are mostly silent on mining, though any profits are subject to capital gains and business taxation.

It’s crucial for prospective miners to understand their jurisdiction’s legal stance on mining and adhere to relevant tax and compliance obligations.

Conclusion: Mining as an Evolving Investment Frontier

Cryptocurrency mining continues to evolve—from solo enthusiasts with homemade rigs to institutional operations with data centre-like infrastructures. Powered by GPUs, optimized mining rigs, and coordinated mining pools, the space offers both high potential rewards and significant risks.

As block rewards diminish and energy usage becomes more controversial, innovation and adaptability will determine success in this field. Miners must balance profitability, sustainability, and regulatory compliance in an increasingly complex landscape.

At Savings UK Ltd, we advise clients exploring digital assets to consider mining as part of a diversified investment strategy. Whether through direct mining operations, cloud mining contracts, or equity in mining firms, there are multiple pathways to tap into the crypto mining ecosystem.