Author: Dr. Liew

According to Wikipedia(2019), A Proof-of-Work (PoW) system is an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. This protocol is adopted by the Bitcoin to enhance the security of the Bitcoin network.

In order to hack the Bitcoin network, the attacker needs to take over 51% of the nodes. However, it is almost impossible to achieve this task as it requires a tremendous amount of computational power and astronomical cost. Proof of work is attained via an activity called mining in Bitcoin and other cryptocurrencies.

Mining involves the process of producing a hash whose value is less than the target value. When this hash has been found, it is called a valid hash and hence proof of work is achieved.

The mining algorithm uses a counter known as the nonce to generate the hash using the SHA256 cryptographic function. A hash algorithm always produces the same arbitrary length data given the same inputs. It is impossible to compute the same hash with two different inputs. It is also impossible to predict the output of any given data in advance. The other important value in proof-of-work is difficulty. Difficulty is a measure of how difficult it is to find a hash below a given target. 

The value of nonce is initialized to 0. Mining is finding the nonce, the only input that changes every time we run the hash function. The goal is to find a value for the nonce that will result in the hash lower than the current target. The formula to compute the current target is

Current target= maximum target ÷ difficulty

Therefore, the mining node might need to try billions or trillions of nonce values before it gets a valid hash. As you can see, mining is like playing the slot machine, there is no way to predict when can you strike a jackpot.

It is very easy to prove that the nonce found indeed produces a valid hash. All the information are available, everyone in the network can run the hash function and confirm if the hash is valid or not. Because it is also impossible to predict what the nonce will be, it also acts as a proof that the miner has indeed achieved Proof-of-Work.

Calculation of the Valid Hash

(The numbers are based on block #540909)

The formula to calculate the current target of the block is

Current target= maximum target ÷ difficulty

Maximum target is set to 

0x00000000FFFF0000000000000000000000000000000000000000000000000000

This is a hexadecimal number. After conversion to a decimal number 

Maximum target= 

26959946667150639794667015087019630673637144422540572481103610249215

Difficulty is (as given in the block)

7019199231177.17

Therefore,
Current target=

(26959946667150639794667015087019630673637144422540572481103610249215)÷7019199231177.17

= 3.84089×10⁵⁴

The hash of the block is

00000000000000000000ef17668e407e78c5a247f731b1138ad16f5bf79f1c0d

After converted to a decimal number, the value is as follows:

89454716205495239548871016846060264708718561584946189

The hash value is approximately   8.95×10⁵¹

Clearly, the hash value is less than the current target, therefore it is a valid hash.

You can view mining simulation by clicking the following link:

http://javascript-tutor.net/jSample/mining.html

In this article, let’s examine the technical aspects of crypto mining. In the blockchain, every block has a previous block except the very first block or the genesis block. Miners are competing to validate a new block by solving a complex mathematical puzzle. To explain in details, let’s take a look at the latest bitcoin mined block, block #540909 at the time of writing this article.

Notice that the block height is 540909, which means there are 540909 blocks in the bitcoin blockchain.

Let’s call the successful miner for this block Mr.John. Before John successfully mines block #540909, he was actually competing with other miners in mining the previous block #540908. However, he lost in the contest and block #540908 was mined by a fellow miner. As soon as block #540908 was mined, he needs to quickly update his blockchain and starts mining for a new unvalidated block, known as the candidate block.

In actual fact, while John’s computer(also known as a node)  was searching for the Proof of Work for the previous block, it was also searching for new transactions. Those new transactions are added to the memory pool or transaction pool.  The memory pool is a node’s temporary storage area for transaction data. This is where transactions wait until they can be included in a new block and validated.

In constructing the candidate block, John’s node starts gathering the transactions in the transaction pool. It removes the transactions already present in the previous block if there are any. The block is called a candidate block because it doesn’t have a valid Proof of Work yet.

As you can see that block #540909 has 1696  transactions inside it. This was the number of transactions present in John’s transaction pool when he created his candidate block. The mining process can be illustrated in the following figure.

In the mining process, John’s node is creating a coinbase transaction. This transaction is to create some bitcoins and deposit them into John’s wallet as a reward for finding a valid Proof of Work. This transaction is different from the other ones because the bitcoins in the reward are created out of nothing. They do not come from someone’s wallet. Besides that, John’s node also calculates the transaction fees in the block.

John reward by mining this block is as follows;

Total Reward =  Reward for mining block + transactions fee

                    = 12.5 BTC+0.15289664 BTC

                   = 12.65289664 BTC

The details of the transaction is as follows:

You can see the No Inputs (Newly Generated Coins) statement. It is because coinbase transactions do not come from anyone’s wallet, so they cannot have any inputs. You only have the winning miner’s wallet address here