Miners (including Hashers and Pool-Operators)

Miners are thermodynamically securing the network with Proof of Work (PoW)

They are rewarded with new coins in addition to transaction fees. But high operational costs are forcing the miners to sell off the majority of this reward.

Miners produce blocks that are mathematically linked in a blockchain.

These blocks contain transactions between the bitcoin users.

The blockchain represents the history of all transactions.

Miners are on the supply side in the market, and are therefore putting downward pressure on the price of bitcoin due to inflation.

Pool-Operators construct blocks.

Hashers are paid by Pool-Operators to perform PoW on these blocks.

Hashers can leave or join any pool at any time.

A misbehaving Pool-Operator risk that Hashers will leave the pool.

Let’s say that a miner successfully finds block X:

The miner will be rewarded with newly created coins in addition to fees from all the included transactions.

However, this money does not become spendable until the blockchain have been extended with an additional 100 more blocks that must be built on top of block X.

If other miners don’t agree that block X is a valid block, then they will reject this block by not building on top of it.

But what happens if a majority, let’s say 75% of miners (by hash power) have decided to change the existing consensus rules?

They may now see block X as valid, even if the remaining minority (25%) of miners disagree.

The minority miners (the ones who does not want to change the rules) are only going to build on top of what they see as the “most work *VALID* chain”

A new and otherwise valid block, will also become invalid (in the eyes of this minority) if it is built on top of block X.

This is where the blockchain will split into two different chains / networks.

Difficulty Retargeting is an automatic adjustment of how difficult it should be to find a valid block.

Miners are competing against each other to find valid blocks.

If the value of bitcoin goes up; this will attract more miners and the combined hash-power of the network will be increased. The result of this is a shorter block-generation-time.

If the value of bitcoin goes down; then the opposite will happen, and the block-generation-time will become longer.

The Difficulty Retargeting schedule is 2016 blocks and the adjustment will always target a “block-generation-time” of 10 minutes. This means that an adjustment will normally happen once every two weeks (approximately)

If 75% of the miners have decided to do a hard fork; then they can basically change any rule they want, including the Difficulty Retargeting schedule.

But what happens to the 25% minority of miners that are left with a 2016 block schedule?

Their block-generation-time will be extended to 40 minutes which means that their next retargeting may take as long as 8 weeks (depending on where they are in the 2016-block-schedule)

Confirmations will be slow, but for HODLers this doesn’t really matter. The coin can still serve as a store-of-value if its users still have confidence.

When retargeting finally occurs; the block-generation-time will be returned to 10 minutes.