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

Imagine our cube consists of the word BUTTERFLY discussed earlier. In reality, the cube 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 starts with a certain number of zeros, the block is considered verified.

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For our example, lets say that we have a mining problem of simply two, ie, our HASH must begin with two zeros. .

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The difficulty: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. Thus what we need is your next factor, a random number (called a NONCE). We take this number, combine it with BUTTERFLY, and HASH again. If it doesnt start with two zeros, we change the number and try again, and because changing one little number changes the whole HASH result, there's absolutely no method to predict the number well need to solve 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 attempts:

This arduous process of randomly trying to find a number that supplies the solution is the thing that creates bitcoin mining such a computationally expensive process, and as more miners join the network, the harder 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 require 2.7 million years into mine one block. .

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

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CPU mining. In the first days of bitcoin, mining difficulty index was reduced and not a lot of miners were competing for cubes and rewards. This made it rewarding 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 assist your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) but to be somewhat good labourers, hence GPUs are able to execute over 800 times more instructions in precisely 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 are processors which can be programmed to execute certain instructions and only those instructions (instead of being repurposed for more tips here mining, like GPUs were).

ASIC mining. Similar to FPGAs, application-specific integrated circuits are processors designed for a particular 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 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 cloud or pools mining networks. Whenever a miner in one of those pools simplifies a cube, the payoff is shared with everyone in the 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 capability to buy mining channels 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 opt to hang your virtual 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 pockets. Software such as Bitcoin Core allows you to 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 shop 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 two QR codes on it. One code is your public address where you receive bitcoin and the other is the personal address you can use for spending.

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