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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 has three important properties:
Bitcoin mining involves three variables: the cube, the mining difficulty and a random number. Heres how it all comes together:
Imagine our block consists of the term BUTTERFLY discussed previously. In reality, the block would contain a listing of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a simple test: If the HASH consequence of the block begins with a certain number of zeros, the cube is considered confirmed.
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For instance, lets say that we've a mining difficulty of simply two, ie, our HASH should start with two zeros. .
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The problem: BUTTERFLY will always return the same HASH, and it doesnt begin with two zeros. So what we need is the next factor, 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 result, there's absolutely no method 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, provides us a HASH that begins with two zeros. That number is your solution to the block. Here are some attempts:
This arduous procedure of randomly trying to find a number that supplies the solution is the thing that makes bitcoin mining such a computationally expensive procedure, and as more miners join the network, the tougher it gets. At November 2017, a normal 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 to mine one block. .
This has caused the growth of ASIC computers built specifically for mining and 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 lot 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 strategy was soon replaced by GPU mining.
GPU mining. An graphics processing unit (GPU) is a potent processor whose sole purpose is to assist your own computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (like CPUs) however to be very good labourers, hence GPUs can 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 process as FPGAs are processors which can be programmed to execute certain 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 chips designed for a particular function, in our situation 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 problem 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 pool (even though you personally never solved the puzzle). .
Cloud mining. Clouds offer potential miners the capability to buy mining rigs 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 Look At This when you opt to hang up your digital pickaxe.
Once miners get bitcoin, they are given a virtual key to the bitcoin addresses. You can use this electronic key to access and confirm or approve transactions.
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Desktop pockets. Software such as Bitcoin Core allows you to send and save bitcoin addresses and also connects to the network to monitor transactions.
Online wallets. Bitcoin keys are saved online by exchange programs like Coinbase or Circle and can be retrieved from anywhere.
Mobile wallets. Programs like Blockchain store and encrypt your bitcoin keys so you can make payments using your mobile device.
Paper wallets. Some sites offer paper wallet solutions, generating a piece of paper using two QR codes on it. One code is your public address at which you get bitcoin and the other one is your personal address you can use for spending.