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For instance, 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 block, 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 block would 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 starts with a certain number of zeros, the block is considered confirmed.

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

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The problem: BUTTERFLY will return the exact same HASH, and it doesnt start with two zeros. So what we need is the 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 since changing one small number changes the entire HASH outcome, there is 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 begins with two zeros. That number is your solution to the block. Here are some tries:

This arduous procedure of randomly trying to find a number that gives the solution is what creates bitcoin mining such a computationally expensive process, 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 a part of a cloud mining network, could take 2.7 million years into mine one block. .

This has caused the growth 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 issue 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 strategy was soon replaced by GPU mining.

GPU mining. An graphics processing unit (GPU) is a powerful processor whose sole purpose is to help your computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) however to be very good labourers, hence GPUs are able to execute over 800 times more instructions in 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 process as FPGAs are chips 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 chips 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 are 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 pools or cloud 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 just how much work you put into the pool (even though you personally never solved the puzzle). .

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 electricity costs, no extra heat and nothing to market when you decide to hang up your virtual pickaxe.

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

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Desktop pockets. Software like Bitcoin Core lets you send and save bitcoin addresses and also connects to the network to monitor transactions.

Online wallets. Bitcoin keys are saved online by exchange platforms like Coinbase or Circle a fantastic read and can be retrieved from anywhere.

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

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