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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 contains three important properties:

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

Imagine our cube consists of the term BUTTERFLY discussed earlier. In reality, the cube could contain a listing 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 starts with a certain number of zeros, then the cube 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 problem: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. Thus what we need is your 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 small number changes the entire HASH outcome, there's absolutely no method 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, provides us a HASH that begins with two zeros. That number is your solution to the block. Here are some attempts:

This arduous process 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. 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 require 2.7 million years into mine one block. .

This has caused the rise of ASIC computers built particularly for mining and also 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 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 approach 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 built for executive decisions (like CPUs) however to be somewhat great labourers, hence GPUs are able to 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 procedure as FPGAs are more information 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. Comparable 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 are the best processors available for mining bitcoin and they outperform FPGAs in electricity consumption. .

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Mining pools. To offset the difficulty 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 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 provide potential miners the ability to purchase mining rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno energy expenses, no excess heat and nothing to sell when you opt 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 access and validate or approve transactions.

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Desktop wallets. 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 programs such as Coinbase or Circle and can be retrieved from anywhere.

Mobile wallets. Programs like Blockchain shop and encrypt your bitcoin keys so that you can make payments using your cellular 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 where you receive bitcoin and the other one is your private address you can use for spending.