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For example, the SHA-256 of this term BUTTERFLY (origin ) 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 uses a simple test: If the HASH result of the block begins with a certain number of zeros, the block is considered confirmed.

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For instance, lets say that we've a mining problem of simply two, ie, our HASH should begin with two zeros. .

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The problem: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. Thus what we need is your next factor, a random number (known as a NONCE). We take this number, combine it with BUTTERFLY, and HASH again. If it doesnt begin with two zeros, we change the number and try again, and because changing one small number changes the whole HASH result, there's absolutely no way to forecast 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 your solution to the block. Here are some tries:

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

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This has led to the rise of ASIC computers constructed particularly for mining and also to an increase in cloud mining.

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CPU mining. In the first days of bitcoin, mining difficulty was low and not a great deal of miners were competing for blocks and rewards. This made it worthwhile 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 powerful processor whose sole purpose is to help 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 the exact same amount of time as a CPU.

FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining procedure as FPGAs are processors which can be programmed to perform certain instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Similar 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're the best processors available for mining bitcoin and they outperform FPGAs in power 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 simplifies a cube, the reward is shared with everyone in the swimming pool in a ratio representative of how much work you put into the swimming pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds provide prospective miners the ability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity expenses, no excess heat and nothing to sell when you decide to hang up your virtual pickaxe.

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

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Desktop wallets. Software like Bitcoin Core allows you to send and save bitcoin addresses and connects to the network to monitor transactions.

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

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

Paper wallets. Some sites provide paper wallet solutions, generating a bit 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 personal address you can use for spending.

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