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For example, 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 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 earlier. In reality, the cube would contain a list of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin uses a 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 simply two, ie, our HASH should begin with two zeros. .

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The problem: BUTTERFLY will always return the exact same HASH, and it doesnt begin with two zeros. So what we need is the next factor, 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 since changing one small number changes the entire HASH result, there is no method 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, 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 the thing that makes bitcoin mining such a computationally expensive procedure, and as more miners join the network, the harder it gets. At 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, would take 2.7 million years into mine one block. .

This has caused the rise 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 issue was low and not a great deal of miners were competing for blocks and rewards. This made it worthwhile to use 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 powerful processor whose sole purpose is to assist your he said own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) but to be somewhat good labourers, hence GPUs can execute over 800 times more instructions in the 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 process as FPGAs are processors that can be read this programmed to execute 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 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 power 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 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 swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds provide prospective miners the capability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity costs, no excess heat and nothing to market when you decide to hang your digital pickaxe.

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

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Desktop pockets. Software such as Bitcoin Core allows you to send and store bitcoin addresses and also connects to the network to monitor transactions.

Online wallets. Bitcoin keys are saved online by exchange programs 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 solutions, generating a piece of paper using just two QR codes on it. One code is your public address at which you get bitcoin and the other is your private address you can use for spending.