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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 variables: the cube, 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 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, then the cube is considered verified.
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For our example, lets say that we have a mining difficulty of just two, ie, our HASH must start with two zeros. .
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The difficulty: BUTTERFLY will return the exact same HASH, and it doesnt start with two zeros. Thus what we need is the third factor, a random number (called a NONCE). We take this number, combine it with BUTTERFLY, and HASH again. If it doesnt start with two zeros, we change the number and try again, and because changing one small number changes the whole HASH result, there is no method to forecast the number well need to address this! .
We repeat this procedure 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 tries:
This arduous procedure of randomly trying to find a number that supplies the solution is the thing that creates 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, could take 2.7 million years to mine one block. .
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CPU mining. In the early days of bitcoin, mining issue was low and not a lot of miners were competing for blocks and rewards. see this 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.
FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These significantly outperformed GPUs and CPUs in the mining procedure as FPGAs are chips that can be programmed to perform specific 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 processors designed for a particular purpose, 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 out there for mining bitcoin and they outperform FPGAs in electricity consumption. .
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Mining pools. To offset more the difficulty of mining a block, miners started organising in pools or cloud mining networks. Whenever a miner in one of those pools simplifies a cube, the reward is shared with everyone in the pool in a ratio representative of just how much work you put into the swimming 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 expenses, no extra heat and nothing to market when you decide to hang up your virtual pickaxe.
Once miners receive 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 wallets. Software such as Bitcoin Core lets you send and store 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 accessed from anywhere.
Mobile wallets. Apps like Blockchain shop and encrypt your bitcoin keys so you can make payments using your mobile device.
Paper wallets. Some sites offer paper wallet services, generating a bit of paper with just two QR codes on it. One code is your public address where you get bitcoin and the other is your private address you can use for spending.