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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 factors: the block, 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 cube could contain a list 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 consequence of the block starts with a certain number of zeros, then the cube is considered verified.

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

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The problem: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. So what we need is the next factor, a random number (known as a NONCE). We carry this number, combine it with BUTTERFLY, and HASH again. If it doesnt start with two zeros, we change the number and try again, and since changing one small number changes the whole HASH outcome, there's absolutely 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, provides us a HASH that starts with two zeros. That number is the 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 regular home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not a part of a cloud mining network, would take 2.7 million years into mine one block. .

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This has caused the growth of ASIC computers constructed specifically for mining and also 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 my response competing for cubes 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.

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GPU mining. A 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 built for executive decisions (such as CPUs) however to be somewhat good labourers, hence GPUs are able to execute over 800 times more instructions in 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 process as FPGAs are processors which can be programmed to perform 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 chips 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're the best processors available 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 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 mystery ). .

Cloud mining. Clouds provide potential miners the capability to purchase mining rigs in a remote data centre location. There are many obvious advantages, the most obvious being: no energy expenses, no excess heat and nothing to sell when you decide to hang up 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 confirm or approve transactions.

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Desktop wallets. Software such as Bitcoin Core allows you to send and save website here bitcoin addresses and connects to the network to monitor transactions.

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

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

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

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