Bitcoin Mining

By Rich Apodaca | Updated

This unit is Part 5 of the Annotated Princeton Bitcoin Video Course.

Introduction (1 minute)

Recap - Bitcoin depends on miners to:

  • store and broadcast the block chain;
  • validate new transactions;
  • vote (by hash power) on consensus.

The Task of Bitcoin Miners (10 minutes)

Bitcoin mining isn’t the get-rich-quick scheme many beginners imagine. The main obstacle to profitability is the relentless rise in difficulty. Since the end of 2015 (the year this video was made), difficulty has increased 40-fold. Difficulty doubles roughly once every six months.

In practical terms, this means that the mining reward for a particular hardware configuration halves roughly every six months.

Mining Hardware (23 minutes)


Energy Consumption & Ecology (14 minutes)

Two simple models to estimate mining energy consumption are presented:

  • top-down: divide the USD value of the block reward by the price of electricity of a representative jurisdiction;
  • bottom-up: divide network hash rate by the best mining rig hash rate

Mining Pools (14 minutes)

Pooled mining is a delicate balance of preventing fraud by the pool operator on one side and members on the other. Most models rely on the concept of a share. A share is a block hash greater than or equal to the network target. Pools differ mainly in the ways they compensate members for reporting shares.

It might appear as if a member of a pool can cheat by publishing a valid block independently of the pool. Recall, however, that a block commits to a coinbase transaction paying a specific public key. But unless the members of a pool know the corresponding private key, it will be impossible for them to spend the reward.

Mining Incentives and Strategies (23 minutes)

The confusion-inducing checkpoints feature has been superseded by Assumed valid blocks as of Bitcoin Core 0.14.0.

Read the original selfish mining paper here.

Next Up: Bitcoin and Anonymity