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For example, 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 block, the mining difficulty and a random number. Heres how it all comes together:

Imagine our cube consists of the term BUTTERFLY discussed earlier. In fact, the block would 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 cube 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 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 variable, a random number (known as 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 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, provides us a HASH that begins 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 gives 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, would take 2.7 million years to mine one block. .

This has caused the rise of ASIC computers built particularly for mining and also to an increase in cloud mining.

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CPU mining. In the first days of bitcoin, mining issue was reduced and not a lot 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 strategy was soon replaced by GPU mining.

GPU mining. An graphics processing unit (GPU) is a potent processor whose sole i thought about this purpose is to help your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) but to be very 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 using field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining process as FPGAs are processors that can be programmed to execute specific instructions and only those instructions (instead of being repurposed for mining, such as GPUs were).

ASIC mining. Comparable to FPGAs, application-specific integrated circuits are processors designed for a specific 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 pools or cloud 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 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 buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity costs, no extra heat and nothing to market when you opt to hang your digital 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 wallets. Software such as 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 platforms such as Coinbase or Circle and can be accessed from anywhere.

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

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