Science 04 | The Origin of Bitcoin: Mining

How Bitcoin came about is very simple: either you mined it yourself, or someone else transferred it to you. Of course, the earliest source of the money someone else transferred to you was also from mining. So, in this issue, we will first talk about mining, which is the initial distribution of Bitcoin.

In the mining part, we mainly involve two knowledge points: hash and proof of work.

1. What is mining?

The first 50 bitcoins were obtained by Satoshi Nakamoto through mining. We often say that bitcoins are produced by mining. Mining is actually a figurative metaphor, which can be understood as solving a super difficult and complex math problem.

Because the process of solving the problem is a bit like mining mineral resources, and it also consumes a lot of electricity, the process of solving the problem is called "mining", and the people who participate in solving the problem are called "miners".

The first block of Bitcoin was created by Satoshi Nakamoto. According to the settings of the Bitcoin system, he created the first block and received 50 Bitcoins as a reward. It can be said that Satoshi Nakamoto was the first miner of Bitcoin.

According to the Bitcoin system, the number of Bitcoins is constant at 21 million, and is halved every four years. In 2009, Satoshi Nakamoto received 50 Bitcoins as a reward for mining. Now, nearly 10 years have passed, and Bitcoin has experienced two halvings, from 50 to 25, and then to 12.5. Therefore, the current reward for mining, that is, creating a block, is 12.5 Bitcoins.

Some people may ask, if Bitcoin is halved every four years, won’t the Bitcoin rewards earned by miners become less and less? What motivates them to keep mining? In fact, the rewards miners receive are not only the mining income, but also the handling fees.

When you transfer Bitcoin to someone else, you have to pay a certain fee to the miners. Of course, the fee is voluntary, you can pay as much as you want. Can you not pay? Yes, but the miners will choose to process the transactions with high fees first. If you don't pay the fee, your transaction may be put at the back.

Now, when you conduct Bitcoin transactions through a trading platform or wallet software, the handling fee ratio is a relatively reasonable fee that is automatically generated by the trading platform and wallet based on your account status. This step does not require you to perform any additional operations, so you may not feel the existence of the handling fee paid to the miners.

Is it easy for miners to get generous mining rewards and transaction fees? It is not easy, and their labor has costs. Don't underestimate their costs, which are very high, and the biggest cost is electricity.

2. Hash operation and hash value

We just said that mining is actually solving a super difficult and super complex math problem. The solution is through "hash operation", and the solution to the problem is the "hash value".

What is hashing? Simply put, hashing is to package transaction information (including all information including timestamps), "code" all this information, and perform complex calculations to obtain hash values.

Although "hash" is a cryptographic concept, we can understand it as a math function problem. However, it is slightly different from a math function problem: x and y in a math function problem are bidirectional, and y can be found if x is known, and x can be found if y is known; however, a hash function is unidirectional, and y can be found if x is known, but x cannot be found if y is known.

Why do we need to use a "hash function"? This is related to the security of the Bitcoin system. The Bitcoin system is a huge, constantly updated ledger that is open to the entire network, which involves the issue of personal information leakage.

The "one-way" nature of the hash function can ensure the privacy of the account holder's information: you know my transaction information, but you don't know who I am and can't find my information. The "one-way" nature of the hash function gives Bitcoin good anonymity, which is why Bitcoin is popular for transactions on the dark web.

Using a “hash function” to protect privacy is a good way, but the process of calculating the hash value is actually very, very difficult. Moreover, for Bitcoin, as the output of Bitcoin is halved every four years, it will become more and more difficult.

How difficult is it? There is no fixed algorithm for this hash value. It can only rely on the computer to randomly perform hash collisions. If the collision is correct, the answer is correct.

Therefore, mining requires a very high computing power of computers, that is, computing power. Mining is actually all about computing power. Some people may ask: I want to mine, but I don’t know how to calculate hashes, how can I mine? Others may wonder: Calculating hashes is obviously a mental job? Why is the biggest cost the electricity bill?

The earliest "mining" did require calculations and mental labor, but now, we no longer use computers (that is, our home computers) for mining, but instead use professional mining machines to mine. The emergence and development of professional mining machines have made up for the defect of low computing power of home computers, and also saved us mental labor, making mining very easy.

For professional mining machines, we only need a simple installation to mine. As for the process of calculating hash, the professional mining machine chip will help you complete it. Now the mainstream chip is ASIC. Antminer and Avalon mining machines on the market use ASIC chips.

Therefore, for mining, the cost you have to pay is the mining machine fee and electricity fee. You don’t even need to buy a mining machine, because there are many mining farms now, which are places dedicated to maintaining mining machines. You can rent the mining machine computing power of the mining farm to mine.

The current mainstream mining machine has a computing capacity of about 13.5T, which means it can perform 13.5 trillion calculations per second, or 13.5 trillion hash collisions per second. This number is amazing, right? It also consumes a lot of electricity, which constitutes the main cost of mining for miners.

I just checked and found that in the current market, it is difficult to make back the money after buying a mining machine for one year. Because the electricity cost is too high, many mining farms are now built in places where the electricity cost is very cheap. my country's mining farms are mainly distributed in Sichuan and Inner Mongolia.

According to the rules of the Bitcoin system, a block is added every 10 minutes. The content in the block is some transactions that have occurred in the system in the past 10 minutes, so it takes about 10 minutes for miners to mine.

In the early days, when there were no mining machines, miners needed to monitor the network at all times. Once a transaction was broadcast on the network, they needed to use their computers to perform a large number of hash operations within 10 minutes. When someone first calculated the correct hash value, he would have the right to record the transaction, that is, the right to create a block, and receive a Bitcoin reward, as well as a transaction fee reward, declaring the mining successful.

Now, with professional mining machines, mining machines can replace miners and achieve the effect of "monitoring the network at all times and doing a large number of hash calculations".

3. Proof of Work (PoW)

The entire set of hash calculation work we talked about above is called "Proof of Work", abbreviated as PoW.

Under the Proof of Work (PoW) mechanism, the entire network reaches a consensus, that is, a rule that everyone agrees on. This rule (consensus) is:

By solving the "hash function", you can prove that you have completed a certain amount of work. Whoever can complete the work quickly, accurately and ruthlessly, and solve the correct hash value, will obtain the right to record transactions (bookkeeping) and receive Bitcoin rewards.

So we say that the "Proof of Work" (PoW) mechanism means more work, more rewards, and less work, less rewards. The more work you put in, the greater the probability that you will get a Bitcoin reward. From this perspective, the "Proof of Work" (PoW) mechanism can be regarded as the incentive mechanism of the Bitcoin system.