Bitcoin mining pools explained sums
The idea of an overseeing body runs completely counter to its ethos. The solution is that public ledger with records of all transactions, known as the block chain. If she indeed has the right to send that money, the transfer gets approved and entered into the ledger. Using a public ledger comes with some problems. The first is privacy. How can you make every bitcoin exchange completely transparent while keeping all bitcoin users completely anonymous? The second is security.
If the ledger is totally public, how do you prevent people from fudging it for their own gain? The ledger only keeps track of bitcoin transfers, not account balances. In a very real sense, there is no such thing as a bitcoin account.
And that keeps users anonymous. Say Alice wants to transfer one bitcoin to Bob. That transaction record is sent to every bitcoin miner—i.
Now, say Bob wants to pay Carol one bitcoin. Carol of course sets up an address and a key. And then Bob essentially takes the bitcoin Alice gave him and uses his address and key from that transfer to sign the bitcoin over to Carol:. After validating the transfer, each miner will then send a message to all of the other miners, giving her blessing.
The ledger tracks the coins, but it does not track people, at least not explicitly. The first thing that bitcoin does to secure the ledger is decentralize it.
There is no huge spreadsheet being stored on a server somewhere. There is no master document at all. Instead, the ledger is broken up into blocks: Every block includes a reference to the block that came before it, and you can follow the links backward from the most recent block to the very first block, when bitcoin creator Satoshi Nakamoto conjured the first bitcoins into existence.
Every 10 minutes miners add a new block, growing the chain like an expanding pearl necklace. Generally speaking, every bitcoin miner has a copy of the entire block chain on her computer. If she shuts her computer down and stops mining for a while, when she starts back up, her machine will send a message to other miners requesting the blocks that were created in her absence.
No one person or computer has responsibility for these block chain updates; no miner has special status. The updates, like the authentication of new blocks, are provided by the network of bitcoin miners at large.
Bitcoin also relies on cryptography. The computational problem is different for every block in the chain, and it involves a particular kind of algorithm called a hash function.
Like any function, a cryptographic hash function takes an input—a string of numbers and letters—and produces an output. But there are three things that set cryptographic hash functions apart:. The hash function that bitcoin relies on—called SHA, and developed by the US National Security Agency—always produces a string that is 64 characters long. You could run your name through that hash function, or the entire King James Bible.
Think of it like mixing paint. If you substitute light pink paint for regular pink paint in the example above, the result is still going to be pretty much the same purple , just a little lighter. But with hashes, a slight variation in the input results in a completely different output:. The proof-of-work problem that miners have to solve involves taking a hash of the contents of the block that they are working on—all of the transactions, some meta-data like a timestamp , and the reference to the previous block—plus a random number called a nonce.
Their goal is to find a hash that has at least a certain number of leading zeroes. That constraint is what makes the problem more or less difficult. More leading zeroes means fewer possible solutions, and more time required to solve the problem.
Every 2, blocks roughly two weeks , that difficulty is reset. If it took miners less than 10 minutes on average to solve those 2, blocks, then the difficulty is automatically increased. If it took longer, then the difficulty is decreased. The next section deals with Shares. When you start running a Bitcoin mining process, you will probably be aware of your Hash Rate. This is the number of Hashes your Bitcoin mining hardware is generating per second.
When you participate in a mining pool, and you see your hardware generating lets say 5, Ghps, this does not mean that you are submitting 5, Ghps to the Bitcoin network, via the Master Node. If that were the case, and all the pool members were doing the same, the Master Node that controls the pool would simply explode. Instead, the Master Node that controls the pool acts as a proxy between the pool members and the main Bitcoin network. For this to work, the Master Node has to ensure both that the members are supplying enough Hashes for the Master Node to be able to compete on the main Bitcoin mining network, and that the allocation of any Bitcoin mined is divided proportionately according to the amount of compute effort supplied by the individual members.
To do this, the Master Node observes the Hash Rate of each of the members, and distributes computational challenges to them that all have a slightly lower Difficulty rating than the Difficultly rating of the current Block Target lets call this the Proxy Target.
If a Hash that is lower than the Proxy Target is not found within the allotted time, the member completes the work anyway before moving on to the next computational challenge distributed by the Master Node. In reality however, and over time, the gap should be consistent between across all members, as the master node will adjust the Difficultly of the computational challenges based on the Hash Rate of the member, which can change over time. If the Master Node were sending computational challenges to members that had a Difficulty rating that was equal to the Difficulty rating of the current Target in the Blockchain, the Master Node would just be sitting there idlly for days on end waiting for one of the members to come up with the necessary Hash to create the new Block.
The Master Node would have no knowledge of what effort the other members contributed, and would have no option but to award the full reward to the successful member, even if that member only contributed 0. Instead, the Master Node lowers the bar on the Difficulty rating relative to the actual difficulty rating of the current Block so that it receives lots of Hashes from the members.
All but one of these Hashes will be lower than the current Blockchain target, but at least now the Master Node can confirm that its members are working, and at what rate they are working. It can then use that information to both regulate the traffic received from the members and proportionately divide any rewards. Additionally, it can ensure that more powerful members, whose submissions are rate-limited to allow submissions from less powerful members, are not discriminated against.
Other pools use variations of this methodology, but all follow the general principle that the Master Node is a proxy to the main Bitcoin network, that members must prove to the Master Node that they are working and that rewards are allocated based on the amount of work done.
A brief note about payment methodologies is also warranted. In the PPS model, you get a payment for each Share you contribute regardless of the success or failure of the mining pool. This makes for more irregular income, but allows you to benefit when the pool has a lucky streak. Educate yourself read more about digital currency updates and mining news.
You may use these HTML tags and attributes: Where the complexity arises is in the regulation of the network, for instance: How do you know how much effort was contributed by each member? How do you prove that individual members are actually working?