Proof of Nothing: Why Bitcoin Miner propagate empty blocks
The incentive structure of Bitcoin Mining as a balancing act between supply, demand, bitcoin price, hash rate and difficulty is complex. The cost-to-revenue ratio of providing network computing power is tight, meaning that mining is not always profitable. This was what Nakamoto wanted: Bitcoin Mining aims to secure the network – not the enrichment of miners.
Despite all prophecies of doom, falling courses do not lead to a spiral of death, as evoked by Professor Atulya Sarin, for example. After all, the incentive structure of Bitcoin Mining is as complex as it is ingenious: as the price falls, so does the real return from mining. After all, the rate of inflation in the network is set, falling prices can not be easily compensated with more "effort", ie an ASICS ramp-up, as more miners mine more bitcoin. Every ten minutes (currently) 12.5 BTC come into the network. Even the miners can not shake it. The real proceeds from the mining sink so in the bear market. The emphasis is on revenue – not profit. Profit is simply the difference between sales and costs. If turnover falls as described above, miners can still operate profitably.
Hash Rate and Difficulty Retargeting
And this is how it works: If sales fall, miners have the option of removing individual devices from the network, they do not have to close the whole farm right away. As a rule, inefficient miners of older generations first go off the grid. This reduces (electricity) costs and should usually pave the way for profitability.
It may be objected that fewer ASICs on the network, that is, hash rate, imply a lesser chance of propagating blocks successfully. That is correct. Remedy, however, creates the so-called difficulty retargeting algorithm. Finally, the network participants recalculate the difficulty level every 2.016 blocks (approximately every two weeks).
A low hash rate – we remember: a number of miners have taken their devices off the grid – implicates a lower target difficulty. That is, in the new cycle, even with the lower hash rate, the network should now be able to propagate a block every ten minutes.
The thing about the empty blocks
But the Coinbase Reward (12.5 BTC) is not the only source of income for the miners. Finally, they are also allowed to collect all fees for transactions that they include in the block. So why do miners still propagate empty blocks?
Let's look at what information is in such a block. The blocks are by no means empty, they contain data such as the Coinbase transaction, the block header and all other records that contain blocks anyway. To dig a "blank" block requires Proof of Work. Although such blocks do not contain transactions, they are not useless. They increase the accumulated energy that has flown into the network, making the blockchain safer.
However, miners refrain from earning part of their turnover when digging empty blocks. How so? Contrary to popular belief, finding empty blocks requires just as much work as propagating brimming blocks. A speed advantage hardly arises.
The reason is a lot more profane: as soon as miners have found a valid block, they can immediately start providing the proof of work for the next block in the chain. After all, you already know which transactions were included in the block. Meanwhile, the competition still needs to download and verify the new block – a minimal time penalty.
At the same time, however, all miners begin to provide proof of work for the new block. Until the verification process of the previous block is completed, only the Coinbase transaction is involved in it at first. An empty block is created when miners find a block before they can validate the previous one. Consequently, empty blocks are created very shortly after the previous block.
Empty blocks are not bad per se
Purging empty blocks is not harmful to the network per se. One could also see it as compensation for the centralization problem. As mentioned, those miners have a speed advantage that could propagate the previous block. Finding empty blocks recovers this advantage.
Nevertheless, it is of course desirable that miners record transactions in blocks. An excess of empty blocks could therefore be regarded as problematic, because it also increases the Mempool.
However, the empirical evidence is all-clear: As Diar notes in its latest newsletter, the number of empty blocks in the Bitcoin network has been steadily declining since 2015.
In 2018 there were only 438 pieces left.
This trend is likely to strengthen even further with the upcoming Reward Halving. So there is no need for panic.
Tutorial on bitcoin mining complacent? Right this way.
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