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For example, the SHA-256 of the word BUTTERFLY (origin ) is 8c62ace4f9ef8ccd08ca6fb992a8524bb7dbdc0530654bd254c9da07a660949a (HASH). This seemingly random string of letters and numbers contains three important properties:

Bitcoin mining involves three factors: the cube, the mining issue and a random number. Heres how it all comes together:

Imagine our block consists of the word BUTTERFLY discussed earlier. In reality, the cube would contain a listing of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin uses a deceptively simple test: If the HASH consequence of the block starts with a certain number of zeros, then the block is considered confirmed.

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

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The problem: BUTTERFLY will always return the exact same HASH, and it doesnt begin with two zeros. Thus what we need is the next variable, a random number (called 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 since changing one little number changes the whole HASH outcome, there is no method to predict the number well need to address this! .

We repeat this procedure over and over until we find a number that, when combined with BUTTERFLY, provides us a HASH that begins with two zeros. That number is the solution to the block. Here are some tries:

This arduous process of randomly trying to find a number that gives 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 regular home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not a part of a cloud mining network, could require 2.7 million years into mine one block. .

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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 first days of bitcoin, mining difficulty was reduced and not a lot of miners were competing for cubes and rewards. This made it worthwhile to utilize your computers own central processing unit (CPU) to mine bitcoin. However, that strategy was soon replaced by GPU mining.

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GPU mining. An graphics processing unit (GPU) is a powerful processor whose sole objective is to help your 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 can 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 greatly outperformed GPUs and CPUs in the mining procedure as FPGAs resource are processors which can be programmed to execute certain instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Comparable 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're the best processors available for mining bitcoin and they outperform FPGAs in power consumption. .

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Mining pools. To offset the difficulty of mining a block, miners started organising in pools or cloud mining networks. Whenever a miner in one of these pools solves a block, the reward is shared with everyone in the swimming 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 rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno electricity expenses, no extra heat and nothing to sell when you decide to hang your digital pickaxe.

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

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Desktop pockets. Software such as Bitcoin Core lets you send and save 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 accessed from anywhere.

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

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

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