Arun Manglick - Blockchain & Bitcoin: December 2017

What is BitCoin Mining:

People send bitcoins to each other over the bitcoin network all the time, but unless someone (Data Miner's) keeps a record of all these transactions, no-one would be able to keep track of who had paid what.
The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a BLOCK.
Now it’s data miners’ job to confirm those transactions, and write them into a general ledger (A long list of blocks, known as the 'BLOCKCHAIN).

Thus Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions or blockchain.
OR Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain.
Or Bitcoin mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.

The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.
The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.

Anyone with access to the internet and suitable software & hardware (if you are not using pool) can participate in mining.

Standard Bitcoin Client - This enables to connect your computer to the network and enables it to interact with the bitcoin clients. (https://bitcoin.org/en/download)
Bitcoin Mining Software - This is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve.

What is BitCoin Mining Process:

People send bitcoins to each other over the bitcoin network all the time.
The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a BLOCK.
These transactions/blocks are then confirmed and written to a general ledger.
This general ledger (used to explore any transaction made between any bitcoin addresses) is a long list of blocks, known as the 'blockchain'.
Whenever a new block of transactions is created, it is added to the blockchain, creating an increasingly lengthy list of all the transactions.
A constantly updated copy of the block is shared with everyone who participates, so that they know what is going on.

But this general ledger has to be trusted and ensure that blockchain stays intact, and is never tampered with... This is where the MINERS come in picture.

Check this - Link
It’s Miners job to record & confirm those transactions (otherwise no-one would be able to keep track of who had paid what), and write them into a general ledger (A long list of blocks, known as the 'BLOCKCHAIN).
Process:

When a block of transactions is created, miners put it through a process.
They take the information in the block, and apply a mathematical formula to it, turning it into something else.
That something else is a far shorter, seemingly random sequence of letters and numbers known as a HASH.
This hash is stored along with the block, at the end of the blockchain at that point in time.

Miners don’t just use the transactions in a block to generate a hash. Some other pieces of data are used too.
One of these pieces of data is the hash of the last block stored in the blockchain.

Because each block’s hash is produced using the hash of the block before it, it becomes a digital version of a wax seal. It confirms that this block – and every block after it – is legitimate.
I.e. Because each block’s hash is used to help produce the hash of the next block in the chain, tampering with a block would also make the subsequent block’s hash wrong too.
That would continue all the way down the chain, throwing everything out of whack.

BitCoin Mining Competetion:

As discussed above: Miners 'seal off’ a block by recording/creating transation and creating hash/attaching block to BlockChain (General Ledger)
Well in this process -

Multiple Miners compete with each other to do this, using software written specifically to mine blocks.
Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it.
That’s the incentive to keep mining, and keep the transactions working.

This hashing process is the competing factor here. Whosoever creates fast, wins the incentive.

The bitcoin protocol deliberately makes hashing process more difficult, by introducing something called ‘proof of work’.
The bitcoin protocol won’t just accept any old hash. It demands that a block’s hash has to look a certain way; it must have a certain number of zeroes at the start.

Miners aren’t supposed to meddle with the transaction data in a block, but they must change the data they’re using to create a different hash.
They do this using another, random piece of data called a ‘nonce’. This is used with the transaction data to create a hash.
If the hash doesn’t fit the required format, the nonce is changed, and the whole thing is hashed again.
It can take many attempts to find a nonce that works, and all the miners in the network are trying to do it at the same time.
That’s how miners earn their bitcoins.

Mining Hardware - Bitcoin Mining Hardware (Three Categries)

By this stage, you will understand how bitcoin works, and what mining means.
Now you need to set up a bitcoin mining hardware and start generating some digital cash.
There are two main things to think about h/w when choosing it:

Hashing Rate - MHash/sec, GHash/sec, and THash/sec - Higher your hash rate, more likely you are to solve a transaction block.
Energy Consumption

CPU - Least powerful category of bitcoin mining hardware is your computer.
GPU - Enhance Bitcoin Hash Rate. You can buy from two main vendors: ATI and Nvidia

Is an integrated circuit designed to be configured after being built.
This enables a mining hardware manufacturer to buy the chips in volume, and then customize them for bitcoin mining before putting them into their own equipment.
Range: 750 Megahashes/sec

ASIC Bitcoin Miners (Application Specific Integrated Circuits)
This is where the action’s really at.
They are specifically designed to do just one thing: mine bitcoins at mind-crushing speeds, with relatively low power consumption.
Range 5-500 GHash/sec

Mining Software

Depending on which equipment you choose, you will need to run software to make use of it.
Typically when using GPUs and FPGAs, you will need a host computer running two things:

Standard Bitcoin Client - This enables to connect your computer to the network and enables it to interact with the bitcoin clients. (https://bitcoin.org/en/download)
Bitcoin Mining Software - This is what instructs the hardware to do the hard work, passing through transaction blocks for it to solve.

Bitcoin Mining Pools

Important ques.. anyone interested in mining cryptocurrencies faces is whether to mine SOLO or join a 'POOL'.
There are a multitude of reasons both for and against mining pools.
Pool is always good for high hash rate distribution but you have to share the benefit.
Going solo means you won’t have to share the reward, but your odds of getting a reward are significantly decreased.
List of Mining Pools: https://www.litecoinpool.org/pools

Ref:

Ref: Mining Profitability Calculator

Hope this helps.

Arun Manglick

Friday, December 22, 2017