02_Mining

Question 1

What do we need mining for?

Answer 1

• solve double spending problem
• not everyone gets information at the same
• ther is no single point of truth -> voting is required
• sybil attacks -> one vote per identiy not possible because on user could make many identities

Question 2

NP vs P-Problem

NP-hard Problem

Answer 2

Polynomial Time (P-Problem)
- problems can be solved relatively quickly by a computer

Nondeterministic Polynomial Time (NP-Problem)
- problems for which a soluction can be checked quickly

NP-hard Problem
- computing a cryptographic hash that matches specific format is an NP-Hard problem (moderately hard but not intractable)
- checking if the result matches the required fromat is trivial

Question 3

Hashing Difficulty

Answer 3

• has has to be smaller than 2^224 / difficulty
• the more miners with high has rates the higher the difficulty level will be

Question 4

Adjustments of difficulty

Answer 4

• to maintain network stability, mining difficulty is periodically adjusted based on total network hash rate
• adjustment ensure that average time between block remains relatively constant
• every block is rewarded with token
• frequency of blocks being generated need to be regulated to control currency supply
• this is done every 2016 block roughly every 2 weeks

Question 5

New difficulty

Answer 5

= current difficulty / (time taken for last 2016 blocks / 2 weeks)

Question 6

Inflation

Answer 6

• negligble after the first 20 years or so

Question 7

Hash Rate

Answer 7

• # of hash calculations per sencond performed by miners
• mining difficulty ensures consistent block production rate

Question 8

Target difficulty
+
Average Block Time

Answer 8

• 2 weeks for 2016 blocks
• block times are less than 600 seconds on average

Question 9

Mining Pools

Answer 9

• single miner would find block every 38 years
• miners construct blocks at lower difficulty and submit those as proof of work
• when one miner finds block, hashrate statistics of all miners on the pool are used to calculate fair payout

Question 10

Pros of Mining Pools

Answer 10

• miners get consistent rewards
• miners don’t need to run a node

Question 11

Cons of Mining Pools

Answer 11

• pools must be trusted with the fair distribution of coins
• miners can’t choose which transactions they are mining (MARA pool…)

Question 12

Evolution of Minign hardware in context of difficulty over time

Answer 12

-** shift from CPU to GPU coincides with higher difficulty** and emergence of mining pools
- emergence of FPGA and ASICs revolutionary in 2013 (higher speed with lower energy consumption: 0,01% of CPU and 0,2% of GPU consumption)

Question 13

Evolution of Mining Farms

Answer 13

• Home Mining
• Garage Mining
• Hangar Farms
• Custom Buildings
• Single-Phase Immersion Cooling

(Mining vs Node distribution)

Question 14

Mining Equilibrium

Answer 14

= total costs approach total revenue
- will be reached until next halfing in spring 2024
- equilibrium at about 15.2 GW after next halving

Question 15

Bitcoin Renewables

Answer 15

• mining farms can be build next to green energy projects to generate instant revenue even without grid connection -> big solar projects in texas working togther with miners
• renewables cause large intraday swings in the grid
• miners can turn off in periods of low supply
  -> grid operators can sell more power without impacting price for consumers

Question 16

Decentralized Mining Pools

Answer 16

• pool never holds bitcoin payout -> reducing risk of custody and regulatory issues
• e.g. Stratum V2 mining protocol: serves communication bridge between Bitcoin miners and mining pools facilitating the transfer of crucial mining data