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

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

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

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For instance, lets say that we've a mining difficulty of just two, ie, our HASH must start with two zeros. .

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The difficulty: BUTTERFLY will always return the same HASH, and it doesnt begin with two zeros. Thus what we need is your next variable, 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 because changing one small number changes the whole HASH result, there's absolutely no way to predict the number well need to solve 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 supplies the solution is what creates bitcoin mining such a computationally expensive process, and as more miners join the network, the harder it gets. As of November 2017, a regular 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 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 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. A graphics processing unit (GPU) is a powerful processor whose sole objective 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 with field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining process as FPGAs are processors which can be programmed to execute certain instructions and only those instructions (instead of being repurposed for mining, such as GPUs were).

ASIC mining. Similar to FPGAs, application-specific integrated circuits are chips designed for a particular purpose, in our situation mining bitcoin, and nothing else. ASICs for bitcoin were introduced in 2013 and, as of November 2017, they're the best processors available for mining bitcoin and they outperform FPGAs in electricity consumption. .

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Mining pools. To offset the difficulty of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of read this article 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 offer prospective miners the capability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no energy expenses, no excess heat and nothing to sell when you decide to hang your virtual pickaxe.

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

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Desktop pockets. Software like Bitcoin Core lets you 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. Apps like Blockchain store and encrypt your own bitcoin keys so you can make payments using your mobile device.

Paper wallets. Some sites offer paper wallet services, generating a piece of paper using 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.