From a3daf44a572b83301395af8d6d396fca812b8c9d Mon Sep 17 00:00:00 2001 From: "Minh T. Nguyen" Date: Sun, 10 Aug 2014 22:21:15 -0700 Subject: [PATCH] Undoing or fixing some of the proposed changes from Issue #90 --- ch08.asciidoc | 10 +++++----- 1 file changed, 5 insertions(+), 5 deletions(-) diff --git a/ch08.asciidoc b/ch08.asciidoc index 65cd96a2..f8713183 100644 --- a/ch08.asciidoc +++ b/ch08.asciidoc @@ -28,7 +28,7 @@ The finite and diminishing issuance creates a fixed monetary supply that resists The most important and debated consequence of a fixed and diminishing monetary issuance is that the currency will tend to be inherently _deflationary_. Deflation is the phenomenon of appreciation of value due to a mismatch in supply and demand that drives up the value (and exchange rate) of a currency. The opposite of inflation, price deflation means that the money has more purchasing power over time. -Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation, people will tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade", when a complete collapse of demand pushed the currency into a deflationary spiral. +Many economists argue that a deflationary economy is a disaster that should be avoided at all costs. That is because in a period of rapid deflation people will tend to hoard money instead of spending it, hoping that prices will fall. Such a phenomenon unfolded during Japan's "Lost Decade", when a complete collapse of demand pushed the currency into a deflationary spiral. Bitcoin experts argue that deflation is not bad *per se*. Rather, deflation is associated with a collapse in demand because that is the only example of deflation we have to study. In a fiat currency with the possibility of unlimited printing, it is very difficult to enter a deflationary spiral unless there is a complete collapse in demand and an unwillingness to print money. Deflation in bitcoin is not caused by a collapse in demand, but by a predictably constrained supply. @@ -515,7 +515,7 @@ Hashing Power: 127141 hashes per second As you can see, increasing the difficulty by 1 bit causes an exponential increase in the time it takes to find a solution. If you think of the entire 256-bit number space, each time you constrain one more bit to zero, you decrease the search space by half. In the example above, it takes 84 million hash attempts to find a nonce that produces a hash with 26 leading bits as zero. Even at a speed of more than 120 thousand hashes per second, it still requires ten minutes on a consumer laptop to find this solution. -At the time of writing this, the network is attempting to find a block whose header hash is less than +000000000000004c296e6376db3a241271f43fd3f5de7ba18986e517a243baa7+. As you can see, there are a lot of zeroes at the beginning of that hash, meaning that the acceptable range of hashes is much smaller, hence more difficult to find a valid hash. It will take on average more then 150 quadrillion hash calculations per second for the network to discover the next block. That seems like an impossible task, but fortunately the network is bringing 100 Peta Hashes per second of processing power to bear, which will be able to find a block in about 10 minutes on average. +At the time of writing this, the network is attempting to find a block whose header hash is less than +000000000000004c296e6376db3a241271f43fd3f5de7ba18986e517a243baa7+. As you can see, there are a lot of zeroes at the beginning of that hash, meaning that the acceptable range of hashes is much smaller, hence more difficult to find a valid hash. It will take on average more than 150 quadrillion hash calculations per second for the network to discover the next block. That seems like an impossible task, but fortunately the network is bringing 100 Peta Hashes per second of processing power to bear, which will be able to find a block in about 10 minutes on average. ==== Difficulty Representation @@ -551,7 +551,7 @@ As we saw above the target determines the difficulty and therefore affects how l Bitcoin's blocks are generated every 10 minutes, on average. This is bitcoin's heartbeat and underpins the frequency of currency issuance and the speed of transaction settlement. It has to remain constant not just over the short term, but over a period of many decades. Over this time, it is expected that computer power will continue to increase at a rapid pace. Furthermore, the number of participants in mining and the computers they use will also constantly change. To keep the block generation time at 10 minutes, the difficulty of mining must be adjusted to account for these changes. In fact, difficulty is a dynamic parameter that will be periodically adjusted to meet a 10-minute block target. In simple terms, the difficulty target is set to whatever mining power will result in a 10-minute block interval. -How then is such an adjustment made in a completely de-centralized network? Difficulty re-targeting occurs automatically and on every full node independently. Every 2016 blocks, all nodes re-target the Proof-of-Work difficulty. The equation for retargeting difficulty, measures the time it took to find the last 2016 blocks and compares that to the expected time of 20160 minutes (two weeks based upon a desired 10 minute block time). The ratio between the actual timespan and desired timespan is calculated and a corresponding adjustment (up or down) is made to the difficulty. In simple terms: If the network is finding blocks faster than every 10 minutes, the difficulty increases. If block discovery is slower than expected, the difficulty decreases. +How then is such an adjustment made in a completely de-centralized network? Difficulty re-targeting occurs automatically and on every full node independently. Every 2016 blocks, all nodes re-target the Proof-of-Work difficulty. The equation for retargeting difficulty measures the time it took to find the last 2016 blocks and compares that to the expected time of 20160 minutes (two weeks based upon a desired 10 minute block time). The ratio between the actual timespan and desired timespan is calculated and a corresponding adjustment (up or down) is made to the difficulty. In simple terms: If the network is finding blocks faster than every 10 minutes, the difficulty increases. If block discovery is slower than expected, the difficulty decreases. The equation can be summarized as: @@ -735,13 +735,13 @@ Let's look at a specific example. Assume a miner has purchased mining hardware w Mining pools coordinate many hundreds or thousands of miners, over specialized pool mining protocols. The individual miners configure their mining equipment to connect to a pool server, after creating an account with the pool. Their mining hardware remains connected to the pool server while mining, synchronizing their efforts with the other miners. Thus, the pool miners share the effort to mine a block and then share in the rewards. -Successful blocks pay the reward to a pool bitcoin address, rather than individual miners. The pool server will periodically make payments to the miners bitcoin addresses, once their share of the rewards has reached a certain threshold. Typically, the pool server charges a percentage fee of the rewards for providing the pool mining service. +Successful blocks pay the reward to a pool bitcoin address, rather than individual miners. The pool server will periodically make payments to the miners' bitcoin addresses, once their share of the rewards has reached a certain threshold. Typically, the pool server charges a percentage fee of the rewards for providing the pool mining service. Miners participating in a pool, split the work of searching for a solution to a candidate block, earning "shares" for their mining contribution. The mining pool sets a lower difficulty target for earning a share, typically more than 1,000 times easier than the bitcoin network's difficulty. When someone in the pool successfully mines a block, the reward is earned by the pool and then shared with all miners in proportion to the number of shares they contributed to the effort. Pools are open to any miner, big or small, professional or amateur. A pool will therefore have some participants with a single small mining machine, others with a garage-full of high-end mining hardware. Some will be mining with a few tens of a kilowatt of electricity, others will be running a data center consuming a megawatt of power. How does a mining pool measure the individual contributions, so as to fairly distribute the rewards, without the possibility of cheating? The answer is to use bitcoin's Proof-of-Work algorithm to measure each pool miner's contribution, but set at a lower difficulty so that even the smallest pool miners win a share frequently enough to make it worthwhile to contribute to the pool. By setting a lower difficulty for earning shares, the pool measures the amount of work done by each miner. Each time a pool miner finds a block header hash that is less than the pool difficulty, they prove they have done the hashing work to find that result. More importantly, the work to find shares contributes, in a statistically measurable way, to the overall effort to find a hash lower than the bitcoin network's target. Thousands of miners trying to find low-value hashes will eventually find one low enough to satisfy the bitcoin network target. -Let's return to the analogy of a dice game. If the dice players are throwing dice with a goal of throwing less than four (the overall network difficulty), a pool would set an easier target, counting how many times the pool players managed to throw less than eight. When a pool player throws less then eight (the pool share target), they earn shares, but they don't win the game because they don't achieve the game target (less than four). The pool players will achieve the easier pool target much more often, earning them shares very regularly, even when they don't achieve the harder target of winning the game. Every now and then, one of the pool players will throw a combined dice throw of less then four and the pool wins. Then, the earnings can be distributed to the pool players based on the shares they earned. Even though the target of eight-or-less wasn't winning, it was a fair way to measure dice throws for the players and occasionally produces a less-than-four throw. +Let's return to the analogy of a dice game. If the dice players are throwing dice with a goal of throwing less than four (the overall network difficulty), a pool would set an easier target, counting how many times the pool players managed to throw less than eight. When a pool player throws less than eight (the pool share target), they earn shares, but they don't win the game because they don't achieve the game target (less than four). The pool players will achieve the easier pool target much more often, earning them shares very regularly, even when they don't achieve the harder target of winning the game. Every now and then, one of the pool players will throw a combined dice throw of less than four and the pool wins. Then, the earnings can be distributed to the pool players based on the shares they earned. Even though the target of eight-or-less wasn't winning, it was a fair way to measure dice throws for the players and occasionally produces a less-than-four throw. Similarly, a mining pool will set a pool difficulty that will ensure that an individual pool miner can find block header hashes that are less than the pool difficulty quite often, earning shares. Every now and then, one of these attempts will produce a block header hash that is less than the bitcoin network target, making it a valid block and the whole pool wins.