When a miner is mining on a blockchain, they are trying to add new blocks to the blockchain, making the transaction history more difficult to modify. One of two types of mining takes place: solo mining and pool mining.
Solo mining is one miner’s attempt to create blocks on their own. This results in the amount of coins/tokens gained, or the block reward, going solely to them. This also results in the transaction fees belonging solely to the one miner. In pool mining, a miner pools resources with multiple other miners to find blocks more often and to split, or otherwise decrease, the transaction fees. Along with a split in transaction fees, the block reward is also shared among the miners in correlation to the amount of hashing power they each contributed to the blocks’ creation.
Many solo miners become involved with the mempool by attempting to create blocks on their own. In Bitcoin, the Bitcoin mempool is the unconfirmed transactions that take place on the Bitcoin network. Once a Bitcoin transaction is pending, it goes into this pool in order to become completely confirmed. Each running node is connected to this mempool, including the miners.
Part of the appeal in blockchain is the anonymous peer network that requires a proof-of-work that took place to create each block. If one wanted to create a Bitcoin, for instance, they would have to prove that they invested a significant amount of work in creating it to make sure that those who want to modify past blocks have to work harder than the honest peers. The actions behind chaining blocks together makes it impossible to modify any transactions that are included in any block without changing all of the other blocks connected to it.
To prove that you did additional work to create a block, you must create a hash of the block header that doesn’t exceed a certain value. For instance, if the maximum possible hash value is 2254 − 1, you can prove that you tried up to two combinations by producing a hash value of 2253, 2252, and fewer.
According to Investopedia, a hash is “a function that turns an input of letters and numbers into an encrypted output of fixed length (Investopedia 2018).” This is basically solving equations in cryptography to make cryptocurrencies.
A block header is the identification card of the hashing that previously took place. The block header is used for peers to give identifiable characteristics to a block in a blockchain. The block header is hashed repeatedly to find the proof-of-work solution.
When miners produce blocks at the end of a blockchain simultaneously, each node individually accpets whichever block comes to it first. As these blocks perpetuate themselves to other nodes in the network, we eventually end up with two different blockchains that are the exact same, up until the most recent block. These chains continue to add blocks to the end and eventually, the chain that has the largest proof-of-work (most blocks) is accepted as the correct blockchain. The other block is orphaned and is discarded from the blockchain. These orphaned blocks are valid and verifiable blocks, but they are beat out by a competing block.
Orphaned blocks are most often linked to the cryptocurrency network. For instance, if a Bitcoin block becomes an orphaned block, it is added to the Bitcoin cryptocurrency network under the tag “orphan block”. In this case, if any valid transactions exist on the orphaned block, they are returned to the mempool and wait to be selected by the next valid block that is accepted on the blockchain.
There are hundreds of cryptocurrencies available to mine, so there are a wide variety of orphaned blocks. Orphaned blocks are a term for Bitcoin blocks that are discarded. For the Ethereum currency, these blocks have been recently titled “uncle blocks”. Similarly to the Bitcoin orphaned blocks, uncle blocks are valid and have been mined legitimately, but become rejected and discarded.
There are some slight differences between the Bitcoin and Ethereum stale blocks. The biggest difference is that, unlike orphaned blocks, uncle blocks have been incentivized. According to the informative Investopedia definition of uncle blocks, valid uncle blocks are “rewarded in order to neutralize the effect of network lag on the distribution of mining rewards (Investopedia 2018).” This incentivizing also “increases the security of the network by supplementing the work on the main blockchain by the work done in mining uncle blocks (Investopedia 2018).”
Within the Bitcoin community, and much of the communities of other cryptocurrencies, some believe that the delay in the transferring of data between the miners and the nodes are the leading cause of the number of orphaned blocks that has risen in the past. The causes of these delays could include the latency of the network and its typical transferring time, the disk and processing time to validate a block, the time to select transactions and produce a template of the block, polling interval and notification delays to downstream pool software after a new block has been accepted, and queuing and buffering the software.
Another contributing factor to the propagation of orphaned blocks is “selfish mining”. Selfish mining is a strategy for mining Bitcoin that involves two or more miners coming to a secret agreement to increase their revenue. This term was first coined in the paper, Majority is Not Enough: Bitcoin Mining is Vulnerable, written by Cornell researchers Emin Gün Sirer and Ittay Eyal in 2013. The two researchers proved in their paper that miners can profit more from Bitcoin by hiding newly-generated blocks from the main blockchain and creating separate forks. This results in numerous private networks and causes many cryptocurrency enthusiasts to doubt the reliability of Bitcoin.
As was previously mentioned, the proof-of-work system in mining Bitcoin allows miners to earn from their experience and their cryptography skills. The existence of selfish mining could pose a threat to the original intention of unregulated currency networks.
During the beginning stages of a fork that was created through selfish mining, the forked blockchain will be shorter than the public blockchain. However, selfish mining allows miners to plan their display of new blocks in a way that convinces honest miners from the public blockchain to abandon their own chain and join the private chain. Then, the private chain mines new blocks within its mempool and hides the new blocks.
In the meanwhile, the public blockchain continues mining new blocks. Selfish mining is repeated until the private blockchain grows as large, if not larger, than the public one. The private chain then reveals its blocks, and miners from the public chain abandon their blocks to join the private chain because it seems more beneficial in the long term. The Cornell researchers observed the number of resources that are wasted for both chains and determined that selfish miners have a competitive advantage over an honest miner on the public blockchain because their rewards are comparatively larger due to the lower amount of waste.
Sirer and Eyal wrote in their paper that “once a selfish mining pool reaches the threshold (of a public blockchain), rational miners will preferentially join selfish miners to reap the higher revenues as compared to other pools.” This can be understood to mean that the scenario may result in a situation where the selfish mining chain becomes a majority of the public blockchain. This threatens the decentralized nature of many cryptocurrencies, including Bitcoin, and could lead to more private blockchains.
Fortunately for the Bitcoin network, Freshness Preferred has been introduced as a strategy against selfish mining in 2014. This relatively new strategy was created by Ethan Heilman, a Boston University Ph.D. student. In his paper, One Weird Trick to Stop Selfish Miners: Fresh Bitcoins, A Solution for the Honest Miner. Heilman proposes a scheme in which selfish miners would be penalized and have their ability to profit from mining reduced by implementing a permanent timestamp as a consequence for hiding newly created blocks.
The future of Bitcoin doesn’t appear bright to many of its critics. Then again, it has never been one hundred percent positive since its creation over one decade ago. This has been the case for many innovations in the past century, and there could be a chance that the future of cryptocurrencies, including Bitcoin, still holds possibilities for miners and other contributing parties who desire to treat the decentralized system with fairness and honesty.
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