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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 has three important properties:

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

Imagine our block consists of the term BUTTERFLY discussed previously. In reality, 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, then 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 should start with two zeros. .

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The problem: BUTTERFLY will return the exact same HASH, and it doesnt begin with two zeros. So what we need is the next factor, a random number (known as 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 little number changes the whole HASH outcome, there is no method to predict the number well need to address 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 the solution to the block. Here are some tries:

This arduous procedure of randomly trying to find a number that gives the solution is the thing that makes bitcoin mining such a computationally expensive process, and as more miners join the network, the harder it gets. At 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 require 2.7 million years this article to mine one block. .

This has led to the growth 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 use 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 powerful processor whose sole purpose is to help your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) however to be very good labourers, hence GPUs can 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 process as FPGAs are chips which 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 specific function, 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 power consumption. .

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Mining pools. To cancel the difficulty of mining a block, miners started organising in pools or cloud mining networks. Whenever a miner in one of those pools solves a block, the payoff is shared with everyone in the pool in a ratio representative of just how much work you read the article put into the swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds offer potential miners the capability to purchase mining rigs in a remote data centre location. There are many obvious advantages, the most obvious being: no energy expenses, no extra heat and nothing to sell 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 electronic key to gain access and confirm or approve transactions.

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Desktop wallets. Software over here like Bitcoin Core lets you send and save bitcoin addresses and also connects to the network to track transactions.

Online wallets. Bitcoin keys are stored online by exchange platforms such as Coinbase or Circle and can be retrieved from anywhere.

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

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