Blockchain mining and forking

When a miner mines a block, what does the miner actually do? What the miner does is take the hash Merkle root of the current block and then append a nonce which they guess by starting the increment from zero. They will hash this concatenated data to get a new hash and compare this result with the target. If this new hash is less than the target, which is basically a 256-bit number specified by bitcoin protocol, then they are done solving the puzzle and get the mining reward. However, if the new hash value is higher than the target value, they have to increase the nonce; that is, increase the nonce from zero to one, and append this one with the hash of the Merkle root, take the hash again to get another completely different new hash value and compare it with the target to check whether this new hash value is lower than the target value. If the new hash is now lower, then, again, they have solved this puzzle; otherwise, they keep repeating this entire process by incrementing the nonce value. So, it is important to realize that the lower the target is, the more difficult it is to find a hash value lower than the target value.

The bitcoin network automatically adjusts this target so that each 10 minutes we get a new block (recall the 10 minute puzzle from the pirate ship captains, this is what the puzzle means here). So, if the bitcoin network notices that it takes 5 minutes for blockchain to mine a new block, it will decrease the target value until it becomes difficult enough to take 10 minutes to solve. Conversely, if, for some reason, it takes 1 hour to mine a new block, the target value will be increased to make the mining easy enough to solve in 10 minutes. This is what the PoW algorithm does. So, what we understand is that mining is nothing but a dumb puzzle and a nonce is a possible solution to this dumb puzzle, while the target field is a benchmark value to check whether I have solved the dumb puzzle with optimal PoW; otherwise, my target benchmark gets changed. Also, it is very important to note that this process is entirely a hit or miss process with the gradual increment of the nonce. In computer science parlance, we call this process a brute force attack, where we try every possible combination to crack a code in shortest amount of time. This is the very reason we require high-performance devices like application-specific integrated circuit (ASIC) chips to mine bitcoins rather than normal central processing unit (CPU), graphics processing unit(GPU), or even field-programmable gate arrays (FPGAs). The reward amount for one such mining puzzle is presently 12.5 BTC for solving one block. Earlier, it was 50 BTC, and then it came down to 25 BTC and again down to what we have in the present. The mining of bitcoin will continue with degraded mining reward till all of the 21 million bitcoins have been mined.

Forking, on the other hand, is an entirely different phenomenon that causes a split on blockchain due to a change in the protocol or due to a requirement for reorganization. A blockchain fork splits a single chain of blocks into two. The new forks are the same till the point of forking and behave differently in terms of principles and technicalities post a forking event.

There are two types of fork (hard and soft), which occur in blockchain community. Each of them can be activated by the users or miners as depicted in Figure 1.10:

Figure 1.10: Types of forking

For example, in the bitcoin blockchain community, BIP148 from Segwit that occurred on August 01, 2017, was actually an user-activated soft fork (UASF); whereas, in the Ethereum blockchain community, the ETH/ETC Split post DAO tragedy was a user-activated hard fork (UAHF). To summarize, soft forks are backward compatible, while hard forks are not. In hard forks, the community has to choose only one of the forking paths and cannot go back to the other later with the changed specifications. A hard fork is like the red/blue pill of Morpheus from the movie The Matrix.