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Bitcoin Mining and Block Creation Explained

Miners must solve a hashing puzzle to add a new block to the blockchain. Specifically, miners must generate a hash value for the new block that meets the difficulty criteria, which is verified by other nodes. This process of solving the hashing puzzle through trial and error requires significant electricity. As a result, most miners operate in regions where electricity is cheap to minimize costs and maximize potential profits from mining block rewards and transaction fees.

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Muntean Filip Mihai
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21 views2 pages

Bitcoin Mining and Block Creation Explained

Miners must solve a hashing puzzle to add a new block to the blockchain. Specifically, miners must generate a hash value for the new block that meets the difficulty criteria, which is verified by other nodes. This process of solving the hashing puzzle through trial and error requires significant electricity. As a result, most miners operate in regions where electricity is cheap to minimize costs and maximize potential profits from mining block rewards and transaction fees.

Uploaded by

Muntean Filip Mihai
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Assignment 2- Introduction to Computer

Science
1) How are new bitcoins added to the system?

Answer : Colored coins are applications for digitally representing and managing
real-world assets on top of the Bitcoin block chain. These applications aim to color
Bitcoins, turning them into general tokens that represent real assets or services. ( a
certain amount can be encoded into a Bitcoin’s address). The value colored is
independent from Bitcoin’s value. To issue colored coins, colored addresses need to be
generated and must be held in colored wallets managed by a color-aware clients (
coinprism or coloredcoins). The coloring process is an abstract concept that indicated an
asset description, some general instructions symbol; a unique hash attached to the
bitcoin addresses.
Users are rewarded for contributing to block verification/ validation and
construction. Each mined block contains a coinbase transaction which is allocated to the
winning user. This mechanism is the only way to generate new Bitcoins ( hashised
through PoW).

2.1) In the Bitcoin protocol, which puzzle does a miner have to solve to be allowed to add a
new block to the blockchain?

Answer : Miners must verify the validity of the transactions and put them in a list that
becomes a cryptographically sealed block. The block is then locked to the previous block
through hashing (a hash smaller than a given number must be generated). This method
is called the Secure Hash Algorithm ( 256 bit numbers) . To conclude, a miner has to
solve hashing to be allowed to add a new block to the blockchain.

2.2) Why are most miners based in countries where electricity is cheap?

Answer : First, the consensus mechanism is expensive. Mining requires hardware


developed for Bitcoin hashing. This hardware computes several terahashes per second
consuming ‘some fraction of watts per giga hash. For example, in May 2017, this technology
would get 4 * 10^18 hashes per second, consuming 0.1 to 1 Watt per Gigahash, or roughly 1
Gigawatt per second.
At the beginning, a successful hash would happen after 2 * 10^21 hash attempts. These
attempts would consume around 1 * 10^3 Gigawatts. Bitcoins consumes 1% of transferred
value in electricity ( 10k per block). A double spending attack with some chance of success
would cost roughly 100.000 $ and the win would be of around 1.000.000 $, which is still not
guaranteed. All in all, mining Bitcoin costs an incredible amount, because of all the electricity
needed, therefore miners mine where electricity is the cheapest.

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