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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 term BUTTERFLY discussed earlier. In reality, the block would contain a list of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a deceptively simple test: If the HASH result of the block starts with a certain number of zeros, then the block is considered verified.

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For our example, lets say that we've a mining difficulty of simply two, ie, our HASH must begin with two zeros. .

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The difficulty: BUTTERFLY will return the exact same HASH, and it doesnt start with two zeros. So what we need is your next factor, a random number (called 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 because changing one small number changes the entire HASH result, there's absolutely no way to forecast the number well need to solve 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 gives the solution is what creates bitcoin mining such a computationally expensive process, and as more miners join the network, the tougher it gets. As of November 2017, a normal 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 built particularly for mining and to an increase in cloud mining.

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CPU mining. In the early days of bitcoin, mining difficulty 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 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 computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (like CPUs) however to be very good labourers, hence GPUs can execute over 800 times more instructions in the exact 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 procedure as FPGAs are chips that can be programmed to perform 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 specific 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 problem 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 reward is shared with everyone in the swimming pool in a ratio representative of just how much work you put into the pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds offer potential miners the ability to buy mining rigs in a remote data centre location. There are many obvious advantages, the most obvious being: no energy costs, no news extra heat and nothing to sell when you decide to hang your digital 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 validate or approve transactions.

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Desktop wallets. Software such as Bitcoin Core lets you send and save bitcoin addresses and also connects to the network to track transactions.

Online wallets. Bitcoin keys are stored online by exchange click for source platforms such as 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 cellular device.

Paper wallets. Some websites provide paper wallet services, generating a piece of paper with two QR codes on it. One code is the public address where you receive bitcoin and the other one is the private address you can use for spending.