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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 block, the mining difficulty and a random number. Heres how it all comes together:
Imagine our block consists of the word BUTTERFLY discussed earlier. In reality, the cube could contain a listing of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin uses a deceptively simple test: If the HASH result of the block begins with a certain number of zeros, the block is considered verified.
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For our example, lets say that we have a mining difficulty of just 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 start with two zeros. So what we need is the next factor, 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 whole HASH result, there's absolutely no method 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, provides us a HASH that begins 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 harder it gets. As of 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. .
This has caused the growth of ASIC computers built specifically for mining and also 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 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 potent processor whose sole objective is to assist your own computers graphics card in rendering 3D graphics. GPUs are not built for executive decisions (like CPUs) however to be very great labourers, hence GPUs can execute over 800 times more instructions in precisely the 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 chips that can be programmed to perform certain instructions and only those instructions (instead of being repurposed for mining, like 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 power consumption. .
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Mining pools. To cancel the problem 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 pool (even though you personally never solved the mystery ). .
Cloud mining. Clouds provide prospective miners the capability to purchase mining channels in a remote data centre location. There are many obvious advantages, the most obvious beingno energy expenses, no excess heat and nothing to market when you decide to hang your digital pickaxe.
Once miners receive bitcoin, they are given a virtual key to the bitcoin addresses. You can use this digital key to gain 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 connects to the network to track transactions.
Online wallets. Bitcoin keys are saved online by exchange programs like page Coinbase or Circle and can be retrieved from anywhere.
Mobile wallets. Programs like Blockchain store and encrypt your own 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 with just two QR codes on it. One code is the public address at read the full info here which you get bitcoin and the other is your personal address you can use for spending.