Karl Kohlmoos

The Blockchain Miner

Blog Post created by Karl Kohlmoos Employee on Apr 7, 2016

In the Bitcoin blockchain (I’m using the Bitcoin blockchain as my reference for this discussion since this was the initial implementation of Blockchain technology) the primary function of the “Miner” (computer running Blockchain mining software) is to add blocks (collection of transactions) to the blockchain (the distributed ledger). This globally distributed network of “miners” and its process are meant to maintain the decentralized trust and integrity of the Bitcoin blockchain.


Here are some points on the process:


  • There are thousands of miners in the network and anyone can stand up a miner server and participate in this activity. Miners operate voluntarily in the network to collect all the Bitcoin transactions occurring.
  • Transactions are collected and appended to the blockchain in 1 MB blocks. Additional blocks get added to the blockchain about every 10 minutes.
  • Only one miner per block is awarded the privilege of adding the block to the blockchain. To gain this privilege, miners compete in a lottery.
  • The lottery requires each miner server to run a complex hashing algorithm defined in the miner software using the transaction data in the new block, the hash of the previously added block, and other bits of data to compete to generate a winning hash. The fact that the previous winning block’s hash is included in this process is meant to guarantee the integrity of the chain since changing an old block’s hash would make a subsequent block’s hash wrong too.
  • A miner server requires a special ASIC or FPGA card that can process the hashing algorithm efficiently.
  • The winner is determined by a “proof of work” strategy. The hash must look a certain way and fit a certain format including a certain amount of leading zeros in the hash. If it cannot meet the criteria the data must be modified and the algorithm run again.  Since they cannot change the previous block’s hash or the transaction data, they modify another piece of data used in the calculations called the “nonce”.
  • Once the new block is added to the blockchain it is propagated to all the other miners.
  • The winning miner receives 25 Bitcoins (the current reward value) as reward for adding the block. The reward amount reduces by half every 210,000 appended blocks.


The blockchain has relied on this distributed node hashing process to ensure integrity through a distributed process where no one entity is dominant.  There is no single authority controlling the blockchain.


However... the current 25 Bitcoin reward is a tidy sum of cryptocurrency ($424/Bitcoin today). So miners started joining pools to increase their chances of earning some Bitcoin even if it is a smaller slice of the 25.  One such pool of miners joined forces and is operating under the name GHash. In 2014, GHash achieved a 55% of total network mining power for a 24-hour period.


BitFury, an ASIC designer/manufacturer, represents another mining approach.  They have built a $100M Bitcoin data-mining center in Georgia which will utilize their latest 28nm and 16nm ASICs as mining engines. It is estimated that the processing power housed in this data center could give BitFury the ability to achieve a 51%+ of total network mining power.


Another threat to the “no central authority” in Bitcoin blockchain is the network bandwidth separating segments of the blockchain from each other.  China has tons of mining capability, but a tiny straw of a network. That straw does not allow blockchain nodes outside China to catch up.  In effect allowing miners in China to dominate the blockchain. 


Even though these might be legitimate operators, the fact that they can even potentially control over 50% of the hashing power in the network, invalidates the premise that the Bitcoin blockchain is run without a central authority and puts the integrity of the system at risk. The decentralized Bitcoin blockchain now becomes a centralized blockchain based on whoever controls the most mining power.


There is more work to be done to achieve fairness in the Bitcoin blockchain world.


As mentioned in my other blog post on Blockchain, the Hyperledger (HLP) project, of which Hitachi belongs, has their sites set on creating an “enterprise grade, open source distributed ledger framework and code base, upon which users can build and run robust, industry-specific applications, platforms and hardware systems to support business transactions. “


In a recent blog by Nick Williamson of Credits, a blockchain infrastructure provider, discusses the merits of building a federated blockchain network and a federated network of such federated blockchain networks.   More on this in the future!