You’ve probably heard of Bitcoin. Maybe you’ve even heard of other cryptocurrencies, like Ethereum. Maybe you’ve heard that these cryptocurrencies are mined, but maybe you don’t understand how exactly a digital coin could be mined. We’re going to discuss what cryptocurrency miners do and why they do it. We will be discussing the Bitcoin blockchain in particular, but keep in mind that Bitcoin has grown several orders of magnitude greater in the 9-10 years it’s been around. Though other cryptocurrencies change some things up a bit, the same general concepts apply to most blockchain-based cryptocurrencies.
What is Bitcoin?
Bitcoin is the first and the most well-known cryptocurrency. Bitcoin came about in 2009 after someone (or someones, nobody really knows) nicknamed Satoshi Nakamoto released a whitepaper describing a concept for a decentralized peer-to-peer digital currency based on a distributed ledger called a blockchain, and created by cryptographic computing. Okay, those are a lot of fancy words, and if you’ve ever asked someone what Bitcoin is then they’ve probably thrown the same word soup at you without much explanation, so let’s break it down a bit:
Decentralized means that the system works without a main central server, such as a bank. Think of a farmer’s market versus a supermarket; a supermarket is a centralized produce vendor whereas a farmer’s market is a decentralized produce vendor.
Peer-to-peer means that the system works by each user communicating directly with other user. It’s like talking to someone face-to-face instead of messaging them through a middleman like Facebook. If you’ve ever used BitTorrent (to download Linux distributions and public-domain copies of the U.S. Constitution, of course), you’ve been a peer on a peer-to-peer BitTorrent network.
Blockchain is a hot topic right now, but it’s one of the harder concepts to describe. A blockchain performs the job of a ledger at a bank, keeping track of what transactions occurred. What makes blockchain a big deal is that it’s decentralized, meaning that you don’t have to trust a central authority with the list of transactions. Blockchains were first described in Nakamoto’s Bitcoin whitepaper, but Bitcoin itself is not equivalent to blockchain. Bitcoin uses a blockchain. A blockchain is made up of a chain of blocks. Each block contains a set of transactions, and the hash of the previous block, thus chaining them together.
Hashing is the one-way (irreversible) process of converting any input into a string of bits. Hashing is useful in computer science and cryptography because it’s really easy to get the hash of something, but it’s almost impossible to find out what input originally made a particular hash. Any input will always have the same output, but any little difference will make a completely different hash. For example, in the hashing algorithm that Bitcoin uses called SHA-256, “UMass” will always be:
but “UMasss” will be completely different:
In this 64-character string, each character represents 4 bits. This hash can also be represented as 256 binary bits:
Those are the general details that you need to know to understand cryptocurrency. Miners are just one kind of participant in cryptocurrency.
Who are miners?
Anybody with a Bitcoin wallet address can participate in the blockchain, but not everybody who participates has to mine. Miners are the ones with the big, beefy computers that run the blockchain network. Miners run a mining program on their computer. The program connects to other miners on the network and constantly requests the current state of the blockchain. The miners all race against each other to make a new block to add to the blockchain. When a miner successfully makes a new block, they broadcast it to the other miners in the network. The winning miner gets a reward of 12.5 BTC for successfully adding to the blockchain, and the miners begin the race again.
Okay, so what are the miners doing?
Miners can’t just add blocks to the blockchain whenever they want. This is where the difficulty of cryptocurrency mining comes from. Miners construct candidate blocks and hash them. They compare that hash against a target.
Now get ready for a little bit of math: Remember those 256-bit hashes we talked about? They’re a big deal because there are 2^256 possible hashes (that’s a LOT!), ranging from all 0’s to all 1’s. The Bitcoin network has a difficulty value that changes over time to make finding a valid block easier or harder. Every time a miner hashes a candidate block, they look at the binary value of the hash, and in particular, how many 0s the hash starts with. When a candidate block fails to meet the target, as they often do, the miner program tries to construct a different block. If the number of 0’s at the start of the hash is at least the target amount specified by the difficulty, then the block is valid!
Remember that changing the block in any way makes a completely different hash, so a block with a hash one 0 short of the target isn’t any closer to being valid than another block with a hash a hundred 0’s short of the target. The unpredictability of hashes makes mining similar to a lottery. Every candidate block has as good of a chance of having a valid hash as any other block. However, if you have more computer power, you have better odds of finding a valid block. In one 10 minute period, a supercomputer will be able to hash more blocks than a laptop. This is similar to a lottery; any lottery ticket has the same odds of winning as another ticket, but having more tickets increases your odds of winning.
Can I become a miner?
You probably won’t be able to productively mine Bitcoin alone. It’s like buying 1 lottery ticket when other people are buying millions. Nowadays, most Bitcoin miners pool their mining power together into mining pools. They mine Bitcoin together to increase the chances that one of them finds the next block, and if one of the miners gets the 12.5 BTC reward, they split their earnings with the rest of the pool pro-rata: based on the computing power (number of lottery tickets) contributed.
The U.S. dollar used to be tied to the supply of gold. A U.S. dollar bill was essentially an I.O.U. from the U.S. Federal Reserve for some amount of gold, and you could exchange paper currency for gold at any time. The gold standard was valuable because gold is rare and you have to mine for it in a quarry. Instead of laboring by digging in the quarries, Bitcoin miners labor by calculating hashes. Nobody can make fraudulent gold out of thin air. Bitcoin employs the same rules, but instead of making the scarce resource gold, they made it computer power. It’s possible for a Bitcoin miner to get improbably lucky and find 8 valid blocks in one day and earn 100 BTC, just like it’s possible but improbable to find a massive golden boulder while mining underground one day. These things are effectively impossible, but it is actually impossible for someone to fake a block on the blockchain (The hash would be invalid!) or to fake a golden nugget. (You can chemically detect fool’s gold!)
Other cryptocurrencies work in different ways. Some use different hashing algorithms. For example, Zcash is based on a mining algorithm called Equihash that is designed to be best mined by the kinds of graphics cards found in gaming computers. Some blockchains aren’t mined at all. Ripple is a coin whose cryptocurrency “token” XRP is mostly controlled by the company itself. All possible XRP tokens already exist and new ones cannot be “minted” into existence, unlike the 12.5 BTC mining reward in Bitcoin, and most XRP tokens are still owned by the Ripple company. Some coins, such as NEO, are not even made valuable by scarcity of mining power at all. Instead of using “proof of work” like Bitcoin, they use “proof of stake” to validate ownership. You get paid for simply having some NEO, and the more you have, the more you get!
Blockchains and cryptocurrencies are have become popular buzzwords in the ever-connected worlds of computer science and finance. Blockchain is a creative new application of cryptography, computer networking, and processing power. It’s so new that people are still figuring out what else blockchains can be applied to. Digital currency seems to be the current trend, but blockchains could one day revolutionize health care record-keeping or digital elections. Research into blockchain technology has highlighted many weaknesses in the concept; papers have been published on doublespend attacks, selfish mining attacks, eclipse attacks, Sybil attacks, etc. Yet the technology still has great potential. Cryptocurrency mining has already brought up concerns over environmental impact (mining uses a lot of electricity!) and hardware costs (graphics card prices have increased dramatically!), but mining is nevertheless an engaging, fun and potentially profitable way to get involved in the newest technology to change the world.