SNBC - Intro to Bitcoin - Day 4

Transacting adversarially pt. 1

mining

Today's readings (and video) will broach the complex subject of bitcoin mining and fees. Mining is an exciting topic that is fraught with a controversial history. Mining transaction fees is a difficult topic to introduce, I think, because it is one of the touch points where the Bitcoin network interfaces with material reality¹.

The selection of readings intends to give you a sense for how the individual user is inextricably connected to the broader macro-economic factors in the Bitcoin network by paying transaction fees to the miners.

The first reading contains the notes of Cryotosensei (important points of clarification in the comments) as he attempts to grok the idea of a UTXO (Unspent Transaction Output) - the "coins" or "bills" in your wallet. Spending these requires you to have a wallet that will broadcast your transaction (see SNBC - Intro to Bitcoin -Day 3) to the mempool. You can think of the latter as a waiting area for transactions where they can be picked up by a miner finally to be included in a block. In spending your UTXO, you always will pay a fee, which is collected by the miners.

The second reading provides a guide to using Mempool.space, a block-chain explorer/visualizer.

Lastly, I've included a post shared by Undisciplined containing a short video lecture on the Bitcoin Halving, which provides a deeper dive into some of the macro-economic factors in mining, such as the block subsidy, the 21 million limit hard-capped supply schedule and the difficulty adjustment.

Take your time working through these concepts and please explore the resources in the further learning section.

Learning Objectives

🎯 To explore the analogy comparing UTXOs to "coins" in your wallet

🎯 To visualize the Bitcoin blockchain using a mempool explorer

🎯 To be able to use a public instance of mempool.space to identify high/low fees

🎯 To get an overview of more complex aspects of the bitcoin ecosystem such as the halving, mining, the 21 million hard-capped supply schedule and the block subsidy

All right, with that out of the way, let's get started!

Stacker News Readings

⚡️ Trying to understand what UTXOs are all about, by @cryotosensei

⚡️ Mempool.space: A Guide to Bitcoin Transactions, by @teemupleb

⚡️ The Bitcoin Halving Explained, link shared by @Undisciplined

Reflection questions:

👉 What is the relationship between UTXOs and the Bitcoin mining ecosystem? How much do you think individual transactions impact the profitability of the mining industry? How will this change in the future?

👉 Why might someone say that mining is one of Bitcoin's integral touch points with material economic realities?

👉 For an explanation of mining Proof of Work (POW) see "The Anatomy of Proof of Work, (linked below). What aspect of POW makes bitcoin transactions immutable once they have been confirmed?

👉 Bitcoin is pseudonymous, but not anonymous. Transactions are public, but not necessarily associated with your identity. How do you think bad-actors could misuse your transactional data on bitcoin? ...what about your data stored on the servers of central payment mechanisms like the bank? What would be the consequences of not maintaining your financial privacy?