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For instance, 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 variables: the block, the mining issue and a random number. Heres how it all comes together:

Imagine our cube consists of the word BUTTERFLY discussed previously. In reality, the block 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 result of the block starts with a certain number of zeros, then the cube is considered verified.

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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 difficulty: BUTTERFLY will always return the same HASH, and it doesnt begin with two zeros. Thus 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 start with two zeros, we change the number and try again, and because changing one small number changes the entire HASH result, there is no way 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, gives us a HASH that begins 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 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, could take 2.7 million years into 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 early days description of bitcoin, mining issue was reduced and not a great deal of miners were competing for cubes 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. A graphics processing unit (GPU) is a powerful processor whose sole purpose is to help your own computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) however to be somewhat great labourers, hence GPUs are able to 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 significantly outperformed GPUs and CPUs in the mining process as FPGAs are processors 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 particular purpose, 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 available for mining bitcoin and they outperform FPGAs in power consumption. .

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Mining pools. To offset 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 swimming pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds provide potential miners the ability to buy mining channels in a remote data centre location. There are many obvious advantages, the most 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 virtual 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 store bitcoin addresses and connects to the network to monitor transactions.

Online wallets. Bitcoin keys are saved online by exchange platforms like Coinbase or Circle and can be accessed 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 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 personal address you can use for spending.