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For instance, the SHA-256 of this term 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 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 begins with a certain number of zeros, the block is considered confirmed.

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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 difficulty: BUTTERFLY will return the exact 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 start with two zeros, we change the number and try again, and because changing one small number changes the whole HASH result, there is no way 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 the solution to the block. Here are some attempts:

This arduous process of randomly trying to find a number that gives the solution is what makes 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 part of a cloud mining network, would require 2.7 million years into mine one block. .

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

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CPU mining. In the early days of bitcoin, mining difficulty was low and not a great deal of miners were competing for cubes and rewards. This made it rewarding to use 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 objective is to help your own computers graphics card in rendering 3D graphics. GPUs are not constructed see this page 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 greatly outperformed GPUs and CPUs in the mining process as FPGAs are chips which can be programmed to execute specific 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 particular 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 power 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 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 puzzle). .

Cloud mining. Clouds provide prospective miners the ability to buy mining rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno energy expenses, no excess heat and nothing to market when you decide to hang your virtual pickaxe.

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

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Desktop wallets. Software such as Bitcoin Core lets you 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 retrieved from anywhere.

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

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