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For instance, the SHA-256 of this 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 issue and a random number. Heres how it all comes together:

Imagine our block 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 simple test: If the HASH result of the block starts with a certain number of zeros, the block 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 same HASH, and it doesnt start with two zeros. So what we need is your next factor, a random number (known as 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 whole HASH result, there's absolutely no method to forecast the number well need to address this! .

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

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

This has led to the growth of ASIC computers constructed specifically for mining and to an increase in cloud mining.

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CPU mining. In the early days of bitcoin, mining difficulty was low and not a great deal of miners were competing for blocks and rewards. This made it rewarding 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 powerful processor whose sole objective is to assist your own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) but to be somewhat good labourers, hence GPUs are able to execute over 800 times more instructions in precisely the 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 which can be programmed to execute specific 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 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 they outperform FPGAs in electricity consumption. .

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Mining pools. To cancel the difficulty of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of these pools solves a block, the payoff 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 mystery ). linked here .

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 beingno energy costs, no extra heat and nothing to sell when you opt 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 confirm or approve transactions.

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Desktop pockets. Software like Bitcoin Core allows you to send and store bitcoin addresses and also connects to the network to track transactions.

Online wallets. Bitcoin keys are saved online by exchange platforms like Coinbase or Circle and can be accessed from anywhere.

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

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