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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 block, the mining issue and a random number. Heres how it all comes together:

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

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For our example, lets say that we've a mining difficulty of simply two, ie, our HASH should begin with two zeros. .

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The problem: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. Thus what we need is the third factor, a random number (known as a NONCE). We take 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 small number changes the whole HASH outcome, there's absolutely no way to forecast the number well need to address this! .

We repeat this procedure over and over until we find a number that, when combined with BUTTERFLY, gives us a HASH that begins with two zeros. That number is the solution to the block. Here are some tries:

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

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

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CPU mining. In the first days of bitcoin, mining issue was low and not a lot of miners were competing for cubes 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. A graphics processing unit (GPU) is a powerful processor whose sole purpose is to assist your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (like CPUs) however to be somewhat good labourers, hence GPUs are able to execute over 800 times more instructions in precisely 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 chips that can be programmed to perform specific instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Similar to FPGAs, application-specific integrated circuits are processors designed for a particular purpose, in our situation mining bitcoin, and nothing else. ASICs for bitcoin were introduced in 2013 and, as of November 2017, they're the best processors available for mining bitcoin and they outperform FPGAs in power consumption. .

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Mining pools. To cancel the difficulty of mining a block, miners started organising in pools or cloud mining networks. Whenever a miner in one of those pools simplifies a cube, the reward is shared with everyone in the swimming pool in a ratio representative of just how much work you put into the 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 beingno energy expenses, no extra heat and nothing to sell when you decide to hang up your digital pickaxe.

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

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Desktop pockets. Software like Bitcoin Core lets you send and store bitcoin addresses and connects to the network to track transactions.

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

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

Paper wallets. Some websites provide paper wallet services, generating a bit of paper with just two QR codes on it. One code is the public address Check Out Your URL where you receive bitcoin and the other one is your personal address you can use for spending.