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For instance, the SHA-256 of the term BUTTERFLY (source) is 8c62ace4f9ef8ccd08ca6fb992a8524bb7dbdc0530654bd254c9da07a660949a (HASH). This seemingly random string of letters and numbers has three important properties:

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

Imagine our cube consists of the term BUTTERFLY discussed earlier. In fact, the block could contain a list 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 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 have a mining difficulty of just two, ie, our HASH must begin with two zeros. .

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The problem: BUTTERFLY will always return the same HASH, and it doesnt begin with two zeros. Thus what we need is your third factor, a random number (known as 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 since changing one little number changes the whole HASH outcome, there is no way 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 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 regular 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. .

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

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CPU mining. In the early days of bitcoin, mining difficulty was low and not a lot of miners were competing for cubes and rewards. This made it worthwhile to use your computers own central processing unit (CPU) to mine bitcoin. However, that approach was soon replaced by GPU mining.

GPU mining. A graphics processing unit (GPU) is a potent processor whose sole objective is to help your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) but to be somewhat great 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 with field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining procedure as FPGAs are processors that can be programmed to execute specific 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 specific purpose, in our situation mining bitcoin, and nothing else. ASICs for bitcoin were introduced in 2013 and, as of November 2017, they are the best processors available for mining bitcoin and they outperform FPGAs in electricity consumption. .

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Mining pools. To cancel the problem 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 reward 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 provide prospective miners the ability to buy mining rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno electricity costs, no excess heat and nothing to sell when you decide to hang up your virtual pickaxe.

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

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

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

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

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