What Is Cryptocurrency Mining? How It Works, Methods & Profitability Explained [2026 Guide]

Cryptocurrency mining is the process of verifying and confirming transaction data on a blockchain, earning newly issued crypto assets as a reward. Bitcoin uses a consensus algorithm called PoW (Proof of Work), where miners around the world compete in computational processing. This article explains how mining works, compares three mining methods, examines profitability as of 2026, and covers risks and considerations for beginners.

What you'll learn in this article

• How cryptocurrency mining works and the basics of PoW
• Differences between solo, pool, and cloud mining and how to choose
• 2026 profitability and specific electricity cost calculations
• Equipment needed for mining and estimated initial costs

Cryptocurrency mining is the process of verifying the validity of transactions occurring on a blockchain network and generating new blocks. Miners who successfully complete this verification receive newly issued cryptocurrency as a reward.

What Is PoW (Proof of Work)?

PoW (Proof of Work), adopted by Bitcoin, is a consensus algorithm meaning "proof through computational work." Miners repeatedly change a variable called a "nonce" to compete in finding a hash value (an encrypted string) that meets the difficulty conditions set by the network.

This computational process requires enormous amounts of electricity and computing resources. As of March 2026, the total hash rate (computing power) of the Bitcoin network has reached approximately 800 EH/s (exahashes per second), making it virtually impossible for individuals to compete.

Hash Rate and Difficulty Adjustment

Hash rate is a metric indicating the number of hash calculations that can be performed per second. It is measured in "H/s," with TH/s (terahashes) and EH/s (exahashes) being commonly used units. Since mining success probability is proportional to hash rate, higher-performance equipment has a greater advantage.

Bitcoin automatically adjusts its difficulty every 2,016 blocks (approximately every two weeks) to maintain a block generation time of about 10 minutes. As the network's overall hash rate increases, so does the difficulty, meaning the same equipment becomes less profitable over time.

Differences Between Mining and Staking

Besides mining, staking is another way to earn crypto asset rewards. Let's compare the two.

Ethereum transitioned from PoW to PoS (Proof of Stake) through "The Merge" in September 2022. As a result, mining is no longer possible on Ethereum, and rewards are now earned through staking.

Mining can be broadly divided into three methods: solo, pool, and cloud. Pool mining is the most practical option for individual miners.

Solo Mining

Solo mining involves setting up your own equipment and mining independently. While you can claim the entire block reward (3.125 BTC per block as of 2026), the success probability is extremely low. In the current Bitcoin network as of 2026, it is virtually impossible for individuals to succeed with solo mining. However, there may still be opportunities for solo mining with lower market cap cryptocurrencies (altcoins).

Pool Mining

Pool mining combines computing power from miners worldwide, operating as a team. Rewards are distributed according to each participant's contribution (hash rate provided). This is the most practical option for individual miners as it provides more stable earnings.

Major mining pools include:

• Foundry USA Pool: Holds approximately 30% of Bitcoin hash rate share as of 2026. The largest in the US
• AntPool: Operated by Bitmain. Approximately 20% share, ranking second globally
• F2Pool: Established in 2013, a veteran pool supporting multiple cryptocurrencies
• ViaBTC: Supports multiple currencies with relatively low fees

When choosing a pool, compare fee rates (1–3%), payment methods (PPS = fixed reward, PPLNS = proportional reward, etc.), and operational track record.

Cloud Mining

Cloud mining allows you to participate by renting computing power from mining operators without owning equipment yourself. It requires no server management or electricity cost concerns, making it accessible for beginners.

However, many scam operators exist in cloud mining. Services claiming "guaranteed 10% monthly returns" or "principal guarantee" are likely fraudulent. Always verify the company's registration, contract terms, and third-party reviews.

Following the halving in April 2024, Bitcoin's mining reward was cut from 6.25 BTC to 3.125 BTC per block. As of 2026, profitability for individual mining is extremely challenging.

Electricity Cost Calculations

The standard residential electricity rate in Japan is approximately ¥31 per kWh (as of 2026, tax included). Let's compare the monthly electricity costs of major mining equipment.

*Expected monthly revenue varies significantly depending on BTC price and network difficulty. The figures above are reference values as of March 2026.

A standard PC has too low a hash rate to earn any meaningful rewards. Even with the latest ASIC machines, Japan's electricity rates (¥31/kWh) often result in electricity costs exceeding rewards. Large-scale overseas mining facilities use cheap electricity (¥5–10/kWh) from sources like hydroelectric and solar power, making it structurally difficult for individuals in Japan to compete on cost.

Impact of Halvings

Bitcoin's mining reward halves approximately every four years. The next halving is expected around 2028, when the reward will decrease from 3.125 BTC to 1.5625 BTC. With each halving, the break-even threshold rises, creating an increasingly challenging environment for individual miners.

Starting mining requires equipment and infrastructure appropriate for the target cryptocurrency. Initial costs should be estimated at a minimum of ¥500,000 or more.

Required Equipment List

• ASIC (Application-Specific Integrated Circuit): High-performance devices dedicated to Bitcoin mining. Representative models include Bitmain's Antminer series and MicroBT's WhatsMiner series. ¥300,000–¥2,000,000 per unit
• GPU (Graphics Card): Used for some cryptocurrencies other than Bitcoin. An NVIDIA GeForce RTX 4090 costs approximately ¥250,000. Prices are surging due to growing AI demand
• Mining Software: CGMiner, BFGMiner, NiceHash Miner, and others are popular options. All are free to use
• Stable Internet Connection: 24/7 constant connectivity is essential. Fiber optic is recommended
• Cooling and Heat Dissipation: ASIC machines generate 70–80 dB of noise and significant heat. Dedicated ventilation equipment and air conditioning are necessary

Installation Environment Considerations

Mining equipment produces significant noise and heat, which can cause neighbor disputes in apartments and multi-unit housing. Confirm in advance whether you can secure a dedicated workspace or garage. Additionally, due to high power consumption, running multiple units simultaneously may be difficult with standard residential breaker capacity (typically 30–60A). Electrical work may be required.

Mining involves several risks. Make sure you understand these five key points before getting started.

Risk of Electricity Cost Losses

This is the most common failure pattern. Japan's electricity costs (approximately ¥31/kWh) are 2–3 times the global average (approximately ¥10–15/kWh), putting Japanese miners at a disadvantage in cost competition with overseas miners. Simulate your power consumption and rewards beforehand, and secure at least three months' worth of electricity costs before starting.

Cloud Mining Scams

Services claiming "guaranteed high returns," "principal guarantee," or "referral reward programs" are likely fraudulent. Japan's Financial Services Agency (FSA) has repeatedly issued warnings about fraudulent investment schemes related to crypto assets. Always verify the company's actual operations, location, and whether they hold financial licenses.

Equipment Obsolescence

Mining equipment becomes outdated within 1–2 years due to rapid technological advancement. For example, the Antminer S21 (200 TH/s), released in 2024, was top-of-the-line at launch but has seen its resale price decline with the introduction of successor models. Consider the risk that equipment value may be lost before you recover your investment.

Tax Filing

Mining rewards are classified as "miscellaneous income" under Japanese tax law and require tax filing. Income is calculated based on the market price at the time the reward is received. For salaried employees, a tax return is required when annual miscellaneous income exceeds ¥200,000. For details, refer to the National Tax Agency's "Tax Treatment of Crypto Assets."

Revenue Decline Due to Increasing Difficulty

The Bitcoin network's overall hash rate continues to rise year after year, meaning revenue from the same equipment decreases over time. A long-term revenue plan that includes equipment replacement cycles is essential.

For those who find mining too challenging, there are other ways to earn rewards with crypto assets.

• Staking: Earn rewards by holding and depositing PoS cryptocurrencies. Approximately 3–19% annual yield (as of 2026), with no equipment or electricity costs required
• Dollar-Cost Averaging (DCA): Purchase cryptocurrency for a fixed amount each month. Start small and build long-term wealth
• DeFi Yield Farming: Earn rewards by providing liquidity to decentralized finance protocols. High risk but potentially high returns
• Airdrops: Participate in free token distributions by projects. Often requires no initial investment

Q: Can you still make money from mining in 2026?

It is very difficult for individuals to profit from Bitcoin mining within Japan as of 2026. This is due to Japan's high electricity costs (approximately ¥31/kWh) and the halving in April 2024 that cut rewards in half. If you have access to cheap overseas electricity (¥5–10/kWh), there may still be potential for profit.

Q: How much initial investment is needed for mining?

For serious Bitcoin mining, a single latest-generation ASIC machine costs ¥300,000–¥2,000,000, and including power supply and cooling equipment, the total estimate is ¥500,000–¥3,000,000. Cloud mining can be started with contracts from just tens of thousands of yen, but be cautious of scam risks.

Q: Are mining rewards taxed?

Yes, they are. Mining rewards are subject to income tax and resident tax as "miscellaneous income." Income is calculated at the market price when the reward is received. Salaried employees with annual miscellaneous income exceeding ¥200,000 must file a tax return. Note that electricity costs and equipment depreciation expenses incurred for mining can be claimed as necessary expenses.

Q: Is GPU mining still viable?

GPU mining for Bitcoin is too inefficient to be practical. Ethereum transitioned to PoS in 2022, making GPU mining impossible. Some altcoins (Ravencoin, Ergo, Flux, etc.) still support GPU mining, but profitability is limited.

Q: What about the environmental impact?

Bitcoin mining's annual electricity consumption is approximately 150 TWh (as of 2025, Cambridge Bitcoin Electricity Consumption Index), comparable to the energy consumption of some countries. Due to criticism of its environmental impact, there is a growing trend toward mining with renewable energy and transitioning to the less energy-intensive PoS mechanism.

Cryptocurrency mining is a system for earning rewards by verifying blockchain transactions. As of 2026, securing profitability for individual mining at Japan's electricity rates is extremely difficult, but understanding the mechanism is important for comprehending crypto assets as a whole.

• Mining is a system for earning rewards by verifying transactions on PoW cryptocurrencies
• There are three types—solo, pool, and cloud—with pool mining being the most practical for individuals
• The 2024 halving reduced rewards to 3.125 BTC per block. High risk of losses at Japan's electricity rates
• Initial costs start at a minimum of ¥500,000. Noise, heat dissipation, and electricity issues must also be addressed
• Mining rewards are classified as miscellaneous income and require tax filing

For those looking for easier ways to earn crypto rewards than mining, consider staking or dollar-cost averaging.

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Reference sources:

• Cambridge Bitcoin Electricity Consumption Index
• National Tax Agency "Tax Treatment of Crypto Assets"
• Financial Services Agency "List of Registered Crypto Asset Exchange Operators"