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

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

Imagine our cube consists of the word BUTTERFLY discussed earlier. In reality, the block could contain a list of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a deceptively simple test: If the HASH consequence of the block starts with a certain number of zeros, the block 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 problem: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. Thus what we need is the next factor, 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 since changing one little number changes the entire HASH outcome, there's absolutely no method to forecast the number well need to address this! .

We repeat this procedure 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 the solution to the block. Here are some attempts:

This arduous process of randomly trying to find a number that gives the solution is the thing that makes bitcoin mining such a computationally expensive procedure, and as more miners join the network, the harder 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 into mine one block. .

This has caused 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 early days of bitcoin, mining issue was reduced and not a lot of miners were competing for blocks and rewards. This made it rewarding to use 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 the same amount of time as a CPU.

FPGA mining. Next came mining with field-programmable gate arrays (FPGAs). These significantly 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, like GPUs were).

ASIC mining. news Similar to FPGAs, application-specific integrated circuits are chips 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 out there 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 pools or cloud mining networks. Whenever a miner in one of those 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 puzzle). .

Cloud mining. Clouds provide prospective miners the capability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity costs, no excess heat and nothing to sell when you opt to hang up 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 validate or approve transactions.

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

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

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

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