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

Bitcoin mining involves three variables: the block, the mining difficulty and a random number. Heres how it all comes together:

Imagine our block consists of the word BUTTERFLY discussed earlier. In fact, the block could contain a listing of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a simple test: If the HASH result of the block starts with a certain number of zeros, then the block is considered confirmed.

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For instance, lets say that we have a mining difficulty of just two, ie, our HASH should begin with two zeros. .

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The difficulty: BUTTERFLY will always return the exact same HASH, and it doesnt begin with two zeros. Thus what we need is the third factor, a random number (called a NONCE). We carry 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 little number changes the entire HASH outcome, there's absolutely no way to forecast the number well need to solve this! .

We repeat this procedure 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 your solution to the block. Here are some tries:

This arduous procedure of randomly trying to find a number that gives the solution is the thing that makes 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 a part of a cloud mining network, could require 2.7 million years to mine one block. .

This has caused the growth of ASIC computers built specifically for mining and also to an increase in cloud mining.

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CPU mining. In the early days of bitcoin, mining issue was reduced and not a great deal of miners were competing for cubes and rewards. This made it rewarding to use your computers own central processing unit (CPU) to mine bitcoin. However, that strategy was soon replaced by GPU mining.

GPU mining. An graphics processing unit (GPU) is a potent processor whose sole purpose is to assist your own computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) but to be somewhat good labourers, hence GPUs can execute over 800 times more instructions in precisely the same amount of time as a CPU.

FPGA mining. Next came mining using field-programmable useful source gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining process as FPGAs are chips 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 purpose, in our case 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 power consumption. .

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Mining pools. To cancel the problem of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of those pools solves a block, the reward is shared with everyone in the pool in a ratio representative of how much work you put into the pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds provide potential miners the capability to buy mining rigs in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity expenses, no extra heat and nothing to market when you decide to hang up your virtual pickaxe.

Once miners get bitcoin, they are given a virtual key to the bitcoin addresses. You can use this digital key to access and confirm or approve transactions.

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Desktop pockets. Software such as Bitcoin Core allows you to send and store bitcoin addresses get redirected here and connects to the network to track transactions.

Online wallets. Bitcoin keys are stored online by exchange platforms such as Coinbase or Circle and can be retrieved from anywhere.

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

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