# Crypto Bank Fundamentals Explained

For instance, 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 factors: the block, the mining difficulty and a random number. Heres how it all comes together:

Imagine our block consists of the term BUTTERFLY discussed earlier. In fact, 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 deceptively simple test: If the HASH result of the block starts with a certain number of zeros, then the cube is considered confirmed.

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For instance, 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. 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 little number changes the whole HASH outcome, there's absolutely no way 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, provides us a HASH that starts with two zeros. That number is your solution to the block. Here are some tries:

This arduous process of randomly trying to find a number that supplies the solution is the thing that creates bitcoin mining such a computationally expensive process, and as more miners join the network, the tougher 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 require 2.7 million years into mine one block. .

This has led to the growth of ASIC computers built particularly for mining and also to an Recommended Reading increase in cloud mining.

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CPU mining. In the early days of bitcoin, mining issue was reduced and not a lot of miners were competing for blocks and rewards. This made it rewarding to utilize 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 assist your computers graphics card in rendering 3D graphics. GPUs are not constructed for executive decisions (like CPUs) however to be very great labourers, hence GPUs are able to execute over 800 times more instructions in precisely the same amount of time as a CPU.

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 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 chips 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're the best processors available 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 payoff is shared with everyone in the pool in a ratio representative of how much work you put into the swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds offer potential miners the ability to buy mining rigs in a remote data centre location. There are many obvious advantages, the most obvious beingno energy costs, no extra 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 electronic key to gain access and validate or approve transactions.