Explain like i39m five bitcoin mining

Explain like I’m five: Bitcoin

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In Part 1 we took a look at the incentives involved in Bitcoin mining explain like i39m five bitcoin mining how they are used guarantee a single transaction history needed to prevent bitcoins from being double spent.

In this post we will take more a technical look at the cryptography involved and how it is used to secure the network. As I said previously, Explain like i39m five bitcoin mining is very accessible. Explain like i39m five bitcoin mining moving forward we should take a moment to learn about hash functions since they are used all throughout the Bitcoin protocol.

To put it simply, a hash function is just a mathematical algorithm that takes an input and turns it into an output. For example, suppose we have an algorithm which just adds all the digits in the input string together. If our input is we would get an output of However, there are certain properties explain like i39m five bitcoin mining really good hash functions that make them suitable to use in cryptography.

Keep these properties in mind as they are vital to the operation of the Bitcoin protocol. The output should be the same length regardless of whether the input has 10 characters or 10 thousand characters. A tiny change in the input should produce an entirely different output that in no way relates to the original input.

You might wonder how we can trust something that came from the NSA. The consensus is that they are secure. Now that we have the preliminaries out of the way we can start focusing in on the protocol. If you read Part 1 you will recall that all Bitcoin transactions are relayed to each of the peers in the network. The first step in the process is to hash each transaction in the memory pool using SHA The raw transaction data may explain like i39m five bitcoin mining something like this:.

These hashes are then organized into something called a Merkle Tree or hash tree. The hashes of the transactions are organized into pairs of twos, concatenated together, then hashed again.

The same is done to each set of outputs until something like a tree is formed or an NCAA bracket. In the above example there are only four transactions tx stands for transaction.

A real block will contain hundreds of transactions so the bracket tree will be much larger. The hash at the very top of the tree is called the Merkle Root. The block header will look something like this:.

Now having done all this can we go ahead and relay the block to the rest of the network? If you recall the last post, the answer is no. We still need to produce a valid proof of work. The output must be less than the specified number. Another way of saying this is that the hash of the block header must start with a certain number of zeros. For example a valid hash may look like this: Any block whose header does not produce a hash that is less than the target value will be rejected by the network.

The target value is adjusted by the protocol every two weeks to try to maintain an average block time of 10 minutes. This is where the nonce comes in. The nonce is simply a random number that is added to the block header for no other reason than to give us something to increment in an attempt to produce a valid hash. If your first attempt at hashing the header produces an invalid hash, you just add one to the nonce and rehash the header then check to see if that hash is valid.

This is Bitcoin mining in a nutshell. This is essentially what Bitcoin mining is, just rehashing the block header, over, and over, and over, and over, until one miner in the network eventually produces a valid hash. When he does, he relays the block to the rest of the network. If so, they add the block to their local copy of the block chain and move on to finding the next block. However, the more hashes that you can perform per second, the greater the probability that you will mine a block and earn the block reward.

CPU mining quickly gave way to GPU mining graphics processing units which proved much more efficient at calculating hash functions. Basically, these are purpose built computer chips that are designed to perform SHA calculations and do nothing else.

At present, the total hashing power in the network is about terrahashs per second and closing in on one petahash per second.

Because each miner is sending these 25 bitcoins to his own address, the first transaction in each block will differ from miner to miner. Now remember the properties of a cryptographic hash function?

If an input changes even in the slightest, the entire output changes. Since the hash of the coinbase explain like i39m five bitcoin mining at the base of the hash tree is different for each miner, the entire hash tree including the Merkle root will be different for each miner.

That means the nonce that is needed to produce a valid block will also be different for each miner. This is the reason why the Merkle tree is employed after all. Any change to a single transaction will cause an avalanche up the hash tree that will ultimately cause the hash of the block to change. If an attacker wants to alter or remove a transaction that is already in the block chain, the alteration will cause the hash of the transaction to change and spark off changes all the way up the hash tree to the Merkle Root.

Given the probabilities, it is unlikely a header with the new Merkle Root will produce a valid hash the proof of work. Hence, the attacker will need to rehash the entire block header and spend a ton of time finding the correct nonce. But suppose he does this, can explain like i39m five bitcoin mining just relay his fraudulent block to the network and hope that miners will replace the old block with his new one or, more realistically, explain like i39m five bitcoin mining new users will download his fraudulent block?

The reason is because the hash of each block is included in the header of the next block. If the attacker rehashes block numberthis will cause the header of block to change, requiring that block to be rehashed as well. A change to the hash of block will cause the header of block to change and so on all the way through the block chain. Any attempt to alter a transaction already in the block chain requires not only the rehashing of the block containing the transaction, but all other subsequent blocks as well.

Depending on how deep in the chain the transaction is, it could take a single attacker weeks, months, or years, to rehash the rest of the block chain. The only exception to the above rule is if the attacker simply gets lucky.

As we noted, it takes the entire network an average of 10 minutes to find a valid block. The deeper a transaction is in the block chain, however, the more times in row the attacker would need to get lucky and mine a explain like i39m five bitcoin mining before the rest of the network to extend his chain longer than the main chain.

From a probability standpoint, the explain like i39m five bitcoin mining of such an attack succeeding decrease exponentially with each subsequent block. In the original white paper Satoshi Nakamoto calculated the probabilities that an attacker could get lucky and pull off a double spend. In the following table q is the percentage of the network controlled by the attacker, P is the probability an attacker explain like i39m five bitcoin mining get lucky and override z number of blocks.

Which is usually why it is recommended that if you are selling something expensive, you should wait until your transaction is six blocks deep six confirmations in Bitcoin lingo before actually handing over the merchandise.

This post got long in a hurry. Hope you enjoyed these posts and I hope you learned something. I found your post comments while searching Google. It is very relevant information. Regularly I do not make posts on blogs, but I have to say that this posting really forced me to do so. Really fantastic and I will be coming back for more information at your site and revisit it!

I still have one question though: Smart Contracts Great Wall of Numbers. Part 2 — Mechanics … Bitcoin. For the hash chaining, does it mean if somebody get one valid hash, I need to update and download it and re-calculate based on his explain like i39m five bitcoin mining Or can I make a new branch based on previous block?

Bitcoin Online resources collected The Bitcoin Journey How Cryptocurrencies Work Bitcoin Getter. Bitcoin has seen rapid increases during the last year and there are now those who are claiming that the bubble is soon to burst and Bitcoin crumble. Those of us continue believe in the idea of a user owned system away from the reach of the banks. We do not believe that the currency is finished. We shall be staying with Bitcoin and Explain like i39m five bitcoin mining am quite confident that it will continue to rise more rapidly than before.

Bitcoin Frenzy — Is it the next gold or just a bubble? How Cryptocurrencies Work - Cryptocurrency How Cryptocurrencies Work — Bitcoin Support. Thanks for a great article.

How then does the miner broadcast that to the rest of the network to get consensus on the work if his nonce is unique from what another miner would have theoretically found?

Cryptocurrency trading is becoming a profession — The Glimpse. How Cryptocurrencies Work — Bitcoin Supports. You are commenting using your WordPress. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. Cryptographic Hash Functions Before moving forward we should take a moment to learn about hash functions explain like i39m five bitcoin mining they are used all throughout the Bitcoin protocol.

It should be very easy to compute an output for any given input, however it should be impossible given current knowledge of mathematics and the state of computers to compute the input for a given output even while knowing the mathematical algorithm. In this case there are many possible inputs that could add up to 10 55, etc. However, given the simplicity of our function one could still figure out the input relatively easily.

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As you may know Bitcoin was developed by Satoshi Nakamoto whoever he is in Not the first overall digital currency, but the first one to solve the problems associated with decentralization. What problems may that be?

I can prove I own one bitcoin by presenting a valid digital signature. I can also sign over ownership of that bitcoin to you by attaching your bitcoin address to it before signing.

The problem we run into, however, is that there is no way to know whether I also signed over ownership of that same coin to someone else or even to another address controlled by myself before transferring it to you. Since bitcoins are digital, they are not scarce and can be copied ad infinitum. Centralized digital currencies attempt to solve this problem by keeping a log of all the transactions ever to have taken place.

Before accepting a payment from me, you would check with the issuing company to make sure I have not previously transferred the same coin to someone else. This works well enough except that the centralized issuer creates a single point of failure. This is exactly what happened to Liberty Reserve. The company had over a million customers before it was shut down by the U.

Needless to say, this creates a need for a censorship resistant digital currency that does not have a single point of failure and cannot be shut down by an arbitrary decree of the government. The solution Bitcoin employs is to simply make the transaction history public. Each user will download and store a copy of the transaction history and can check this ledger before accepting payment to verify that the coins have not been previously spent.

Well, this method ends up creating more problems than it solves. For starters, how do you get all the users to agree on a single transaction history? How likely is it that millions of users around the globe will form a consensus about prior transactions? Consider how each user has an incentive to see to it that their transactions are left out of the global transaction history.

In computer science this problem is known as the Byzantine Generals Problem. Without solving this problem, Bitcoin would be forever plagued by multiple competing transaction histories, and fraudulent transactions. One potential solution could be to allow users to vote for which transaction history they believe to be valid, but there are multiple problems here. Any one-IP-address-one-vote scheme would be corrupted fairly easily.

Even if you could guarantee only one vote per user, the incentive still remains to vote only for the transaction history which favors you the most. This is where Nakamoto really showed off his brilliance. When you first open your Bitcoin wallet, your computer automatically connects to a handful of other users called peers who are also operating the wallet software.

Upon receiving the transaction, each peer will perform a series of about 20 checks to make sure the transaction is valid including checking the digital signature to verify that you are in fact the owner , then relay it to its peers. Through this process the transaction will propagate throughout the network eventually reaching all users.

In the early days of Bitcoin every user was also a miner. After a miner receives and verifies a transaction, he adds it to a memory pool along with all other unconfirmed transactions and begins assembling them into a block. A typical block will contain about two to three hundred transactions. A critical point to keep in mind here is that all miners receive all transactions and independently work to create a block.

Once a miner creates a valid block, he broadcasts it to the network. Each user will check its validity then add it to their local copy of the public ledger called — the block chain.

Whichever miner creates a valid block is rewarded for his effort with newly created bitcoins hence the term mining. The protocol regulates the rate at which bitcoins are created. So if just anyone with the right hardware can create a block, what stops miners from each creating blocks with favorable transaction histories, relaying them, and creating multiple versions of the block chain?

The difficulty of this math problem is calibrated such that only one miner will solve this math problem every ten minutes on average.

It is designed such that blocks can be found much quicker collectively rather than individually. In this case the math problems that need to be solved are different for each chain. When confronted with this situation, each miner needs to decide for himself which chain he is going to work to extend. Now as a matter of arithmetic, the chain with the most processing power devoted to extending it will always be the longest chain.

As a result, the more time that passes, the larger the gap between chain A and chain B will become. From the perspective of an individual miner, you always want to mine on the majority chain. Consider the following example: The last block in the chain is block three and a malicious miner just spent BTC on a new car.

Given that it takes the entire network an average of 10 minutes to solve the math problems needed to find a block, this individual miner will take minutes on average to find a block. When this happens the miner has a decision to make: Does he give up his attack, accept the legitimate block four, and begin work on block five or does he continue working to find a block four with his version of the transaction history?

If he chooses the latter, again the probabilities suggest the rest of the network will find block five and blocks six, seven, etc before he finds his version of block four. Whenever he does manage to find and relay his fraudulent block four, it will just simply be ignored orphaned in Bitcoin parlance since the main chain is longer than his alternate chain. The only way such an attack could succeed is for the malicious miner to continue adding blocks to his alternate chain and somehow extend it longer than the main chain.

As we already mentioned, however, the chain with the majority of the processing power will always grow to be longest chain, so unless this attacker can muster up a ton of processing power, the attack will not succeed.

Surely the NSA has some powerful supercomputers right? Well, considering that the total processing power in the Bitcoin network is faster at computing these math problems than the top supercomputers in the world combined ………….

Not only that, but as we speak people are bringing more processing power online in an attempt to mine blocks and earn the reward. Check out this chart of the total processing power in the network:. So to sum up, given the likelihood of failure, the only rational thing to do is simply to give up mining alternative chains, accept the network consensus and move on. The opportunity cost of mining blocks that will not be included in the main chain is just too high. Because of this incentive structure, profit maximizing miners will always choose to mine on the majority chain guaranteeing that the millions of disparate Bitcoin users will be able to agree on a single transaction history.

So there you have it. He designed Bitcoin in such a way that it essentially channels private self-interest into public good. Miners are led as if by the invisible hand of Satoshi himself to come to a consensus. In Part 2 we will take a deeper look at the cryptography involved in Bitcoin mining and how it is used to secure the network. Tweet Email Pocket Like this: Bitcoin and Other Altcoins: Heya i am for the first time here.

I hope to give something back and aid others like you aided me. Will you kindly drop me a e-mail? I drop a leave a response when I like a article on a site or if I have something to contribute to the discussion.

Part 1 — Incentives Escape Velocity. Is it only me or does it look like like some of these remarks come across like coming from brain dead visitors? Would you list all of your social sites like your Facebook page, twitter feed, or linkedin profile? Good respond in return of this issue with genuine arguments and describing everything about that.

Wie entstehen Bitcoins und was ist Mining? Bitcoin Online resources collected The Bitcoin Journey Como funciona o bitcoin: Do you think it makes sense to have a fund that tracks and invests in the 20 biggest Crypto currencies.

The Bitcoin — The Bibliophile. Look how everybody was doubting in BTC and still, always coming back — its just the first and best cryptocoin. BTC just has 21Million Coins in total once all mined, thats what will surge the price up and the reason i stick to that! At these prices i use cloudmining to get more coins!

Already in hashflare https: Professional Cryptocurrencies mining company. Trying to steal market shares from Hashflare and Genesis!! Cryptocurrencies — An Introduction Stewart. Quantum computers are the most powerful tech threat cryptocurrency will face. You are commenting using your WordPress. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email.

Notify me of new posts via email. A number of people have told me that I have a knack for explaining complex topics in a way that is easy to understand. These first few posts will be about Bitcoin mining. Hopefully, these posts will serve as a nice educational resource for beginners. In part 1 we will take a look at what Bitcoin mining is and how it makes this digital currency tick. Bitcoin is surprisingly very accessible, and these are ELI5 posts after all. Mark Lyford Crypto May 9, at 8: Mark Lyford Bitcoin May 10, at 8:

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