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

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

Imagine our cube consists of the word BUTTERFLY discussed previously. In fact, the cube could contain a listing 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 begins with a certain number of zeros, 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 should start with two zeros. .

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The difficulty: BUTTERFLY will always return the exact same HASH, and it doesnt begin 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 begin with two zeros, we change the number and try again, and since changing one little number changes the whole HASH result, there is no way to predict the number well need to solve 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 procedure of randomly trying to find a number that supplies the solution is the thing that 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 part of a cloud mining network, could take 2.7 million years to mine one block. .

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

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

GPU mining. An graphics processing unit (GPU) is a potent processor whose sole objective is to assist your own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) but 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 greatly outperformed GPUs and CPUs in the mining procedure as FPGAs are chips which can be programmed to execute specific instructions and only those instructions (instead of being repurposed for mining, this link such as GPUs were).

ASIC mining. Similar to FPGAs, application-specific integrated circuits are chips designed for a specific 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 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 pools or cloud mining networks. Whenever a miner in one of those pools solves a block, the payoff is shared with everyone in the swimming pool in a ratio representative of how much work you put into the pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds offer potential miners the ability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity expenses, no excess heat and nothing to market 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 such as Bitcoin Core allows you to send this link and save bitcoin addresses and also connects to the network to monitor transactions.

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

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

Paper wallets. Some websites offer paper wallet solutions, generating a bit of paper with two QR codes on it. One code is the public address at which web you get bitcoin and the other is your personal address you can use for spending.