Most people misunderstand what bitcoin miners actually do and as a result do not fully understand the level of security provided by the bitcoin hashrate. In this article, we will explain proof of work in a non-technical way so that you can counter misinformation about supercomputers and quantum computers attacking the bitcoin network in the future.
In a nutshell, mining is a lottery to create new blocks on the bitcoin blockchain. There are two main purposes for mining:
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- permanently add transactions to the blockchain without the permission of any entity.
- fairly distribute the supply of 21 million bitcoins by rewarding miners who spend new coins real world resources (i.e. electricity) to protect the network.
To understand what is really going on in this lottery system, let’s look at a simple analogy where each bitcoin hash equals one roll of the dice.
luck, game and sha256
Imagine that the miners of the bitcoin network are all individuals who play in a casino. in this example, each of these players has a 1000-sided die. They roll their dice as fast as possible, trying to get a number less than 10. Statistically, this can take a long time, but as more players join the game, the time it takes to hit a number less than 10 reduces. In short, more players equals faster rounds.
Once someone successfully rolls a number below 10, all players at the table can look down and check the number. this lucky player takes the prize money and the next round begins.
Ultimately, the bitcoin mining process is very similar. All miners on the network use application-specific integrated circuits (ASICS), which are specialized computers designed to calculate hashes as quickly as possible. “calculating a hash” simply means plugging any random input into a mathematical function and producing an output.
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more hashes per second (i.e. higher hash rate) equates to more dice rolls per second and thus a higher probability of success. miners propose a potential bitcoin transaction block and use it as input. the block is connected to the sha256 hash function which produces a fixed-size output, known as a hash. a single hash can be computed in less than a millisecond, since it does not involve complex mathematical operations.
If the hash value is less than the bitcoin network difficulty, then the miner who proposed the block wins. if not, then the miner keeps trying by calculating more hashes. the successful miner’s block is then added to the blockchain, the miner is rewarded with newly issued bitcoin for their work, and the “next round” begins.
asics vs supercomputers
Assigning the most powerful supercomputer to mine bitcoins would be comparable to hiring a chess grandmaster to move a stack of bricks by hand. the job would get done eventually, but the chess player is much better off thinking and playing chess than exerting energy to repetitively move bricks.
Similarly, combining the computing power of the world’s most powerful supercomputers and using them to mine bitcoins would be essentially worthless compared to the asic machines in use today. Asics are designed to do one thing as quickly and efficiently as possible, while a supercomputer is designed to perform complicated tasks or math problems. since bitcoin mining is a lottery based on random trial and error rather than complex math, specialization (asics) always trumps general excellence (supercomputers).
network difficulty and 10 minute block times
Now that you understand the randomness of the miners to find a block, it is important to understand the times and difficulty of the blocks. In our betting example, imagine that anyone can join or leave the table at any time. If a person rolls a 1000-sided die trying to get less than 10, he will take an average of 10 minutes to reach that number. sometimes they arrive in 1 minute, other times they can take 30.
If a new person walks up to the table and starts rolling, it will collectively take an average of 5 minutes for someone to win the round. if 20 people come to the table, this time is significantly shortened. to keep the game interesting, we want to average a winner every 10 minutes. to do this, we can simply adjust the target of the dice. as more players come to the table, the rules will change (for example, players must now roll a number less than 5 to win) so that the average remains 10 minutes per round. As more players join, the casino makes winning more difficult. if the players leave, it makes it easier for them.
this is exactly how the bitcoin network regulates mining to maintain a constant issuance schedule of new btc. miners calculate hashes below the target difficulty every 10 minutes on average. every 2016 blocks (~2 weeks) the average of those blocks is calculated and the difficulty is adjusted so that the block times are back to 10 minutes. if more miners join the network in this ~2 week period, the hashrate and difficulty will increase as a result.
note: no one knows exactly why these arbitrary numbers were chosen. That said, it’s important that 10 minutes is enough for miners and nodes to transmit information around the world without internet speeds causing significant problems, and 2016 blocks is enough to get a statistically accurate block time needed for tuning. difficulty.
truly transparent supply
The difficulty settings described above make bitcoin the only asset with a truly fixed and known supply schedule. From the beginning, we have known two things:
- there will never be more than 21 million coins.
- every 10 minutes more bitcoins are issued as we get closer to that number of 21 million.
In every other industry—gold, automobile, even sandwich bags—supply fluctuates with demand. If the demand for automobiles increases, then the manufacturer can increase production to match the demand. In bitcoin, supply is locked in and cannot change, therefore demand and price are more closely linked than any other industry or asset class. This sounds very simple, but it becomes interesting when you try to understand what miners do with their newly minted coins and the impact this has on the market.
mining in 2021
At the time of writing this article (04/14/2021), more than 89% of the total 21 million coins have been issued. currently 6.25 btc is added to the supply each block.
On this date, the price has increased dramatically compared to the growth of the network’s hash rate. this means that the price rises faster than the mining difficulty and thus the revenue miners earn per unit of hashpower (i.e. btc/th) is increasing.
Also, there is a shortage of semiconductors making it difficult for mining manufacturers to source chips and make new asics. This combination of factors means that even older generation Asics can mine bitcoin profitably, which is great for all miners, including hobbyists and home miners who cannot easily secure competitive electricity costs. By combining this with our braiins os+ firmware, you can further increase the profitability of older asics like the antminer s9 by optimizing performance and efficiency.
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