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For instance, the SHA-256 of this word 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 previously. In reality, 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 result of the block starts with a certain number of zeros, the cube is considered confirmed.

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

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The difficulty: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. So what we need is your next variable, 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 because changing one small number changes the whole HASH result, 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, gives us a HASH that begins with two zeros. That number is the solution to the block. Here are some attempts:

This arduous process of randomly trying to find a number that supplies the solution is what creates bitcoin mining such a computationally expensive procedure, and as more miners join the network, the tougher it gets. At 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 take 2.7 million years to mine one block. .

This has caused the rise 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 reduced 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.

GPU mining. An 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) however 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 with field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining process as FPGAs are processors which have a peek at these guys can be programmed to execute 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 processors designed for a particular function, 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 out there 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 simplifies a cube, the payoff is shared with everyone in the pool in a ratio representative of just how much work you put into the swimming pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds offer prospective miners the ability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious beingno energy expenses, no extra 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 validate or approve transactions.

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

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

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

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