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((("mining and consensus", "purpose of")))The word "mining" is somewhat misleading. By evoking the extraction of precious metals, it focuses our attention on the reward for mining, the new bitcoin created in each block. Although mining is incentivized by this reward, the primary purpose of mining is not the reward or the generation of new coins. If you view mining only as the process by which coins are created, you are mistaking the means (incentives) as the goal of the process. Mining is the mechanism that underpins the decentralized clearinghouse, by which transactions are validated and cleared. Mining is the invention that makes bitcoin special, a decentralized security mechanism that is the basis for peer-to-peer digital cash. ((("mining and consensus", "purpose of")))The word "mining" is somewhat misleading. By evoking the extraction of precious metals, it focuses our attention on the reward for mining, the new bitcoin created in each block. Although mining is incentivized by this reward, the primary purpose of mining is not the reward or the generation of new coins. If you view mining only as the process by which coins are created, you are mistaking the means (incentives) as the goal of the process. Mining is the mechanism that underpins the decentralized clearinghouse, by which transactions are validated and cleared. Mining is the invention that makes bitcoin special, a decentralized security mechanism that is the basis for peer-to-peer digital cash.
((("consensus", "achieving in absence of central authority")))((("central trusted authority")))Mining _secures the bitcoin system_ and enables the emergence of network-wide _consensus without a central authority_. The reward of newly minted coins and transaction fees is an incentive scheme that aligns the actions of miners with the security of the network, while simultaneously implementing the monetary supply. ((("mining and consensus", "decentralized consensus")))((("central trusted authority")))Mining _secures the bitcoin system_ and enables the emergence of network-wide _consensus without a central authority_. The reward of newly minted coins and transaction fees is an incentive scheme that aligns the actions of miners with the security of the network, while simultaneously implementing the monetary supply.
[TIP] [TIP]
==== ====
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Miners validate new transactions and record them on the global ledger. A new block, containing transactions that occurred since the last block, is "mined" every 10 minutes on average, thereby adding those transactions to the blockchain. Transactions that become part of a block and added to the blockchain are considered "confirmed," which allows the new owners of bitcoin to spend the bitcoin they received in those transactions. Miners validate new transactions and record them on the global ledger. A new block, containing transactions that occurred since the last block, is "mined" every 10 minutes on average, thereby adding those transactions to the blockchain. Transactions that become part of a block and added to the blockchain are considered "confirmed," which allows the new owners of bitcoin to spend the bitcoin they received in those transactions.
((("mining and consensus", "mining rewards and fees")))((("Proof-of-Work algorithm")))((("consensus", "Proof-of-Work algorithm")))Miners receive two types of rewards in return for the security provided by mining: new coins created with each new block, and transaction fees from all the transactions included in the block. To earn this reward, the miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution to the problem, called the Proof-of-Work, is included in the new block and acts as proof that the miner expended significant computing effort. The competition to solve the Proof-of-Work algorithm to earn reward and the right to record transactions on the blockchain is the basis for bitcoin's security model. ((("mining and consensus", "mining rewards and fees")))((("Proof-of-Work algorithm")))((("mining and consensus", "Proof-of-Work algorithm")))Miners receive two types of rewards in return for the security provided by mining: new coins created with each new block, and transaction fees from all the transactions included in the block. To earn this reward, the miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution to the problem, called the Proof-of-Work, is included in the new block and acts as proof that the miner expended significant computing effort. The competition to solve the Proof-of-Work algorithm to earn reward and the right to record transactions on the blockchain is the basis for bitcoin's security model.
The process is called mining because the reward (new coin generation) is designed to simulate diminishing returns, just like mining for precious metals. Bitcoin's money supply is created through mining, similar to how a central bank issues new money by printing bank notes. The maximum amount of newly created bitcoin a miner can add to a block decreases approximately every four years (or precisely every 210,000 blocks). It started at 50 bitcoin per block in January of 2009 and halved to 25 bitcoin per block in November of 2012. It halved again to 12.5 bitcoin in July 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately the year 2140, when all bitcoin (20.99999998 million) will have been issued. After 2140, no new bitcoin will be issued. The process is called mining because the reward (new coin generation) is designed to simulate diminishing returns, just like mining for precious metals. Bitcoin's money supply is created through mining, similar to how a central bank issues new money by printing bank notes. The maximum amount of newly created bitcoin a miner can add to a block decreases approximately every four years (or precisely every 210,000 blocks). It started at 50 bitcoin per block in January of 2009 and halved to 25 bitcoin per block in November of 2012. It halved again to 12.5 bitcoin in July 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately the year 2140, when all bitcoin (20.99999998 million) will have been issued. After 2140, no new bitcoin will be issued.
@ -80,11 +80,11 @@ It remains to be seen whether the deflationary aspect of the currency is a probl
=== Decentralized Consensus === Decentralized Consensus
. ((("mining and consensus", "decentralized consensus")))((("consensus", "decentralized")))((("decentralized systems", "consensus in")))In the previous chapter we looked at the blockchain, the global public ledger (list) of all transactions, which everyone in the bitcoin network accepts as the authoritative record of ownership. . ((("mining and consensus", "decentralized consensus")))((("mining and consensus", "decentralized consensus")))((("decentralized systems", "consensus in")))In the previous chapter we looked at the blockchain, the global public ledger (list) of all transactions, which everyone in the bitcoin network accepts as the authoritative record of ownership.
But how can everyone in the network agree on a single universal "truth" about who owns what, without having to trust anyone? All traditional payment systems depend on a trust model that has a central authority providing a clearinghouse service, basically verifying and clearing all transactions. Bitcoin has no central authority, yet somehow every full node has a complete copy of a public ledger that it can trust as the authoritative record. The blockchain is not created by a central authority, but is assembled independently by every node in the network. Somehow, every node in the network, acting on information transmitted across insecure network connections, can arrive at the same conclusion and assemble a copy of the same public ledger as everyone else. This chapter examines the process by which the bitcoin network achieves global consensus without central authority. But how can everyone in the network agree on a single universal "truth" about who owns what, without having to trust anyone? All traditional payment systems depend on a trust model that has a central authority providing a clearinghouse service, basically verifying and clearing all transactions. Bitcoin has no central authority, yet somehow every full node has a complete copy of a public ledger that it can trust as the authoritative record. The blockchain is not created by a central authority, but is assembled independently by every node in the network. Somehow, every node in the network, acting on information transmitted across insecure network connections, can arrive at the same conclusion and assemble a copy of the same public ledger as everyone else. This chapter examines the process by which the bitcoin network achieves global consensus without central authority.
((("emergent consensus")))((("consensus", "emergent consensus")))Satoshi Nakamoto's main invention is the decentralized mechanism for _emergent consensus_. Emergent, because consensus is not achieved explicitly—there is no election or fixed moment when consensus occurs. Instead, consensus is an emergent artifact of the asynchronous interaction of thousands of independent nodes, all following simple rules. All the properties of bitcoin, including currency, transactions, payments, and the security model that does not depend on central authority or trust, derive from this invention. ((("emergent consensus")))((("mining and consensus", "emergent consensus")))Satoshi Nakamoto's main invention is the decentralized mechanism for _emergent consensus_. Emergent, because consensus is not achieved explicitly—there is no election or fixed moment when consensus occurs. Instead, consensus is an emergent artifact of the asynchronous interaction of thousands of independent nodes, all following simple rules. All the properties of bitcoin, including currency, transactions, payments, and the security model that does not depend on central authority or trust, derive from this invention.
Bitcoin's decentralized consensus emerges from the interplay of four processes that occur independently on nodes across the network: Bitcoin's decentralized consensus emerges from the interplay of four processes that occur independently on nodes across the network:
@ -143,7 +143,7 @@ Jing's mining node maintains a local copy of the blockchain. By the time Alice b
During the previous 10 minutes, while Jing's node was searching for a solution to block 277,315, it was also collecting transactions in preparation for the next block. By now it has collected a few hundred transactions in the memory pool. Upon receiving block 277,315 and validating it, Jing's node will also compare it against all the transactions in the memory pool and remove any that were included in block 277,315. Whatever transactions remain in the memory pool are unconfirmed and are waiting to be recorded in a new block. During the previous 10 minutes, while Jing's node was searching for a solution to block 277,315, it was also collecting transactions in preparation for the next block. By now it has collected a few hundred transactions in the memory pool. Upon receiving block 277,315 and validating it, Jing's node will also compare it against all the transactions in the memory pool and remove any that were included in block 277,315. Whatever transactions remain in the memory pool are unconfirmed and are waiting to be recorded in a new block.
((("Proof-of-Work algorithm")))((("consensus", "Proof-of-Work algorithm")))Jing's node immediately constructs a new empty block, a candidate for block 277,316. This block is called a _candidate block_ because it is not yet a valid block, as it does not contain a valid Proof-of-Work. The block becomes valid only if the miner succeeds in finding a solution to the Proof-of-Work algorithm. ((("Proof-of-Work algorithm")))((("mining and consensus", "Proof-of-Work algorithm")))Jing's node immediately constructs a new empty block, a candidate for block 277,316. This block is called a _candidate block_ because it is not yet a valid block, as it does not contain a valid Proof-of-Work. The block becomes valid only if the miner succeeds in finding a solution to the Proof-of-Work algorithm.
When Jing's node aggregates all the transactions from the memory pool, the new candidate block has 418 transactions with total transaction fees of 0.09094928 bitcoin. You can see this block in the blockchain using the Bitcoin Core client command-line interface, as shown in <<block277316>>. When Jing's node aggregates all the transactions from the memory pool, the new candidate block has 418 transactions with total transaction fees of 0.09094928 bitcoin. You can see this block in the blockchain using the Bitcoin Core client command-line interface, as shown in <<block277316>>.
@ -416,7 +416,7 @@ With all the other fields filled, the block header is now complete and the proce
==== Proof-of-Work Algorithm ==== Proof-of-Work Algorithm
((("mining and consensus", "mining the block", "Proof-of-Work algorithm")))((("Proof-of-Work algorithm", id="proof10")))((("consensus", "Proof-of-Work algorithm", id="Cproof10")))A hash algorithm takes an arbitrary-length data input and produces a fixed-length deterministic result, a digital fingerprint of the input. For any specific input, the resulting hash will always be the same and can be easily calculated and verified by anyone implementing the same hash algorithm. ((("collisions")))The key characteristic of a cryptographic hash algorithm is that it is computationally infeasible to find two different inputs that produce the same fingerprint (known as a _collision_). As a corollary, it is also virtually impossible to select an input in such a way as to produce a desired fingerprint, other than trying random inputs. ((("mining and consensus", "mining the block", "Proof-of-Work algorithm")))((("Proof-of-Work algorithm", id="proof10")))((("mining and consensus", "Proof-of-Work algorithm", id="Cproof10")))A hash algorithm takes an arbitrary-length data input and produces a fixed-length deterministic result, a digital fingerprint of the input. For any specific input, the resulting hash will always be the same and can be easily calculated and verified by anyone implementing the same hash algorithm. ((("collisions")))The key characteristic of a cryptographic hash algorithm is that it is computationally infeasible to find two different inputs that produce the same fingerprint (known as a _collision_). As a corollary, it is also virtually impossible to select an input in such a way as to produce a desired fingerprint, other than trying random inputs.
With SHA256, the output is always 256 bits long, regardless of the size of the input. In <<sha256_example1>>, we will use the Python interpreter to calculate the SHA256 hash of the phrase, "I am Satoshi Nakamoto." With SHA256, the output is always 256 bits long, regardless of the size of the input. In <<sha256_example1>>, we will use the Python interpreter to calculate the SHA256 hash of the phrase, "I am Satoshi Nakamoto."
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[[consensus_attacks]] [[consensus_attacks]]
=== Consensus Attacks === Consensus Attacks
((("mining and consensus", "consensus attacks", id="MACattack10")))((("consensus", "consensus attacks", id="Cattack10")))((("security", "consensus attacks", id="Sconsens10")))Bitcoin's consensus mechanism is, at least theoretically, vulnerable to attack by miners (or pools) that attempt to use their hashing power to dishonest or destructive ends. As we saw, the consensus mechanism depends on having a majority of the miners acting honestly out of self-interest. However, if a miner or group of miners can achieve a significant share of the mining power, they can attack the consensus mechanism so as to disrupt the security and availability of the bitcoin network. ((("mining and consensus", "consensus attacks", id="MACattack10")))((("mining and consensus", "consensus attacks", id="Cattack10")))((("security", "consensus attacks", id="Sconsens10")))Bitcoin's consensus mechanism is, at least theoretically, vulnerable to attack by miners (or pools) that attempt to use their hashing power to dishonest or destructive ends. As we saw, the consensus mechanism depends on having a majority of the miners acting honestly out of self-interest. However, if a miner or group of miners can achieve a significant share of the mining power, they can attack the consensus mechanism so as to disrupt the security and availability of the bitcoin network.
It is important to note that consensus attacks can only affect future consensus, or at best the most recent past (tens of blocks). Bitcoin's ledger becomes more and more immutable as time passes. While in theory, a fork can be achieved at any depth, in practice, the computing power needed to force a very deep fork is immense, making old blocks practically immutable. Consensus attacks also do not affect the security of the private keys and signing algorithm (ECDSA). A consensus attack cannot steal bitcoin, spend bitcoin without signatures, redirect bitcoin, or otherwise change past transactions or ownership records. ((("denial-of-service attacks")))((("security", "denial-of-service attacks")))Consensus attacks can only affect the most recent blocks and cause denial-of-service disruptions on the creation of future blocks. It is important to note that consensus attacks can only affect future consensus, or at best the most recent past (tens of blocks). Bitcoin's ledger becomes more and more immutable as time passes. While in theory, a fork can be achieved at any depth, in practice, the computing power needed to force a very deep fork is immense, making old blocks practically immutable. Consensus attacks also do not affect the security of the private keys and signing algorithm (ECDSA). A consensus attack cannot steal bitcoin, spend bitcoin without signatures, redirect bitcoin, or otherwise change past transactions or ownership records. ((("denial-of-service attacks")))((("security", "denial-of-service attacks")))Consensus attacks can only affect the most recent blocks and cause denial-of-service disruptions on the creation of future blocks.
@ -901,7 +901,7 @@ Undoubtedly, a serious consensus attack would erode confidence in bitcoin in the
[[consensus_changes]] [[consensus_changes]]
=== Changing the Consensus Rules === Changing the Consensus Rules
((("mining and consensus", "changing consensus rules", id="MACrule10")))((("consensus", "changing consensus rules", id="Crule10")))The rules of consensus determine the validity of transactions and blocks. These rules are the basis for collaboration between all bitcoin nodes and are responsible for the convergence of all local perspectives into a single consistent blockchain across the entire network. ((("mining and consensus", "changing consensus rules", id="MACrule10")))((("mining and consensus", "consensus rules", "changing", id="Crule10")))The rules of consensus determine the validity of transactions and blocks. These rules are the basis for collaboration between all bitcoin nodes and are responsible for the convergence of all local perspectives into a single consistent blockchain across the entire network.
While the consensus rules are invariable in the short term and must be consistent across all nodes, they are not invariable in the long term. In order to evolve and develop the bitcoin system, the rules have to change from time to time to accommodate new features, improvements or bug fixes. Unlike traditional software development, however, upgrades to a consensus system are much more difficult and require coordination between all the participants. While the consensus rules are invariable in the short term and must be consistent across all nodes, they are not invariable in the long term. In order to evolve and develop the bitcoin system, the rules have to change from time to time to accommodate new features, improvements or bug fixes. Unlike traditional software development, however, upgrades to a consensus system are much more difficult and require coordination between all the participants.