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For instance, the SHA-256 of the 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 issue and a random number. Heres how it all comes together:
Imagine our cube consists of the term BUTTERFLY discussed earlier. 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 uses a simple test: If the HASH result of the block starts with a certain number of zeros, then the block is considered confirmed.
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For instance, lets say that we've a mining problem of simply two, ie, our HASH must start with two zeros. .
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The problem: BUTTERFLY will return the same HASH, and it doesnt start with two zeros. So what we need is the third variable, 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 since changing one small number changes the entire HASH result, there's absolutely no method to predict the number well need to address 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 the solution to the block. Here are some attempts:
This arduous procedure of randomly trying to find a number that supplies the solution is what creates bitcoin mining such a computationally expensive procedure, and as more miners join the network, the tougher 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 require 2.7 million years to mine one block. .
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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 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 using field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining process as FPGAs are chips that can be programmed to execute 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 specific 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 available for mining bitcoin and they outperform FPGAs in electricity consumption. .
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Mining pools. To cancel the problem 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 swimming pool in a ratio representative of how much work you put into the swimming pool (even see here 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 extra heat and nothing to market when you decide to hang up your virtual pickaxe.
Once miners get bitcoin, they are given a digital key to the bitcoin addresses. You can use this electronic key to access and validate 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 platforms like Coinbase or Circle and can be retrieved from anywhere.
Mobile wallets. Programs like Blockchain store and encrypt your bitcoin keys so that you can make payments using your mobile device.
Paper wallets. Some sites offer paper wallet solutions, generating a bit of paper using just two QR codes on it. One code is the public address where you receive bitcoin and the other is your personal address you can use for spending.