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For example, the SHA-256 of this term BUTTERFLY (origin ) is 8c62ace4f9ef8ccd08ca6fb992a8524bb7dbdc0530654bd254c9da07a660949a (HASH). This seemingly random string of letters and numbers contains three important properties:
Bitcoin mining involves three factors: the cube, the mining difficulty and a random number. Heres how it all comes together:
Imagine our block consists of the word BUTTERFLY discussed previously. In fact, the cube could contain a listing 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 result of the block begins with a certain number of zeros, then the block is considered verified.
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For our example, lets say that we have a mining problem of just two, ie, our HASH must begin with two zeros. .
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The difficulty: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. So what we need is the next 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 entire HASH result, there is no way to predict 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 starts with two zeros. That number is your solution to the block. Here are some tries:
This arduous procedure of randomly trying to find a number that supplies 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 normal home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not 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 built particularly for mining and to an increase in cloud mining.
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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 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 objective is to help your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (such as CPUs) but to be very great 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 significantly outperformed GPUs and CPUs in the mining process as FPGAs are processors that can be programmed to perform 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 particular 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 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 pool in a ratio representative of just how much helpful resources work you put into the swimming pool (even though you personally never solved the puzzle). .
Cloud mining. Clouds provide potential miners the ability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious beingno electricity expenses, no excess heat and nothing to sell when you decide to hang your digital pickaxe.
Once miners receive bitcoin, they are given a digital key to the bitcoin addresses. You can use this electronic 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 saved online by exchange platforms like Coinbase or Circle and can be retrieved from anywhere.
Mobile wallets. Programs like Blockchain shop and encrypt your own bitcoin keys so that you can make payments using your cellular device.
Paper wallets. Some sites provide paper wallet solutions, generating a bit of paper with two QR codes on it. One code is your public address where you get bitcoin and the other one is the private address you can use for spending.