Blockchain Simplified - Mining
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I hope you have read basics of Blockchain and watched Video on previous article. Once you know the basics this article on "Mining"will be easy to understand.
Recap : We put few transactions in a block, we seal the block by using Hash functions on content and previous block's "proof of work" code to generate "Proof of work" code for the current block. Thus we have formed a chain of blocks that is Immutable. This chain is replicated across all nodes and we have a network with multiple nodes having all transactions locally.
Going Forward : At this point A broadcast a message to network that A wants to transfer 5$ to B then we need to solve following problems
- Validate the transaction - Does A have 5$ or more to transfer the funds
- Add transaction to the Block - All nodes need to be in agreement to add it to Block
- Make the transaction Immutable - Store transaction in Blockchain in such a way that none of the nodes can change the transaction
Above problems introduce us to concept of "No Trust"
What is "No Trust" concept ?
In a distributed Peer 2 Peer network we do not want to trust any person but only on Ledger. So when A says transfer 5$ to B we do not trust that A has 5$. We have the Ledger locally and we can back-trace all transactions of A to check A's current balance.
As all previous blocks are locked we have a definite way of knowing A's balance. This solve's first problem.
All nodes are checked for agreement to accept the transaction. At this point if a group of hackers want to try fraud and show agreement to add the transaction even if A do not have balance, then they need to control more than 50% of nodes of the network. With Bitcoin and Ethers cryptocurrency this is close to impossible. This safeguard has made Bitcon and Ethers transactions fraud-proof.
What is role of Miners in a Blockchain network ?
To add a transaction or a block to blockchain, a mathematical puzzle has to be solved. As the puzzle is complex it needs computational power to solve the puzzle. The puzzle is solved by Guesswork and that needs very fast processing power of CPU (GPU in real). The faster the puzzle gets solved the faster is the time to complete a transaction. No one will like to solve the puzzle without an incentive. So the concept of Miners comes in picture. Miners are people with very fast computing machines who take the challenge to solve the puzzle and gets rewarded with money (BTC in Bitcoin world and Ether Gas - in Ethererium world) on solving the puzzle. Who ever solves the puzzle first broadcasts it to the network, other miners validate it and once their solution is accepted, the Miners gets rewarded for solving the puzzle.
After completing a blocks the answer of puzzle is what makes up "Proof of Work" hash code. Whoever gets it first broadcast it and others stop mining and accepts the solution after self-validation. The process of solving puzzle is called "Mining" and the block is said to be "Mined" once it's "proof of work code" is generated.
What are the rewards to Miners in Bitcoin and Ethers cryptocurrency ?
At this point I will like to introduce to you a new term "Currency Generation Out of Thin Air"
Satoshi Nakamoto, Bitcoin’s creator, set the block reward schedule when he created Bitcoin. For first block the award was 50 Bitcoins. The reward gets half every 4 years. From 2017 onwards the reward is 12.5 Bitcoins for every block mined. This reward is generated from the system and is not taken away from any user's balance. This is what is called "Currency Generation Out of Thin Air". This way new currency is getting added to Bitcoin system and total coins in the system is increasing.
Total circulation will be 21,000,000 coins. It’ll be distributed to network nodes when they make blocks, with the amount cut in half every 4 years. first 4 years: 10,500,000 coins next 4 years: 5,250,000 coins next 4 years: 2,625,000 coins next 4 years: 1,312,500 coins etc… - Satoshi Nakamoto
For Ethers which is crypotocurrency based on Etherium Framework based on which Wipfli has created interesting projects in Document Storage and Logistics gives 5 ethers as reward for mining a static Block. The talks are on to cut down reward to 2 Ethers.
After understanding what is mining, rewards of mining let us Dive deeper into how does Blockchain add a block to chain. Let us watch a Video at this point to understand the Blockchain with respect to Mining and role of miners.
By now you will have a good understanding of
The Principles of Blockchains are :
- Open Ledger
- Distributed Ledger
Miners have two major roles
- Validate a transaction
- Add a transaction to the Ledger
In Next Article we will see a visual representation of how hashing works, we will see a visual example of how changing data in a block invalidate other transactions. We will also go under the hood of Blockchain in discovering all terminologies used in Blockchain world and their simple meaning.
In the meantime do check out Wipfli's Document Management Platform based on Blockchain - DocLaunch . We will continuoe our learning series in continuation after this article.
About Shahab : Shahab has over 19 years experience working in various technologies and platforms across multiple domains. Shahab is a member of Wipfli's Blockchain Guild. This article is written for non-programmers to help them understand the Blockchain concept. Please email smohammed@spiderlogic.com for any questions on Blockchain.
About Wipfli : Wipfli & SpiderLogic's functional and technology experts have worked on a prototype to not only learn the Blockchain technology and impact, but also potentially commercialize the solution in partnership with our clients. If you would like to learn about blockchain and how it may affect you, I invite you to contact your Wipfli relationship executive or send an email to WipfliFIPractice@wipfli.com
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