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The main problem with a distributed transaction log is how to avoid inconsistencies that could allow someone to spend the same bitcoins twice.The solution in Bitcoin is to mine the outstanding transactions into a block of transactions approximately every 10 minutes, which makes them official. Conflicting or invalid transactions aren't allowed into a block, so the double spend problem is avoided.Although mining transactions into blocks avoid double-spending, it raises new problems: What stops people from randomly mining blocks How do you decide who gets to mine a block How does the network agree on which blocks are validSolving those problems is the key innovation of Bitcoin:mining is made very, very difficult, a technique called proof-of-work.It takes an insanely huge amount of computational effort to mine a block, but it is easy for peers on the network to verify that a block has been successfully mined.[1]Each mined block references the previous block, forming an unbroken chain back to the first Bitcoin block. This blockchain ensures that everyone agrees on the transaction record. It also ensures that nobody can tamper with blocks in the chain since re-mining all the following blocks would be computationally infeasible.[2]As long as nobody has more than half the computational resources, mining remains competitive and nobody can control the blockchain.As a side-effect, mining adds new bitcoins to the system. For each block mined, miners currently get 25 new bitcoins (currently worth about $15,000), which encourages miners to do the hard work of mining blocks. With the possibility of receiving $15,000 every 10 minutes, there is a lot of money in mining.How mining worksMining requires a task that is very difficult to perform, but easy to verify.Bitcoin mining uses cryptography, with a hash function called double SHA-256. A hash takes a chunk of data as input and shrinks it down into a smaller hash value (in this case 256 bits). With a cryptographic hash, there's no way to get a hash value you want without trying a whole lot of inputs. But once you find an input that gives the value you want, it's easy for anyone to verify the hash. Thus, cryptographic hashing becomes a good way to implement the Bitcoin \"proof-of-work\".In more detail, to mine a block, you first collect the new transactions into a block. Then you hash the block to form a 256-bit block hash value. If the hash starts with enough zeros[3], the block has been successfully mined and is sent into the Bitcoin network and the hash becomes the identifier for the block.Most of the time the hash isn't successful, so you modify the block slightly and try again, over and over billions of times. About every 10 minutes someone will successfully mine a block, and the process starts over.The diagram below shows the structure of a specific block, and how it is hashed. The yellow part is the block header, and it is followed by the transactions that go into the block. The first transaction is the special coinbase transaction that grants the mining reward to the miner. The remaining transactions are standard Bitcoin transactions moving bitcoins around.If the hash of the header starts with enough zeros[3], the block is successfully mined. For the block below, the hash is successful: 0000000000000000e067a478024addfecdc93628978aa52d91fabd4292982a50 and the block became block#286819 in the blockchain.Structure of a Bitcoin blockThe block header contains a handful of fields that describe the block.The first field in the block is the protocol version. It is followed by the hash of the previous block in the blockchain, which ensures all the blocks form an unbroken sequence in the blockchain. (Inconveniently, the hash is reversed in the header.)The next field is the Merkle root,[4] a special hash of all the transactions in the block. This is also a key part of Bitcoin security, since it ensures that transactions cannot be changed once they are part of a block.[5]Next is a (moderately accurate) timestamp of the block, followed by the mining difficulty value bits.[3]Finally, the nonce is an arbitrary value that is incremented on each hash attempt to provide a new hash value. The tricky part of mining is finding a nonce that works.ASIC Bitcoin MinerPhoto by Mirko Tobias Schaefer, (CC BY 2.0)A short program to mine a blockI wrote a Python program that mines the above block. The program itself is pretty simple - the hardest part of the code is computing the difficulty target from bits.[3] Otherwise it's just a loop over different nonce values. Each iteration puts the data into a structure, hashes it, and tests the result.The following table shows the hash obtained for selected nonce values. The key point is that each nonce generates a basically-random hash value. Every so often a \"lucky\" nonce will generate a hash starting with some zeroes. To get a lot of zeroes, you need to try an exponentially large number of nonces. For this block, the \"winning\" nonce is 856192328.noncehash05c56c2883435b38aeba0e69fb2e0e3db3b22448d3e17b903d774dd5650796f76128902a23a194dee94141d1b70102accd85fc2c1ead0901ba0e41ade90d38a08e2729577af82250aaf9e44f70a72814cf56c16d430a878bf52fdaceeb7b4bd37f438491452381016cf80562ff489e492e00331de3553178c73c5169574000f1ed1c3903fd5ff1048668cd3cde4f3fb5bde1ff306d26a4630f420c78df1e504e24f3c79900001e3a4583f4c6d81251e8d9901dbe0df74d7144300d7c03cab15eca04bd4bb521170000642411733cd63264d3bedc046a5364ff3c77d2b37ca298ad8f1b5a9f05ba181315200000c94a85b5c06c9b06ace1ba7c7f759e795715f399c9c1b1b7f5d387a319f19745650000000cdccf49f13f5c3f14a2c12a56ae60e900c5e65bfe1cc24f038f0668a6c2439898010000000ce99e2a00633ca958a16e17f30085a54f04667a5492db49bcae15d1908561923280000000000000000e067a478024addfecdc93628978aa52d91fabd4292982a50I should point out that I cheated by starting with a block that could be successfully mined.Most of the attempts to mine a block will fail entirely - none of the nonce values will succeed. In that case, you need to modify the block slightly and try again. The timestamp can be adjusted (which is why the timestamp in mined blocks is often wrong). New transactions can be added to the block, changing the Merkle hash. The coinbase transaction can be modified - this turns out to be very important for mining pools. Any of these changes will result in totally different hashes, so the nonce values can be tried again.My Python program does about 42,000 hashes per second, which is a million times slower than the hardware used by real miners. My program would take about 11 million years on average to mine a block from scratch.Mining is very hardThe difficulty of mining a block is astounding. At the current difficulty, the chance of a hash succeeding is a bit less than one in 1019.Finding a successful hash is harder than finding a particular grain of sand from all the grains of sand on Earth.To find a hash every ten minutes, the Bitcoin hash rate needs to be insanely large.Currently, the miners on the Bitcoin network are doing about 25 million gigahashes per second. That is, every second about 25,000,000,000,000,000 blocks gets hashed. I estimate (very roughly) that the total hardware used for Bitcoin mining cost tens of millions of dollars and uses as much power as the country of Cambodia.[6]Note that finding a successful hash is an entirely arbitrary task that doesn't accomplish anything useful in itself. The only purpose of finding a small hash is to make mining difficult, which is fundamental to Bitcoin security. It seems to me that the effort put into Bitcoin mining has gone off the rails recently.Mining is funded mostly by the 25 bitcoin reward per block, and slightly by the transaction fees (about 0.1 bitcoin per block). Since the mining reward currently works out to about $15,000 per block, that pays for a lot of hardware. Per transaction, miners are getting about $34 in mining reward and $0.10 in fees (stats). 15 GH/s FPGA Bitcoin mining configuration with 41 Icarus. Photo by permission of Xiangfu LiuMining with a poolBecause mining is so difficult, it is typically done in mining pools,where a bunch of miners share the work and share the rewards. If you mine by yourself, you might successfully mine a block and get 25 bitcoin every few years. By mining as part of a pool, you could get a fraction of a bitcoin every day instead, which for most people is preferable.Mining pools use an interesting technique to see how much work miners are doing. They send out a block to be mined, and get updates from a miner whenever a miner gets a partial solution. Each partial solution proves the miner is working hard on the problem and gives the miner a share in the final reward when someone succeeds in mining the block.For instance, if Bitcoin mining requires a hash starting with 15 zeroes, the mining pool can ask for hashes starting with 10 zeroes, which is a million times easier. Depending on the power of their hardware, a miner might find such a solution every few seconds or a few times an hour. Eventually one of these solutions will start with not just 10 zeroes but 15 zeroes, successfully mining the block and winning the reward for the pool.[7] The reward is then split based on each miner's count of shares as a fraction of the total, and the pool operator takes a small percentage for overhead.[8]Most of the time someone outside the pool will mine a block first. In that case, the pool operator sends out new data and the miners just start mining the new block. People in a pool can get edgy if a long time goes without a payout because of bad luck in mining.Stratum: The communication between a pool and the minersNext I'll look in detail at the communication between a miner and the mining pool.The communication between the pool and the miners is interesting.The pool must efficiently provide work to the miners and collect their results quickly. The pool must make sure miners aren't duplicating work. And the pool must make sure miners don't waste time working on a block that has alread