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

Bitcoin mining involves three variables: 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 fact, the block would 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 consequence of the block starts with a certain number of zeros, the block is considered confirmed.

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For instance, lets say that we've a mining difficulty 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 start with two zeros. So what we need is the third variable, a random number (called 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 little number changes the whole 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 starts with two zeros. That number is the solution to the block. Here are some tries:

This arduous process of randomly trying to find a number that gives the solution is the thing that creates bitcoin mining such a computationally expensive procedure, and as more miners join the network, the tougher it gets. As of November 2017, a regular home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not part of a cloud mining network, would require 2.7 million years into mine one block. .

This has caused the growth 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 issue was reduced 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 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 somewhat great 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 process 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 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 available for mining bitcoin and resource they outperform FPGAs in power consumption. .

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Mining pools. To cancel 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 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 offer potential miners the ability to purchase mining rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno electricity costs, no excess heat and nothing to market when you decide to hang your digital pickaxe.

Once miners get bitcoin, they are given a digital 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 like Bitcoin Core lets you send and save bitcoin addresses and connects to the network to track transactions.

Online wallets. Bitcoin keys are stored online by exchange programs like Coinbase or Circle and can be retrieved from anywhere.

Mobile wallets. Programs like Blockchain shop and encrypt your bitcoin keys so you can make payments using your mobile device.

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