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For example, the SHA-256 of this 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 block consists of the term BUTTERFLY discussed earlier. 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 uses a deceptively simple test: If the HASH result of the block starts with a certain number of zeros, then the cube is considered verified.

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For instance, lets say that we have a mining difficulty of simply two, ie, our HASH must start with two zeros. .

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The problem: BUTTERFLY will always return the exact same HASH, and it doesnt start with two zeros. So what we need is your next variable, 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 small number changes the entire HASH result, there is no method to predict 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 process of randomly trying to find a number that supplies the solution is what creates bitcoin mining such a computationally expensive procedure, and as more miners join the network, the harder it gets. At November 2017, a regular home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not part of a cloud mining network, could require 2.7 million years to mine one block. .

This has led to 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 difficulty was low 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 approach was soon replaced by GPU mining.

GPU mining. An graphics processing unit (GPU) is a potent processor whose sole purpose is to help your own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) but to be somewhat great 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 using field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining procedure as FPGAs are processors that can be programmed to execute specific instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Comparable to FPGAs, application-specific integrated circuits are chips designed for a particular function, 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 out there 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 pools or cloud mining networks. Whenever a miner in one of these pools simplifies a cube, the image source reward is shared with everyone in the 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 ability to purchase mining rigs in a remote data centre location. There are many obvious advantages, the most view it now obvious being: no 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 digital key to the bitcoin addresses. You can use this digital key to gain access and confirm or approve transactions.

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Desktop wallets. Software like Bitcoin Core lets you send and save 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 accessed 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 websites provide paper wallet solutions, generating a bit of paper using just two QR codes on it. One code is the public address where you receive bitcoin and the other is your private address you can use for spending.