Hellstone

Hellstone is an ore and material that produces the highest tier items in game until you defeat the Wall of Flesh to activate hard mode; which then allows you to destroy a Demon Altar to bless your world with ore that can than be used for products that are a higher tier than Hellstone. It is only found in the deepest layer of the world, The Underworld. Mining Hellstone now requires at least a Nightmare Pickaxe. It can be smelted into Hellstone Bars only at a Hellforge, and as of 1.0.6 requires only 4 Hellstone and only 1 Obsidian. Like most other ores and soils, it can also be crafted into a Hellstone Brick at any furnace. When converted to Hellstone Bars, they can be used to create powerful new molten variations of weapons and armor. Hellstone deals 30 (before defense) fire damage to the player when they touch it, unless they wear an Obsidian Skull, Obsidian Horseshoe, Obsidian Shield , or use an Obsidian Skin Potion. Hellstone has no value to vendors.

Mining Tips
Mining Hellstone can be a significant problem, not only because Hellstone deals fire damage to the player (which can be negated with an Obsidian Skull); but mainly because of the dangerous monsters of The Underworld, as well as the fact that Hellstone now spawns lava when mined. While Bone Serpents appear, they can be a problem and should be fought like one would fight any worm monster, preferably using very long range weapons or weapons that can attack targets rapidly, such as the Vilethorn. Another option would be the Dark Lance; not only does it have a very fast attack speed, it can also hit monsters through the blocks. This only works against monsters that can move through the blocks themselves, such as the worms, the vines in the jungle, or the skulls in the dungeon. Hit the serpent when it is coming at you, and you can kill it in just one strike, for it hits every segment multiple times. However, the greater threat are the Fire Imps because they constantly respawn and their fireballs ignore block collision. When killing Underworld monsters, it is best to obtain a higher tier of armor and good equipment to mine and attack.

Note: When the Player kills an imp, there is a respawn time, meaning that they won't spawn right after you kill them. So if you see them close, kill them as soon as possible and they won't bother you for a little bit.

One approach to mining Hellstone can be to just drop down to the Hellstone / Ash "floor" and start digging out the Hellstone. Since all Pickaxes are pretty fast and swing continuously, this should deflect most fireballs and kill most Imps that stand in front of the player. One should take care of the Imps spawning above them by mining as narrowly as possible and preferably straight downwards. With decent armor, an Obsidian Skull and a Band of Regeneration, a player should be able to mine a decent amount of Hellstone before they are killed by the Imps or a Bone Serpent. One must keep in mind, however, that Hellstone Bars are very expensive and difficult to acquire as 4 pieces of Hellstone and 1 piece of Obsidian are required to forge only one bar.

Additionally, as long as a player leaves a roof of 3 blocks high (minimum moving space), imps rarely teleport into range of you. In other words, try not to leave any space with a roof higher than 3. It also helps to work deep enough to be under the forge chambers.

Another method, although a bit time consuming and complicated, is to catch 6-7 melee enemies inside a box. Once you've captured your enemies, as long as they don't leave the screen, no new enemies will spawn. This will allow you to mine easily without having to worry about Fire Imps and Bone Serpents.

A third method requires several Obsidian Skin Potions and a Magic Mirror. You may also want Cloud in a Bottle, a Grappling Hook , or both. Find a large pool of lava, use the potion and jump in. There are usually large seams of hellstone along the sides of large lava pools near the bottom of the map, and Bone Serpents and Fire Imps generally wont spawn as most of the screen is filled with Lava and Ash. If you have 5 or so potions you can collect 100-200 hellstone very easily and then use your Magic Mirror to escape when you run out.

Dealing With the Hellstone Itself
As for dealing with the lava that is spawned when Hellstone is mined, while you could use an Obsidian Skin Potion to negate damage from lava, you can also use sand blocks to sponge up the lava. By placing a single sand block on top of the Hellstone, by making sure that another block rests directly beneath the Hellstone, and by mining the Hellstone from top-to-bottom, the lava does indeed form, but then the sand drops down, absorbing the lava like a sponge. (Note:As of the 1.1 update, this method no longer works.) However, if a large body of lava sits right on top of the Hellstone that you're mining, then you cannot use this method. Instead, you could just prepare a lava barrier to keep the lava from spilling onto you, and simply mine the Hellstone from behind the barrier.

Update info
1.0.6 - Hellstone now creates firey sparks, but they don't do damage. Hellstone also spawns lava when it is mined, but only in the Underworld.

1.1 - Hellstone can be destroyed by explosions once the Wall of Flesh has been killed.

Trivia

 * Hellstone will not emit lava when mined if it has been previously mined, unless you are in hell.
 * Hellstone does not hurt NPC's when they touch it