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

Bitcoin mining involves three factors: the cube, the mining difficulty 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 uses a simple test: If the HASH consequence 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'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. So what we need is your third factor, a random number (called a NONCE). We carry 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 small number changes the whole 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 the solution to the block. Here are some attempts:

This arduous procedure of randomly trying to find a number that supplies 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 regular home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not a part of a cloud mining network, could require 2.7 million years to mine one block. .

This has caused the growth of ASIC computers built specifically for mining and also to an increase in cloud mining.

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CPU mining. In the early days of bitcoin, mining issue was reduced and not a great deal 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. A graphics processing unit (GPU) is a powerful processor whose sole objective is to assist your computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (like CPUs) however to be very good labourers, hence GPUs can execute over 800 times more instructions in precisely the same amount of time as a CPU.

FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining process as FPGAs are chips which can be programmed to perform certain instructions and only those instructions (instead of being repurposed for mining, such as GPUs were).

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

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Mining pools. To offset 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 payoff is shared with everyone in the pool in a ratio representative of how much work you put into the pool (even though you personally never solved the puzzle). .

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

Once miners get bitcoin, they are given a digital 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 store bitcoin addresses and also connects to the network to track transactions.

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

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

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