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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 factors: the block, the mining difficulty and a random number. Heres how it all comes together:

Imagine our block consists of the word BUTTERFLY discussed earlier. 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 begins with a certain number of zeros, the cube is considered verified.

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For instance, lets say that we've a mining difficulty 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 start with two zeros. So what we need is the third 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 whole HASH result, 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, provides us a HASH that starts with two zeros. That number is the solution to the block. Here are some attempts:

This arduous procedure of randomly trying to find a number that gives the solution is the thing that creates bitcoin mining such a computationally expensive process, and as more miners join the network, the harder it gets. At November 2017, a normal 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 caused the growth 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 difficulty was low and not a great deal of miners were competing for blocks and rewards. This made it rewarding 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 purpose is to assist your computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) but to be very great 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 with field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining procedure as FPGAs are processors which can be programmed to perform specific 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 processors designed for a specific 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 pools or cloud mining networks. Whenever a miner in one of these pools solves a block, the reward is shared with everyone in the swimming pool in a ratio representative of just how much work you put into the swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds offer prospective miners the capability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no electricity costs, no excess heat and nothing to sell when you opt to hang up 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 wallets. Software such as Bitcoin Core allows you to send and store bitcoin addresses and connects to the network to monitor transactions.

Online wallets. Bitcoin keys are stored 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 websites offer paper wallet services, generating a bit of paper using two QR codes on it. One code is the public address at which you get bitcoin my website and the other is your private address you can use for spending.