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For example, the SHA-256 of the word 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 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 starts with a certain number of zeros, then the block is considered verified.

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For instance, lets say that we have a mining difficulty of simply two, ie, our HASH should begin with two zeros. .

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The problem: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. Thus what we need is your next factor, a random number (called a NONCE). We take 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 little number changes the whole HASH outcome, there's absolutely no way 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, provides us a HASH that begins with two zeros. That number is your solution to the block. Here are some tries:

This arduous process 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 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 into mine one block. .

This has led to the rise of ASIC computers constructed particularly for mining and to an increase in cloud mining.

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CPU mining. In the first days of bitcoin, mining issue was low and not a great deal of miners were competing for cubes 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 assist your own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (such as CPUs) however to be very great labourers, hence GPUs can execute over 800 times more instructions in precisely the same amount of time as a CPU.

FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining process as FPGAs are processors that can be programmed to perform certain 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 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 out there 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 check my reference pools or cloud mining networks. Whenever a miner in one of those pools solves a block, the reward is shared with everyone in the swimming pool in a ratio representative of how much work you put into the pool (even though you personally never solved the puzzle). . my blog

Cloud mining. Clouds provide potential miners the ability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious being: no energy expenses, no extra heat and nothing to market when you opt to hang up your digital pickaxe.

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

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Desktop wallets. Software such as Bitcoin Core lets you send and save bitcoin addresses and connects to the network to track transactions.

Online wallets. Bitcoin keys are saved online by exchange programs like Coinbase or Circle and can be accessed from anywhere.

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

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