As with mining, what are the bitcoin miners really solving? I read they are solving hashes, but what does that really mean. Can we see what they are solving? Can someone give an example of what a bitcoin mining machine sees to solve?
Here is an extremely simplified sketch of the problem, but it should give a pretty good idea of what the problem is.
This is the hash of the last block (shortened to 30 characters):
These are the hashes of a few valid transactions waiting for inclusion (shortened).
And this the hash of one special transaction that you just crafted and which gives 25BTC (the current reward) to yourself:
Building the next block:
Now, let's use an gross approximation of what a new block might look like (the real one uses binary format). It contains the hash of the previous block and the hashes of those 3 transactions:
Now let's do mining by hand! Our goal is to complete this block with a nonce (a piece of garbage) such that the hash of the new block starts with 13 zeros (considering the previous hash, it seems that 13 zeroes is the current difficulty!).
Mining (trying to finalize this block):
Let's try with nonce=1, and compute the hash of the block (I'm using the md5 hash algorithm, but Bitcoin uses double sha256):
No luck, the hash does not start with a 0… Let's try with nonce=2
If we pursue until nonce=16, we get our first leading zero.
For nonce=208, we get two leading zeroes!
Continue like this… If you finally find a hash that has 13 leading zeroes… you're a winner! Other miners will now build upon your block, you've just got 25BTC.
But you'll have to be fast!
Back to step 1…
If someone manages to build a block before you do, you'll have to start again from the beginning with the new block's hash (the one of the winner).
At a high level, the miner software takes a list of active transactions, and then groups them together in something called a "block".
Or more accurately stated: The miner software coverts all the transactions into a summary view called a "merkle root", and hashes it, which is representative of the transactions.
Then mining software converts this to into a binary format called a Block Header, which also references the previous blocks (also called a chain).
The miner hardware changes a small portion of this block called a "nonce".
The block header is hashed and compared to the Target as if it were simply a large number like 10,000,000 > 7,000,000 (the real numbers are much bigger, and in hex). The target is compressed and stored in each block in a field called bits.
An expanded target looks like this:
And the goal is to make sure the SHA256 hash of the block is less than this value. In the example below "
To simplify this concept, you can ballpark the target by counting the leading zeros (as the other answer here explains). Here is an example:
Here is a sample block with transactions you can view on BlockChain.info. Look in the upper right hand corner of the webpage for this hash:
That previous hash was from today and has 14 leading zeroes. Let's compare that to what was needed 3 years ago with block 100 which has 8 leading zeros.
So at the end of the day, all a miner does is:
Mining provides a way to reach consensus on what the transaction ledger should look like and know that nobody is cheating.
That's the non-technical definition of mining.
The "authority" for double spending is the blockchain. The blockchain consists of the history of all blocks in the blockchain plus the next block of transactions. The reward subsidy currently is 25 BTC to the party that submits the next block. But hey ...you would like that 25 BTC (worth currently about $825) as would I as would everyone else. So how do you make it so that I can't cheat and claim the block myself?
Well, you put in a system that you and I have to compete. That's what the proof of work does -- it makes it so that when I claim the reward it is easy to prove that I really did the work involved. So for me to have a 2% chance of solving a block I need to put in 2% of of the mining work. There's no way for me to put in less than 2% of all the work and still solve blocks at least 2% of the time (on average).
Thus as a result, when a transaction block is submitted, all the peers verify that there were no double spends, that the right amount of subsidy was claimed, and that the submitter truly expended the work necessary for that solution. With those three rules, then there doesn't not need to be a central authority managing the process or able to control the outcome.
They try to find a random nonce (a little random data) that goes into a block and makes the block have a (SHA256) hash that (in binary) starts with a certain amount of 0's. The more zeroes the more rare hash is. A good hash' outcome is not predictable, and so you have to try a lot of times to find a good nonce.
The amount of zeroes are based on how difficult it is supposed to be to find a block. In Bitcoin it adjusts to have a new block every 10 minutes (on average, given the rate at which previous blocks are found).
Interesting: because the hashes are unpredictable it doesn't matter how the nonce changes! Most of the time it's just a number counting upwards from 0!
protected by Community♦ Dec 5 '13 at 20:49
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