Bitcoin mining difficulty explained variance. Bitcoin - Wikipedia. Bitcoin Halving Explained

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Time Warps, Mining Exploits, Denial of Service, and More!

Cryptocurrency enthusiasts are keen on telling ordinary civilians how safe and secure the Blockchain protocols powering mlning favorite coins are. Indeed, major cryptocurrencies like Bitcoin and Ethereum have maintained their security quite well — better, arguably, than any other digital asset/payment system in history — which is pretty remarkable, considering that they are unbacked digital money free from any single party’s control with an effective multi-billion dollar bounty on their proverbial heads.

Many, however, will go a step further, and declare said cryptocurrencies to be literally “unhackable.” This is, at the very least, a tactical error, since the proliferation of the “unhackable” meme forces the enthusiast Bitcoin mining difficulty explained variance some awkward positions when and explainrd certain events unfold. Like, say, a hack.

In such an event, it seems that, if nothing else, an explanation is in order.

Last month, an as-of-yet unidentified attacker was able to severely compromise Verge, a relatively small, privacy-focused cryptocurrency. The mystery hacker managed to dominate the network on three occasions for intervals of several hours at a time over the course of April 4th-6th, preventing any other user from making any payments. Worse, in that interval, they were able to generate what is effectively counterfeit Verge at a rate of 1,560 Verge coins (roughly $80) per second, minting what amounted to over a million dollars worth of the currency.

No need to beat around the bush — this was a disaster. The thing was hacked to high heaven.

But who’s to blame? Is this a case of human error on the part of the Bitfoin developers, an undermining of crypto fundamentals, or something in between? Could such a thing happen again, perhaps to larger currencies, and if so, Bitcoin mining difficulty explained variance can be done to prevent it?

With these sorts of breaches, many details inevitably remain murky. However, in this case, the fundamental exploits can be fairly difficultu understood. Onward:

Timestamp Spoofing (Or: Honest Mistakes vs. Dangerous Lies)

The root of the exploit is something that would appear, prima facie, bifcoin be a bug, but variahce actually ibtcoin deliberate feature: the ability to create “inaccurate” timestamps. In blockchain protocols, individual transactions (usually payments from one party to another) are grouped together into a single block, which is then confirmed as a whole. Every block comes with a timestamp of its creation date. Even when a blockchain protocol is functioning properly, the ordering of these timestamps may sometimes Bitcoin mining difficulty explained variance out of sequence; bitccoin, block 100 may have a timestamp that actually comes after block 101. This is because, in decentralized networks that obstinately refuse to bitckin any special authority to third parties, accurately enforcing time synchronization is no diffoculty matter. Given the Bitcoin mining difficulty explained variance variance in the time it takes for data to propagate through the peer-to-peer network, it’s entirely possible bitdoin block times to appear “out of order,” even when all parties are being perfectly honest. In other words, it’s only fair to fxplained some degree of flexibility; in the case of Verge (before the hack, anyway), the protocol allowed nodes to “disagree” about the current time by a window of, at most, two hours.

The entry point for the hacker was to start spoofing timestamps, submitting blocks that appear to be from the past, but are still within the allotted two-hour window, and thus eligible for acceptance by the other nodes.

Why this would ultimately matter for network security has to do with the nature of proof-of-work mining.

Mining Difficulty (Or: Gates Only Work When They’re Raised)

Keeping the Verge network decentralized requires ensuring that fairly small-scale devices (macbooks, difviculty can participate in running the network’s software. This, in turn, means limiting the volume of payment activity on the network; i. e., setting a clear target block time (and in turn, a limit on the network’s transactions per second). For Verge, the target is one block per 30 seconds. Bitcoin mining difficulty explained variance, one might well ask, given that the network is decentralized, how could this be enforced? What’s stopping parties from submitting blocks at a much faster rate? This is no trivial problem; given that an accepted block earns its submitter varince block bitxoin, it’s in the submitter’s incentive to confirm blocks as fast as possible.

The answer, in short, is proof of work mining. For a block to be considered valid by the network, it must contain a solution to a cryptographically difficult computational problem derived directly from the data in the block itself. The nature of this problem is such that the difficulty can be freely adjusted. The target block time for Verge is one block every 30 seconds, and the difficulty of mining blocks is constantly being adjusted based moning the current rate of block confirmations; if more people decide to devote more mining power to generating Verge blocks, and more blocks get mined faster, the protocol increases mining difficulty and block submission bktcoin throttled. Conversely, as mining power lowers and block time increases, mining is made easier. Thus, when properly functioning, even as messy real-word factors change — economic fluctuations, market prices of crypto, energy markets, empires rising and falling, etc — the Verge network is perpetually reacting and idfficulty the network to our target block-rate equilibrium.

The algorithm that Verge uses to Bitcoin mining difficulty explained variance the current difficulty is known as Explauned Gravity Wave; it involves taking a weighted average of the rate of Bitcoin mining difficulty explained variance confirmations over a moving 30-minute window. It’s a bit complex, and the details don’t really matter here — what matters is this: mining difficulty is a function of recent block frequency, and running calculations on block frequency naturally involves looking at blocks’ timestamps.

And hence the problem: if enough faulty timestamps are getting created, all bets cifficulty off. And this is what the hacker did — examining the blockchain data reveals that throughout the duration of the hack(s), every difficjlty block was submitted with a timestamp roughly one hour before the present time, tragically confusing the protocol’s mining diffjculty algorithm. If the protocol were sentient and fluent in English, it Bitcoin mining difficulty explained variance be saying something like “Oh no! Not enough blocks have been submitted recently! Mining must be too difficult Bitcoin mining difficulty explained variance let’s make it easier!” Since timestamps were continuously being spoofed, the protocol continuously lowered the difficulty, until mining got laughably easy. To give a general idea, the average difficulty in the hours before the initial attack was 1393093.39131, while during the attack, it got as low as 0.00024414, a decrease in difficulty of over 99.999999%. Lower difficulty in submitting a block means more blocks get submitted— in this case, roughly dofficulty block every second.

The cleverness of this attack is in how it circumvents the barrier of mining difficulty instead of attempting to burst through it. If the security provided by mining power is a gate surrounding the Bitcoin mining difficulty explained variance — a gate that’s far too strong to break through explined too high to climb over — this hack gets past it by finding a way to lower it so close to the ground that it can be stepped over.

If it isn’t already obvious, this is, in and of itself, bad news. A violation of the intended protocol this blatant is simply not a good look. Additionally, the drastically increased block submission rate means lots of more newly mined Verge than the protocol had allotted, which is bound Bitcoin mining difficulty explained variance bother you if you’re the sort of economist who has a thing for sound money with predictably high stock-to-flow ratio.

However, lowering the difficulty is only half the story; in isolation, it wouldn’t actually give the attacker any advantage. With the difficulty drastically lowered, mining blocks does become easier for the attacker, but it also becomes easier for everyone else; miners are miining competing against each other just like before. What we would expect to see is that although, yes, blocks get mined faster, the identities of the successfully miners should be just as distributed and democratic as before. Or, put another way, no matter the difficulty, Bitcoin mining difficulty explained variance single attacker would still need 51% of the mining power to dominate the network, which is just as hard as it was to do before the attack.

However, this hacker did indeed take over the entire network, and was able to do so with far less than 51% of the hash-rate. What enabled them to do this is the second component of this exploit, which has to do with Verge’s use of multiple mininh algorithms.

Verge Mining (Or: When Five Algorithms Aren’t Better Than One)

Generally, blocks in proof-of-work based eexplained are mined by a single algorithm, the most common being SHA-256. Verge, however, allows miners to use any of five different algorithms (for those dying Bitcoin mining difficulty explained variance know, the algorithms Verge uses are Scrypt, X17, Lyra2rev2, myr-groestl and blake2s.) The rationale for using multiple mining algos is something like this:

Some critics of Bitcoin argue that over time, the Bitcoin mining industry has gotten too specialized and centralized; most mining of the currency, for example, is performed by Bitcoin ASICs, devices created for the sole purpose of mining the currency, and much of Bitcoin mining is performed by a few mining pools — groups of miners that amalgamate their ibtcoin together and share the rewards proportionally. Bitcoin mining difficulty explained variance trends towards different types of “centralization”, they say, are antithetical to the fundamental value proposition of bariance cryptocurrencies. Bitcoin mining difficulty explained variance a coin use multiple mining algorithms purports to be a bulwark against these trends. The argument goes that controlling five different algorithms in terms of hardware, industry, variane resource variaance, is bound to be harder than controlling just one, pushing the Verge mining economy in the more distributed, decentralized direction.

So here’s the deal: the only way for this to properly function — and “properly functioning” in this case includes maintaining 30 second block times, keeping all five algos economically sound for miners, and preventing one of the five algos from dominating (which would render the whole experiment pointless) — is to exolained each vqriance have its own difficulty parameter that gets adjusted independent bitclin the other four. Which is to say, Scrypt’s mining difficulty is adjusted to hit 30 second block equilibrium, as is X17’s, and so on.

What this means is that our timestamp forger didn’t actually lower the difficulty of mining for the whole network; he only lowered it for those dfificulty with one of the five algorithms — Scrypt, it turns out. So while the Scrypt miners now all enjoy comically Bitcoin mining difficulty explained variance mining difficulty, the miners utilizing the other four algos are stuck having to work just as hard as before, rendering all of their hash-power effectively useless for securing the network. Crucially, this meant that the attacker only had to mine with the Scrypt algorithm and only had to compete against the others doing the same; thus, required hash-power for our attacker to dominate goes from over 50% (dominating the whole network) to over Bitcoin mining difficulty explained variance 10% (dominating the other Scrypt miners).

Now at this point, things do get a bit speculative, but it would appear that the situation was a lot worse than even that. The “10%” estimate stems from cifficulty fact that given the nature of mining difficultly adjustment, roughly the same amount of economic resources should be applied to each of the five mining algos. Reality, however, often has a way of stubbornly refusing to conform to the axioms of free market economics. According to discussions within the community, various factors — the existence of Scrypt ASICs that had yet to be deployed, the spare resources available for rent via Bitcoin mining difficulty explained variance, etc — meant that Scrypt would, at the time of the attack, have Bitcoin mining difficulty explained variance far cheaper to dominate than any of the other four algos. One can safely assume the required hash-rate ultimately comes to far less than 10%; some back-of-the-napkin estimates on reddit place Bitcoin mining difficulty explained variance was as low as 0.4%.

So, in sum: timestamp spoofing made it possible Bitcoin mining difficulty explained variance drastically lower mining difficulty; Verge’s use of five algorithms meant that one could lower the difficulty of just one of them, thus making bircoin far easier to override the whole network; the economic/industrial status of this one particular mining algorithm made it even easier to dominate still; and finally, the drastically decreased block-times ensuing from the low difficulty made the attack roughly 30 times more profitable than it would otherwise bitciin Bitcoin mining difficulty explained variance can be gleaned from all of this? Exxplained short-term aftermath of the hack was predictably messy and confusing. After a rough few days, the core developers deployed some explajned bug-fixes, which may or may not have had mistakes embedded in them, and the network eventually underwent a hard Bitcoin mining difficulty explained variance, which may or not have initially been an accident. As for the response in difficilty world at large, in the week following the hack, the price of Sifficulty increased by 30%, and in the following week, Bitcoin mining difficulty explained variance was announced that Verge would be accepted as subscription payment for pornhub. com. Exactly how the largest protocol-level hack of a cryptocurrency in recent memory could preceed said cryptocurrency increasing in price and then announcing a partnership with the most trafficked porn-site on the internet is a question I’m forced to leave open-ended; my personal pet-theory is that it has something to do with the fact that the world makes no sense and human beings are all completely out of their goddamn Bitcoin mining difficulty explained variance I digress. In the diffichlty scheme Bitcoin mining difficulty explained variance things, there may indeed be some useful Bitcoin mining difficulty explained variance here:

First off, vqriance trick of using timestamps to artificially lower difficulty is one that has actually been known about long enough to get its own name explainwd the “time-warp” exploit. One can find discussions of the attack vector on Bitcoin forums from years ago. In some sense, what digficulty the attack work in Verge is their use of the newer, fancier, Dark Gravity Well difficulty adjusting algorithm, in which difficulty is tweaked with every new block, as opposed to, say Bitcoin, where difficultly is tweaked only every 2016 blocks. While adjusting difficulty in such spaced out, discrete increments may at first glance seem like an odd design decision, this hack makes variancee clear that it’s actually a security precaution; should there be some way to slightly lower mining difficultly, in Bitcoin, the assailant can only do so once every 2 weeks, rendering the results negligible, compared to Verge, where bitcoon can do so once every 30 seconds.

Interestingly, one of the purported benefits of Dark Gravity Wave variancee Bitcoin mining difficulty explained variance that it’s supposed to be bitcokn to the time-warp exploit. Given how decisively such a claim has now been disproven, other currencies using it ought to be, dfificulty minimum, a bit nervous.

As for the use of five mining algos: while, from a distance, this appears to be a worthy experiment in economically encouraging decentralization, it again introduces new complexities which inevitably increase the likelihood Bitcoin mining difficulty explained variance unforeseen vulnerabilities emerging.

In both cases, this hack presents a strong argument for tending towards sticking to things proven to work and to be wary of overcomplicating things and thereby introducing unnecessary risks when minimg financial assets are involved. Which, I suppose, vqriance two points for Bitcoin mining difficulty explained variance Bitcoin.

There’s a larger point to be made here: software developers, as much as we’re loathe to admit it, are, in the final analysis, only human. Even when underlying security principles seem perfectly sound, there’s always room for error. Unexpected attack vectors emerge; trade-offs get poorly estimated; and then, of course, there’ll always be good old fashioned bugs. That software doesn’t always work the way we want it to, and Bitcoin mining difficulty explained variance such malfunctions can lead to the loss of funds, shouldn’t be particularly shocking to anyone in 2018. But when that software is, miinng fact, money, it’s Bitcoin mining difficulty explained variance an extra layer of precaution.

Given that most of us don’t have the spare time to conduct a thorough code review of expllained project we invest in, the best guards against disaster are to put more trust in things which a proven track record of working properly, and whose development ethos veers on the conservative side. And should you want to stake some funds in more experimental, move-fast-and-breaks-things-and-raise money style projects, at least be aware of the risks involved. Most importantly, pressure from the community for due diligence in trying to mitigate future disasters is ultimately the best defense. I believe it was George Santayana who said “Those who fail to learn from the security holes of the past are doomed to reimplement them, ” words to heed by lest we unexpectedly find ourselves on the verge of doin’ the time warp again.

Correction: The window of difficulty retargeting was originally reported as being equal to the allowed time Bitcoin mining difficulty explained variance (2 hours). In fact, the retargeting window is actually 30 minutes, which, for those keeping track at home, is in fact Varkance than the allowed time drift.

Update (5/22): Seems we are, indeed, doin’ the time warp again; the same vulnerability is being exploited again as we speak, though word is that this time the hacker(s) used two mining algos instead of one. Stay tuned!

Update: Read the follow-up post on the second hackHere

For inquiries: Daniel@theabacus. io

There is no such thing as a bitcoin account

Difficulty is a value used to show how hard is it to find a hash that will be lower than target defined by system.

The Bitcoinnetwork has a global block difficulty. Valid blocks must have a hash below this target. Mining pools also have a pool-specific share difficulty setting a lower limit for shares.

Bitcoin explainef difficulty[edit]

In Bitcoin network there's global difficulty set Bitcoin mining difficulty explained variance all blocks. For block to be considered legitimate it has to have hash value lower than set target.

Difficulty changes every 2016 blocks. This is calculated using following formula:

Difficulty = difficulty_1_target / current_target

Where target is a 256-bit number.

Difficulty_1_target can take various values. Traditionally it's a hash function first 32 bits of which are equal difficulfy 0 while all the rest are 1 (it is also called pdiff or pool difficulty). Bitcoin protocol provides target as a type with floating point and limited accuracy. Different Bitcoin clients often determine dlfficulty difficulty based on this data.

Storing cryptocurrency difficulty in blocks[edit]

Every block contains a packed version (called Bitcoin mining difficulty explained variance of hexadecimal target.

Using following formula target can be obtained from any block. For example if a target packed in a block appears as 0x1b0404cb its hexadecimal version will look as following:

0x0404cb * 2**(8*(0x1b - 3)) = 0x00000000000404CB000000000000000000000000000000000000000000000000

Maximum value for this field is 0x7fffff while minimum is 0x008000.

Maximum possible target (with difficulty equal to 1) is defined as 0x1d00ffff which appears as following in hexadecimal numeration:

0x00ffff * 2**(8*(0x1d - 3)) = 0x00000000FFFF0000000000000000000000000000000000000000000000000000

Next is an easy way of difficulty calculation. It uses an altered version of Taylor series to logarithm and relies Bitcoin mining difficulty explained variance logs to transform difficulty calculation.

#include<iostream>#include<cmath>inlinefloatfast_log(floatval){int*constexp_ptr=reinterpret_cast<int*>(&val);intx=*exp_ptr;constintlog_2=((x>>23)&255)-128;x&=~(255<<23);x+=127<<23;*exp_ptr=x;val=((-1.0f/3)*val+2)*val-2.0f/3;return((val+log_2)*0.69314718f);}floatdifficulty(unsignedintbits){staticdoublemax_body=fast_log(0x00ffff),scaland=fast_log(256);returnexp(max_body-fast_log(bits&0x00ffffff)+scaland*(0x1d-((bits&0xff000000)>>24)));}intmain(){std::cout<<difficulty(0x1b0404cb)<<std::endl;return0;}

Maximum, current and minimum difficulty[edit]

Current difficulty can be found out by using Bitcoin command line 'getDifficulty'.

Due to target function not having minimum value maximum difficulty can be calculated only approximately as following: maximum_target / 1 (as 0 would lead the equation to being infinitely big) which mijing an inconcievable number (~2 to the 224).

Minimum difficulty is just equal to 1.

Difficulty changes[edit]

Difficulty is changed every 2016 blocks based on the time it took to discover 2016 Bitcoin mining difficulty explained variance blocks. If a block is found every 10 minutes (as it was intended initially for even emission) finding 2016 blocks will take exactly 2 weeks. Diffidulty previous 2016 blocks were found in more than two weeks the cryptocurrency mining difficulty will be lowered, and if they were mined faster then that it will be raised. The more (or less) time was spent on finding the previous 2016 blocks the more will difficulty be lowered (raised).

To mine a block hash has to be lower than targer (proof-of-work). Hash is a random number between 0 and 2*256-1.

Shift for difficulty of 1: 0xffff * 2**208 For difficulty D: (0xffff * 2**208)/D Amount of hash-functions needed to be solved for a block to be found at difficulty D: D * 2**256 / (0xffff * 2**208) Or simply: D * 2**48 / 0xffff Bitcoin mining difficulty explained variance is set as if we found previous 2016 blocks at the speed of one block per 10 minutes

According to this we were calculating (D * 2**48 / 0xffff) hashes every 600 seconds. Our network's hashrate for previous 2016 blocks was: D * 2**32 / 0xffff / 600. Without significant accuracy loss we can simplify it Bitcoin mining difficulty explained variance to: D * 2**32 / 600. At difficulty of 1 that is Bitcoin mining difficulty explained variance 7 Sifficulty.

Average time of finding a single block can be Bitcoin mining difficulty explained variance using this formula: time = difficulty * 2**32 / hashrate where 'difficulty' is Bitcoin mining difficulty explained variance current cryptocurrency difficulty level of BTC difficulty network and 'hashrate' is the amount of hashes a miner finds per second.

What is the current difficulty?[edit]

Current difficulty online, as output by Bitcoin's getDifficulty.

Bitcoin Difficulty Chart

What is the maximum difficulty?[edit]

There is no minimum target. The maximum difficulty is roughly: maximum_target / 1 (since 0 would result in infinity), which is a ridiculously huge number (about 2^224). [This is not correct, target can be zero, but most hash functions produce all zeroes at such a low Bitcoin mining difficulty explained variance it's practically impossible, not actually impossible]

The actual maximum difficulty is Bitcoin mining difficulty explained variance current_target=0, but we would not be able to calculate the difficulty if that varance. (fortunately it never will, so we're ok.)

Can the network difficulty go down?[edit]

Yes it can.

What is the minimum BTC difficulty?[edit]

The minimum difficulty, when the target is at the maximum allowed value, is 1.

What network hash rate results in a given difficulty?[edit]

The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks. At the desired rate of one block each expplained minutes, Bitcoin mining difficulty explained variance blocks would take exactly two weeks to find. If the previous 2016 blocks took more than two weeks to find, the difficulty is reduced. If they took less than two weeks, the difficulty is increased. The change in difficulty is in proportion to the amount of time over or under two weeks the previous 2016 blocks took to find.

To find a block, the hash must be less than the target. The hash is effectively a random number between 0 and 2**256-1. The offset for difficulty 1 is

0xffff * 2**208

And for difficulty Bitcoin mining difficulty explained variance is

(0xffff * 2**208)/D

The expected number of hashes we need to calculate to find a block with difficulty D is therefore

D * 2**256 / (0xffff * 2**208)

Or just

D * 2**48 / 0xffff

The difficulty is set such that the previous 2016 blocks would have been found at the rate of one every 10 minutes, so we were calculating (D * 2**48 / 0xffff) hashes in 600 seconds. That means the hash rate of the network was

D * 2**48 / 0xffff / 600

Over the previous 2016 blocks. Can be further simplified to

D * 2**32 / 600

Without much loss of accuracy.

At difficulty 1, that is around 7 Mhashes per second.

At the time of writing, the difficulty is 22012.4941572, which means that over the previous set of 2016 blocks found the hitcoin network hash rate was

22012.4941572 * 2**32 / 600 = around 157 Ghashes per second.

How soon might I expect to generate a block?[edit]

(The eternal question.)

The average time to find a block can be approximated by calculating:

Time = difficulty * 2**32 / hashrate

Where difficulty is the current difficulty, hashrate is the number diffficulty hashes your miner calculates per second, and time is the average in seconds between the blocks you find.

For example, using Python we calculate the average time to generate a block using a 1Ghash/s mining rig when the difficulty is 20000:

$ python - c "print 20000 * 2**32 / 10**9 / 60 / 60.0" 23.85

And find that it takes just under 24 hours on average.

See Also on BitcoinWiki[edit]

References[edit]

Cryptocurrency mining difficulty map

Bitcoin Difficulty. All about cryptocurrency - BitcoinWiki

Bitcoin network

For broader coverage of this topic, see Bitcoin.

The Bitcoin network is a peer-to-peerpayment network that operates on a cryptographic protocol. Users send and Bitcoin mining difficulty explained variance bitcoins, the units of currency, by broadcasting digitally signed messages to the network using bitcoin cryptocurrency wallet software. Transactions are recorded into a distributed, replicated public database known as the blockchain, with consensus achieved by a proof-of-work system called vagiance. Satoshi Nakamoto, the designer of bitcoin, claimed that explainex and coding Bitcoin mining difficulty explained variance bitcoin began in 2007. The project was released in 2009 as open source software.

The network requires minimal structure to share transactions. An ad hoc decentralized network of volunteers is sufficient. Messages are broadcast on a best effort basis, and mininy can leave and rejoin the network at will. Upon reconnection, a node downloads and verifies new blocks from other nodes to complete its local copy of the blockchain.[2][3]

Transactions[edit]

A bitcoin is defined by a sequence of digitally signed transactions that began with the bitcoin's creation, as a block reward. The owner of a bitcoin transfers it by digitally signing it over to the next owner using a bitcoin transaction, much like endorsing a traditional bank check. A payee can examine each previous transaction to verify the chain of ownership. Unlike traditional check endorsements, bitcoin transactions are irreversible, which eliminates risk of chargeback fraud.

Although it is possible to handle Bitcoin mining difficulty explained variance individually, it would be unwieldy to require a separate transaction for every bitcoin in a transaction. Transactions are therefore allowed to contain multiple inputs and outputs, allowing bitcoins to be split and combined. Common transactions will have either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and one or two outputs: one for the payment, and one returning the change, if any, to the sender. Any difference between the total input and output amounts of a transaction goes to miners as a transaction fee.[2]

Mining[edit]

See also: Mining pool

To form a distributed timestamp server as a peer-to-peer network, bitcoin uses a proof-of-work system.[3] This work is often called Bitcoin mining.

Requiring a proof fifficulty work to accept a new block to the blockchain was Satoshi Nakamoto's key innovation. The mining process involves identifying a block that, when hashed twice with SHA-256, yields a number smaller than the given difficulty target. While the average work required increases in inverse proportion to the difficulty target, a hash can always be Bitcoin mining difficulty explained variance by executing a single variamce of double SHA-256.

For the bitcoin timestamp network, a valid proof of work is found by incrementing a nonce until a value is found that gives the block's hash the required number diffixulty leading zero bits. Once the hashing has produced a valid result, the block cannot be changed without redoing the work. As later blocks are chained after it, the work to bitcoi the block would include redoing the work for each subsequent block.

Majority consensus in Bitcoin mining difficulty explained variance is represented by the longest chain, which required the greatest amount of effort to produce. If a majority of computing power is controlled by honest nodes, the honest chain will grow fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of that block and all blocks after it and then surpass the work of the honest nodes. The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.[3]

To compensate for increasing hardware speed and varying interest in running nodes over time, the difficulty of finding a valid hash is adjusted roughly every two weeks. If blocks are generated too quickly, the difficulty increases and more hashes are required to make a block and to generate new bitcoins.[3]

Difficulty[edit]

Bitcoin mining is a competitive endeavor. An "arms race" has been observed through the various hashing technologies that have been used to mine bitcoins: basic CPUs, high-end GPUs common in many gaming computers, FPGAs and ASICs all have been used, each reducing the profitability of the less-specialized technology. Bitcoin-specific ASICs are now the primary method Bitcoin mining difficulty explained variance mining bitcoin and have surpassed GPU speed by as much as 300-fold. The difficulty within the mining process involves self-adjusting to the network's accumulated mining power. As bitcoins have become more difficult to mine, computer hardware manufacturing companies have seen an increase in sales of high-end ASIC products.[4]

Computing power is often bundled together or "pooled" to reduce variance in miner income. Individual mining rigs often have to wait for long periods to confirm a block of transactions and Bitcoin mining difficulty explained variance payment. In bitcojn pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block.[5]

Energy sources & consumption[edit]

In 2013, Mark Gimein estimated electricity consumption to be about 40.9 megawatts (982 megawatt-hours a day).[6] In 2014, Hass McCook estimated 80.7 megawatts (80,666 kW). As of 2015[update], The Economist estimated that even if all miners used modern facilities, the combined nining consumption would be 166.7 megawatts (1.46 terawatt-hours per year).[7] The Cambridge Bitcoin Electricity Consumption Index estimates the energy use of the bitcoin network grew from 1.95 terawatt-hours per year at the end of 2014, to 77.1 terawatt-hours per year Bitcoin mining difficulty explained variance the end of 2019.[8]

Seeking lower electricity costs, some bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.[9] Chinese bitcoin miners are known to use hydroelectric power in Tibet to reduce electricity costs.[10] North American companies are utilizing stranded gas as a cost effective source of energy for bitcoin mining.[11] In West Bitcoin mining difficulty explained variance, wind powers bitcoin mining.[12]

Process[edit]

A rough overview of the process to mine bitcoins involves:[3]

New transactions are broadcast to all nodes. Each miner node collects new transactions into a block. Each miner node works on finding a proof-of-work code for its block. When a node finds a proof-of-work, it broadcasts the block to all nodes. Receiving nodes validate the transactions it holds and accept only if all are valid. Nodes express their acceptance by moving to work on the next block, incorporating the hash of the accepted block.

Mined bitcoins[edit]

By convention, the first transaction in a block is a special transaction that produces new bitcoins owned by the creator of the block. This is the incentive for Bitcoin mining difficulty explained variance exppained support the network.[2] It provides the way to move new bitcoins into circulation. difficluty The reward for mining halves every 210,000 mininv. It started at 50 bitcoin, dropped to 25 in late 2012 and to 12.5 bitcoin in 2016. The next halving, scheduled to occur in May 2020, will reduce the block reward to 6.25 bitcoin. This halving process is programmed to continue a maximum 64 times before new coin creation ceases.[13]

Security[edit]

Various potential attacks on the bitcoin network and its use Bitcoin mining difficulty explained variance a payment system, real or theoretical, have been considered. The bitcoin protocol includes several features that protect it against some of those attacks, such as unauthorized spending, double spending, forging bitcoins, and tampering with the Bitcoin mining difficulty explained variance. Other attacks, such as theft of private keys, require due care by users.[14][15]

Unauthorized spending[edit]

Unauthorized spending is mitigated by bitcoin's implementation of public-private key cryptography. For example; when Alice sends a bitcoin to Bob, Bob becomes the new owner of the bitcoin. Eve observing the transaction might want to spend the bitcoin Bob just received, but she cannot sign the transaction without the knowledge of Bob's private key.[15]

Double spending[edit]

A specific problem that an internet payment system must solve is double-spending, whereby a user pays the same coin to two or more different recipients. An example of such a problem would be if Eve sent a bitcoin to Alice and later sent the same bitcoin Bitcoin mining difficulty explained variance Bob. The bitcoin network guards against double-spending by recording all bitcoin transfers in a ledger (the blockchain) that is visible to all users, and ensuring for all transferred bitcoins that they haven't been previously spent.[15]:4

Race attack[edit]

If Eve offers to pay Alice a bitcoin in exchange for goods and signs a corresponding transaction, it is still possible that she also creates a different transaction at the same time sending the same bitcoin to Bob. By the rules, the network accepts only one of the transactions. This is called a race attack, since there is a race explaibed transaction will be accepted first. Alice can reduce the risk of race attack stipulating that she will not deliver the goods until Eve's payment to Alice appears in the blockchain.[16]

A variant race attack (which has been called a Finney attack by reference to Hal Finney) requires the participation of a miner. Instead of sending both payment requests (to pay Bob and Alice with the same coins) to the network, Eve issues only Alice's payment request to the network, while the accomplice tries to mine a block that includes the payment to Bob instead of Alice. There is a positive probability that the rogue miner will succeed before the network, in which case the payment to Alice will Bitcoin mining difficulty explained variance rejected. As with the plain race attack, Alice can reduce the risk of a Finney attack by waiting for the payment diffciulty be included in the blockchain.[17]

History modification[edit]

Each block that is added to the blockchain, starting with the block containing a given transaction, is called a confirmation of that transaction. Ideally, merchants varriance services that receive payment in bitcoin should wait for at least one confirmation to be distributed Bitcoin mining difficulty explained variance the network, before assuming that the payment was done. The more confirmations variaance the merchant waits for, the more difficult it is for an attacker to Bitcoin mining difficulty explained variance dificulty the transaction in a blockchain—unless the attacker controls more than half the total network power, in which case it is called a 51% attack.[18]

Deanonymisation of clients[edit]

Deanonymisation is a strategy in data mining in which anonymous data is cross-referenced with other sources of data to re-identify the anonymous data source. Along with transaction graph analysis, which may reveal connections between bitcoin addresses (pseudonyms),[14][19] there is a possible attack[20] which links a user's pseudonym to its IP address. If the peer is using Tor, the attack Bitcoin mining difficulty explained variance a method to separate the peer from the Bitcoin mining difficulty explained variance network, forcing them Bitcoin mining difficulty explained variance use their real IP address for any further transactions. The attack makes Bitcoin mining difficulty explained variance of bitcoin mechanisms of relaying peer addresses and anti-DoS protection. The cost of the attack on the full bitcoin network is under €1500 per month.[20]

Payment verification[edit]

Main article: Online transaction processing

Each minihg can choose which transactions are included in or exempted from a block.[21] A greater number of transactions in a block does not equate to greater computational power required to solve that block.[21]

Upon receiving a new transaction a node must validate it: in particular, verify that none of the transaction's inputs have been previously spent. To carry out that check, the node needs to access the blockchain. Any user who does not trust his network neighbors, should keep a full local copy of the blockchain, so that any input can be verified.

As noted in Nakamoto's whitepaper, it is possible to verify bitcoin payments without running a full network node (simplified payment verification, SPV). A user only needs a copy of the block headers of the longest chain, which are available by querying network nodes until it is apparent that the longest chain has been obtained. Then, get the Merkle tree branch linking the transaction to its block. Linking the transaction to a place in the chain demonstrates that a network node has accepted it, and blocks added after it further establish the confirmation.[2]

Data in the blockchain[edit]

While it is possible to store any digital file in the blockchain, the larger the transaction size, the larger any associated fees become. Various items have been embedded, including URLs to child pornography, an ASCII art image of Ben Bernanke, material from the Wikileaks cables, prayers from bitcoin miners, and the original bitcoin whitepaper.[22]

Alleged criminal activity[edit]

For broader coverage of this topic, see Cryptocurrency and security.

The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.[23] The FBI prepared an intelligence assessment,[24] the SEC has issued a pointed warning about investment schemes using virtual currencies,[23] and the U. S. Senate held a hearing on virtual currencies in November 2013.[25]

Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.[26][27] In 2014, researchers at the University of Kentucky found "robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives."[28]

Black markets[edit]

Main article: Darknet market

A CMU researcher estimated that in 2012, 4.5% to 9% of all transactions on all exchanges in the world were for drug trades on a single dark web drugs market, Silk Road.[29] Child pornography,[30] murder-for-hire services,[31] and weapons[32] are also allegedly available on black market sites that sell in bitcoin. Due to the anonymous nature and miniing lack of central control on these markets, it is hard to know whether the services are real or just trying to take the bitcoins.[33]

Several deep web black markets have been shut by authorities. In October 2013 Silk Road was shut down by U. S. law enforcement[34][35][36] leading to a short-term decrease in the value of bitcoin.[37] In 2015, the founder of the bircoin was sentenced to life in prison.[38] Alternative sites were soon available, and in early 2014 the Australian Broadcasting Corporation reported that the closure of Silk Road had little impact on the number of Australians selling drugs online, which had actually increased.[39] In Bitcoin mining difficulty explained variance 2014, Dutch authorities closed Utopia, an online illegal goods market, and seized Bitcoin mining difficulty explained variance bitcoins.[40] In late 2014, a joint police operation saw European and American authorities seize bitcoins and close 400 deep web sites including the illicit goods market Silk Road 2.0.[41] Law enforcement activity has resulted Bitcoin mining difficulty explained variance several convictions. In December 2014, Charlie Shrem was sentenced to two years Bitcoin mining difficulty explained variance prison for indirectly helping to send $1 million to the Silk Road drugs site,[42] and in February 2015, its founder, Ross Ulbricht, was convicted on drugs charges and faces a life sentence.[43]

Some black market sites may seek to steal bitcoins from customers. The bitcoin community branded one site, Sheep Marketplace, as a scam when it prevented withdrawals and shut down after an alleged bitcoins theft.[44] In a separate case, escrow accounts mmining bitcoins belonging to patrons varoance a different black market were hacked in early Bitcoin mining difficulty explained variance to the Internet Watch Foundation, a UK-based Bitcoin mining difficulty explained variance, bitcoin is used to purchase child pornography, and almost 200 vriance websites accept it as payment. Bitcoin isn't the sole way to purchase child pornography online, as Troels Oertling, head of the cybercrime unit at Europol, states, "Ukash and paysafecard. have Bitcoin mining difficulty explained variance been used to pay for such material." However, the Internet Watch Foundation lists around 30 sites that exclusively accept bitcoins.[30] Some of these sites have shut down, such as a deep web crowdfunding website that aimed to fund the creation of new child porn.[46][Better source needed] Furthermore, hyperlinks to child porn websites have been added to the blockchain as arbitrary data can be included when a transaction is made.[47][48]

Money laundering[edit]

Bitcoins may not be ideal for money laundering, because all transactions are public.[49] Authorities, including the European Bihcoin Authority[50] the FBI,[24] and the Financial Action Task Force of the G7[51] have expressed concerns that bitcoin may be used for money laundering. In early 2014, an operator of a U. S. bitcoin exchange, Charlie Shrem, was arrested for money laundering.[52] Subsequently, he was sentenced to two years in prison for "aiding and abetting an unlicensed money transmitting business".[42] Alexander Vinnik, an alleged owner of BTC-e was arrested in Greece July 25 of 2017 on $4 billion money laundering charges for flouting anti-money laundering (AML) laws of the US. A report by the UK's Treasury and Home Office named "UK national risk assessment of money laundering and terrorist financing" (2015 October) found that, of the twelve methods examined in the report, bitcoin carries the lowest risk of being used for money laundering, with the Bitcoin mining difficulty explained variance common money laundering method being the banks.[53]

Ponzi scheme[edit]

In a Ponzi scheme using bitcoins, the Bitcoin Savings and Trust promised investors up to 7% weekly interest, and raised at least 700,000 bitcoins from 2011 to 2012.[54] In July 2013, the U. S. Securities and Exchange Commission charged the company and its founder in 2013 "with defrauding investors in a Ponzi scheme involving bitcoin".[54] In September 2014 the judge fined Bitcoin Savings & Trust and its owner $40 million.[55]

See also[edit]

References[edit]

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"The scam called Bitcoin". Daily Herald. Retrieved 20 September 2016.^Potenza, Alessandra (21 December 2017). "Can renewable power offset bitcoin's massive energy demands?". TheVerge News. Archived from the original on 12 January 2018. Retrieved 12 January 2018.^Yang, Stephanie (29 March 2019). "Bitcoin in the wilderness". The Wall Street Journal. Retrieved 29 April 2020.^Orcutt, Mike (27 February 2020). "How Texas's wind boom has spawned a Bitcoin mining rush". MIT Technology Review. Retrieved 29 April 2020.^Antonopoulos, Andreas M. (2017). Mastering Bitcoin : programming the open blockchain (Second ed.). Sebastopol, CA. p. 239. ISBN . OCLC 953432201.^ ABRon Dorit; Adi Shamir (2012). "Quantitative Analysis of the Full Bitcoin Transaction Graph"(PDF). Cryptology ePrint Archive. Retrieved miining October 2012.^ ABCJerry Brito & Andrea Castillo (2013). "Bitcoin: A Primer for Policymakers"(PDF). Mercatus Center. George Exllained University. 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"How Bitcoin Sales Of Guns Could Undermine New Rules". Huffingtonpost. com. TheHuffingtonPost. com, Inc. Retrieved 20 October variannce, Knapp (19 January 2015), "Faking Murders And Stealing Bitcoin: Why The Silk Road Is The Strangest Crime Story Of The Decade", Forbes, retrieved 2 January 2016^Andy Greenberg (23 October 2013). "FBI Says It's Seized $28.5 Million In Bitcoins From Ross Ulbricht, Alleged Owner Of Silk Road"(blog). Forbes. com. Retrieved 24 November 2013.^Kelion, Leo (12 February 2014). "Five arrested in Utopia dark net marketplace crackdown". Bbc. co. uk. BBC. Retrieved 13 February 2014.^Alex Hern (3 October 2013). "Bitcoin price plummets after Silk Road closure". The Guardian. Retrieved 31 October 2014. ^Robert McMillan (2 October 2013). "Bitcoin Values Plummet $500M, Then Recover, After Silk Road Bitcoin mining difficulty explained variance. Wired. Retrieved 31 October 2014.^"Silk Road drug website founder Ross Ulbricht jailed". BBC News. BBC. 29 May 2015. 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Retrieved 17 February 2015.^A diagram of a bitcoin transferNumber of bitcoin transactions per month (logarithmic scale)[1]An actual bitcoin transaction including the fee from a webbased cryptocurrency exchange to vaiance hardware wallet.The best chain      consists of the longest series of transaction records from the genesis block      to the current block or record. Orphaned records      exist outside of the best chain.GPU-based mining rig, 2012Lancelot FPGA-based mining board, 2013Mining difficulty has increased significantlyAvalon ASIC-based mining machineDiagram showing how bitcoin transactions are verified