Chapter 04 · The Bitcoin breakthrough

Reaching agreement without a leader

10 min

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This chapter builds on the ones before it. You can read it now, but it will not count towards your progress until the earlier chapters are done.

Chapter

Block

# block 0001

Bitcoin uses roughly as much electricity as a country like Poland (electricity estimate: CCAF⁠(opens in a new tab)). From far away, it sounds absurd. Up close, it's the exact opposite: it's the only known way for millions of strangers to agree on the same ledger, on an open network, with no leader and no trust required. This chapter explains why.

Picture a global network where nobody knows anyone, and nobody trusts anyone. And yet everyone has to agree on a single version of the ledger.

Who paid whom?
Which transaction is valid?
Which one is a fraud?

In a centralized system, the answer is easy: an authority decides. But here, there is no authority.

This coordination problem has a historical name: the Byzantine Generals Problem⁠(opens in a new tab), formulated by Lamport in 1982. Bitcoin is its first solution deployed at scale on an open, permissionless network.

# block 0002

Double-spending

Nicolas

Transaction Asigned from Paris0.1 BTC

Christine L.

Transaction Bsigned from Tokyo0.1 BTC

Mrs. Smith

Same bitcoin, two recipients. Nicolas tries to spend it twice, from two different points on the globe.

Quiz

How do you settle a dispute between two competing transactions, with no central authority?

# block 0003

Let's look at exactly how Bitcoin solves this. We'll walk through three pieces, in order:

The mempool
How mining works
How consensus emerges

# block 0004

Memory Pool: the waiting room

When a transaction is submitted to the Bitcoin network, it isn't validated right away. It lands in a waiting room called the "mempool".

Every node on the network keeps its own mempool: valid transactions, not yet confirmed, and potentially... in conflict with each other.

Yes, you read that right. Two contradictory transactions can coexist for a while:

Nicolas sends 1 BTC to Ms. Smith
Nicolas sends the same BTC to Christine L.

Both can travel through the network in parallel. At this point, there's no consensus yet.

MempoolPending transactions
MarcLea0.5 BTC
CarlosDiana0.12 BTC
NicolasSmith0.1 BTC
EricFatima0.03 BTC
NicolasChristine L.0.1 BTC
GraceHiro2.4 BTC
Nicolas is trying to spend the same BTC twice: once to Ms. Smith, once to Christine L.

# block 0005

This is where miners step in. Their job:

pick transactions from the mempool
bundle them into a block
try to get the network to accept that block

But here's the catch: anyone can propose a block. So how do we decide who gets to write the next page?
The answer is simple, and a bit darwinian: the first to find the solution wins.

A global competition like no other

The miner builds the block header and runs it through a hash function (SHA-256, applied twice - yes, twice, on purpose).

The goal: get a hash numerically lower than a target set by the network. Since a hash is written in hexadecimal, in practice this means producing a hash that starts with a certain number of zeros.

To get there, the miner tweaks a parameter called the nonce and tries again.

Pure trial and error.
No trick. No magic shortcut.
Just raw computing power.

You want in? Go for it: the competition is open to everyone, after all.

Mining simulatorTarget: the hash must start with0000…
Block header being hashed:bloc #100828
prevHash a0bf53fc…943a1d
merkleRoot 7f83b165…4c9b
timestamp 2024-01-15T14:32:07Z
nonce 0

# block 0006

The first miner to find a valid hash broadcasts the block to the network. Other nodes verify it within seconds, and if everything checks out, the block is added to the ledger.

Remember the two competing transactions from earlier? If the miner picked one of them for the new block, the other becomes invalid: nodes drop it from their mempool over time.

MempoolPending transactions
MarcLea0.5 BTC
CarlosDiana0.12 BTC
NicolasSmith0.1 BTC
EricFatima0.03 BTC
NicolasChristine L.0.1 BTC
GraceHiro2.4 BTC
Nicolas is trying to spend the same BTC twice: once to Ms. Smith, once to Christine L.
Block #100828
Header & included transactions
prevHasha0bf53fc…943a1d
merkleRoot7f83b165…4c9b
nonce42817
MarcLea0.5 BTC
CarlosDiana0.12 BTC
NicolasSmith0.1 BTC
EricFatima0.03 BTC

# block 0007

And here's where you'll come at me: "What happens if two miners find a valid hash at the exact same time?"
Great question. A tricky case, and one that actually happens often.

The tricky case: two (or more) competing chains

It can happen that two miners validate a block at the same moment: the network ends up with two competing versions.

This is what's called a temporary fork.

The consensus rule is simple: as blocks pile up, the network converges toward the chain with the most accumulated work - not necessarily the longest in number of blocks, but the one with the highest total difficulty (which is almost always the same thing).

In other words: miners keep building on whichever block they received first, one chain pulls ahead, and the other is naturally abandoned.

# block 0008

Before wrapping up, one last piece: the difficulty target.

Difficulty as a digital clock

The difficulty target isn't picked at random.

It readjusts every 2016 blocks (~2 weeks) so that one block is mined every 10 minutes on average.

Difficulty self-regulation

400miners

Hash target0000…

Avg time / block10 min

No matter how many miners are on the network, the target adjusts to maintain one block every ~10 minutes. More miners ⇒ more zeros required ⇒ harder problem.

# block 0009

That's it. Proof of Work pulls off two feats at once: it makes conflicts economically ruinous, and it turns energy into trust.

But why would miners burn that much energy just to take part?
On to the next chapter: .