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For example, the SHA-256 of this word BUTTERFLY (origin ) 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 cube consists of the word BUTTERFLY discussed previously. In reality, the cube would 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 our example, lets say that we have a mining problem of just two, ie, our HASH should start with two zeros. .
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The problem: BUTTERFLY will return the exact same HASH, and it doesnt start with two zeros. Thus 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 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, provides us a HASH that begins with two zeros. That number is your solution to the block. Here are some attempts:
This arduous process of randomly trying to find a number that supplies the solution is what makes 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 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 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 lot of miners were competing for blocks 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. A 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 somewhat great labourers, hence GPUs are able to execute over 800 times more instructions in the same amount of time as a CPU.
FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These significantly 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, such as GPUs were).
ASIC mining. Comparable to FPGAs, application-specific integrated circuits are chips designed for a specific purpose, 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 electricity 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 these pools simplifies a cube, the payoff is shared with everyone in the pool in a ratio representative of how much work you put into the pool (even though you personally never solved the puzzle). published here .
Cloud mining. Clouds provide potential miners the capability to buy 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 opt to hang your virtual pickaxe.
Once miners receive bitcoin, they are given a digital key to the bitcoin addresses. You can use this digital key to access and confirm or approve transactions.
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Desktop wallets. Software like Bitcoin Core lets you send and save bitcoin addresses and connects to the network to monitor transactions.
Online wallets. Bitcoin keys are saved online by exchange programs such as Coinbase or Circle and can be retrieved from anywhere.
Mobile wallets. Apps like Blockchain store and encrypt your bitcoin keys so that you can make payments using your mobile device.
Paper wallets. Some websites offer paper wallet services, generating a piece of paper with two QR codes on it. One code is the public address at which you receive bitcoin and the other is the personal address you can use for spending.