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For example, 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 block, the mining difficulty and a random number. Heres how it all comes together:
Imagine our cube consists of the term 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, the block is considered confirmed.
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For instance, lets say that we have a mining difficulty of just two, ie, our HASH must begin with two zeros. .
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The problem: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. Thus what we need is your third variable, a random number (known as 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 small number changes the entire HASH outcome, there's absolutely no way to forecast the number well need to solve this! .
We repeat this process 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 attempts:
This arduous process 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. 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, could require 2.7 million years into mine one block. .
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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 blocks and rewards. This made it worthwhile to utilize your computers own central processing unit (CPU) to mine bitcoin. However, that approach was soon replaced by GPU mining.
FPGA mining. Next came mining with blog field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining process as FPGAs are chips which can be programmed to perform 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 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 power consumption. .
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Mining pools. To offset the difficulty of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of these pools solves a block, the reward is shared with everyone in the pool in a ratio representative of how much work you put into the pool (even though you personally never solved the puzzle). .
Cloud mining. Clouds provide potential miners the capability to purchase mining rigs 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 get bitcoin, they are given a virtual key to the bitcoin addresses. You can use this digital key to access and validate or approve transactions.
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Desktop pockets. Software such as 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 programs 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 websites offer paper wallet solutions, generating a piece of paper with just two QR codes on it. One code is the public address at which you get bitcoin and the other is the personal address you can use for spending.