Thread by @JohnCantrell97

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Bitcoin Mining and Proof of Work Explained

Mining is often talked about in the media as some dark art that involves ‘solving complicated math problems’ but in reality it’s pretty easy to understand.

Let me break it down for you 👇

2/ Miners need to show proof that they’ve done a certain amount of work in order for the block they are mining to be valid. When you mine a block you earn the current period’s mining reward (currently 6.25 BTC) and all of the fees from the transactions they include in the block.

3/ So how can one prove they’ve done a certain amount of work without anyone there to watch them do it? Well, they can find the answer to a problem that we know takes them a certain amount of work to solve. There are lots of things that could be used to prove someone did work.

4/ Websites make you solve a CAPTCHA as a type of “proof of work” that proves you are a human. The tasks are difficult or impossible for a robot to complete and therefore if the correct answer is provided the website knows you are human. This helps them prevent spam and abuse.

5/ Bitcoin’s proof of work uses a one-way hash function. A function is something that is given inputs and computes an output. For example, addition is a function you are familiar with, it takes as inputs two numbers (a,b) and produces the output a+b. Add(a,b) => a + b

6/ A one-way hash function is any function that given the output y, it is impossible to determine the input x that generated it. It also means given f(x) = y we don’t learn anything about what f(x+1) might equal. The outputs have no correlation to the inputs that were used.

7/ So how can we use a hash function to prove someone did a certain amount of work? We can ask them to find an input that produces an output below a certain number. Since the output is not correlated to the input the only way to find a solution is to guess randomly.

8/ For example, imagine a function that given input X produces a number between 1 and 100. If we tell you to find an input X that produces a number less than 50 we know on avg it will take you two guesses. This means we know on avg you did the work of computing two hashes.

9/ If for that same function we ask you to find an input X that produces a number less than 10 we know on average it should take you 10 guesses. This means we know on avg you did the work of computing 10 hashes. This lets us control how much work is required to find a solution!

10/ This is exactly how the difficulty adjustment in Bitcoin works and is what keeps the time to find the next block at roughly 10 minutes. The network can just adjust this target up or down based on how much hash power is working on the network.

11/ So in order for a miner to prove they did the work needed to find an input to the function (Bitcoin uses one called SHA256) that generates an output that is less than the current difficulty target. Once an input is found they use it to produce a block and claim the reward!

12/ When the block is broadcast to the network everyone can easily verify that the block is valid by making sure the input the miner provided does indeed produce an output below the current difficulty.

13/ Hope that wasn’t too bad and that you learned something about Bitcoin mining and proof of work. If you enjoy Bitcoin content like this make sure to follow me for daily Bitcoin education. If you still have questions about mining or proof of work just ask below!