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

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

Imagine our block consists of the term BUTTERFLY discussed earlier. In fact, 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, the block is considered confirmed.

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

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The problem: BUTTERFLY will always return the exact same HASH, and it doesnt start with two zeros. Thus what we need is your third variable, 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 entire HASH outcome, there's absolutely no method to forecast the number well need to address 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 gives the solution is what creates bitcoin mining such a computationally expensive procedure, and as more miners join the network, the tougher it gets. As of 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. .

This has led to 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 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 approach was soon replaced by GPU mining.

GPU mining. An 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 built for executive decisions (like CPUs) but to be somewhat great 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 greatly outperformed GPUs and CPUs in the mining procedure as FPGAs are chips that can be programmed to perform 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 specific function, in our case 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 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 pool (even though you personally never solved the mystery ). .

Cloud mining. Clouds provide potential 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 market when you decide to hang your digital 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 validate or approve transactions.

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

Online wallets. Bitcoin keys are saved 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 mobile device.

Paper wallets. Some websites offer paper wallet services, generating a piece of paper with just two QR codes on it. One code is your public address where you get bitcoin and the other one is the personal address you the original source can use for spending.