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For example, the SHA-256 of the word BUTTERFLY (source) is 8c62ace4f9ef8ccd08ca6fb992a8524bb7dbdc0530654bd254c9da07a660949a (HASH). This seemingly random string of letters and numbers has three important properties:

Bitcoin mining involves three variables: the cube, the mining difficulty and a random number. Heres how it all comes together:

Imagine our block consists of the term BUTTERFLY discussed previously. In reality, the block would contain a list of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a deceptively simple test: If the HASH result of the block starts with a certain number of zeros, then the block is considered confirmed.

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For our example, lets say that we have a mining problem of just two, ie, our HASH must start with two zeros. .

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The difficulty: BUTTERFLY will always return the exact same HASH, and it doesnt start with two zeros. So what we need is the next variable, a random number (known as a NONCE). We carry this number, combine it with BUTTERFLY, and HASH again. If it doesnt start with two zeros, we change the number and try again, and because changing one little number changes the entire HASH result, there is no way to forecast the number well need to address this! .

We repeat this process over and over until we find a number that, when combined with BUTTERFLY, provides us a HASH that starts with two zeros. That number is your solution to the block. Here are some attempts:

This arduous procedure of randomly trying to find a number that gives the solution is what creates bitcoin mining such a computationally expensive process, and as more miners join the network, the harder it gets. As of November 2017, a normal home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not a part of a cloud mining network, could take 2.7 million years into mine one block. .

This has led to the growth of ASIC computers constructed specifically for mining and to an increase in cloud mining.

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CPU mining. In the first days of bitcoin, mining difficulty was reduced and not a lot of miners were competing for blocks and rewards. This made it worthwhile to utilize your computers own central processing unit (CPU) to mine bitcoin. However, that strategy was soon replaced by GPU mining.

GPU mining. her latest blog An graphics processing unit (GPU) is a potent processor whose sole objective is to assist your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) however to be very great labourers, hence GPUs are able to execute over 800 times more instructions in the exact same amount of time as a CPU.

FPGA mining. Next came mining with field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining procedure as FPGAs are processors which can be programmed to execute certain instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Comparable to FPGAs, application-specific integrated circuits are chips designed for a specific function, in our case mining bitcoin, and nothing else. ASICs for bitcoin were introduced in 2013 and, as of November 2017, they're the best processors out there for mining bitcoin and they outperform FPGAs in electricity consumption. .

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Mining pools. To cancel the problem of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of these pools simplifies a cube, the payoff is shared with everyone in the swimming pool in a ratio representative of just how much work you put into the swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds offer prospective miners the ability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no energy expenses, no extra heat and nothing to sell when you decide to hang your virtual pickaxe.

Once miners receive bitcoin, they are given a virtual key to the bitcoin addresses. You can use this electronic key to gain access and validate or approve transactions.

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Desktop wallets. Software like Bitcoin Core allows you to send and save bitcoin addresses and connects to the network to monitor transactions.

Online wallets. Bitcoin keys are saved online by exchange platforms such as Coinbase or Circle and can be retrieved from anywhere.

Mobile wallets. Apps like Blockchain shop and encrypt your own bitcoin keys so that you can make payments using your mobile device.

Paper wallets. Some sites offer paper wallet services, generating a bit of paper with two QR codes on it. One code is the public address at which you get bitcoin and the other one is your private address you can their website use for spending.