Cryptocurrency Mining Principles Flashcards

A Bitcoin miner purchases 100 ASICs rated at 110 TH/s each with a power draw of 3,250W per unit. The facility's electricity cost is $0.042/kWh. If the current network difficulty is 83.7 trillion and the block reward is 3.125 BTC at a BTC price of $68,000, approximately how many days would it take for this farm's daily revenue to equal its daily electricity cost (break-even on opex)?

Answer: The farm is already profitable on day one — daily revenue exceeds daily electricity cost immediately

At 11,000 TH/s (100 × 110 TH/s), the farm's estimated daily BTC earnings ≈ (11,000 / 83,700,000) × 144 blocks × 3.125 BTC ≈ 0.0623 BTC/day ≈ $4,236/day in revenue. Daily power consumption = 100 × 3.25 kW × 24 h = 7,800 kWh, costing $327.60/day. Since $4,236 >> $327.60, the farm is profitable from day one on an opex basis — no ramp-up delay is needed. The other options introduce false constraints not present in the scenario.

In the context of merged mining, which of the following statements MOST accurately describes the security implication for the auxiliary (child) chain?

Answer: The auxiliary chain can be 51% attacked at near-zero marginal cost if a majority of parent-chain miners choose not to participate in merged mining

Merged mining allows miners to mine both chains simultaneously with no extra hash rate, but participation is voluntary. If the majority of parent-chain miners opt out of merged mining on the auxiliary chain, only a small fraction of total hash power secures the auxiliary chain. An attacker controlling more than 50% of that participating subset — which may be a tiny fraction of the overall network — can execute a 51% attack at negligible marginal cost. This is an empirical risk demonstrated by attacks on merge-mined chains like Namecoin and Elastos. Option A is misleading because inherited hash power depends on participation rate, not total parent hash power.

A proof-of-work network uses the SHA-256d (double SHA-256) algorithm. A miner discovers that by exploiting 'difficulty retargeting lag,' she can time her entry and exit from the network to maximize profitability. This strategy is formally known as:

Answer: Pool hopping

Pool hopping (or more broadly, 'difficulty hopping' when applied across chains or retargeting windows) describes the strategy of mining a chain when its difficulty is temporarily low relative to the expected reward, then switching away before difficulty adjusts upward. The attacker exploits the lag between actual hash rate changes and the network's retargeting period. Selfish mining is a distinct withholding strategy where a miner delays broadcasting found blocks to gain a chain-length advantage. Hash rate arbitrage is a colloquial term but not the established formal name. Difficulty trailing is not a recognized term in mining strategy literature.

During the 2024 Bitcoin halving, the block subsidy dropped from 6.25 BTC to 3.125 BTC. From a miner's long-term economic standpoint, which outcome is most consistent with the halving's theoretical security model?

Answer: If BTC price appreciation and fee market growth are sufficient, miner revenue in fiat terms can remain stable or increase, preserving security incentives

Bitcoin's security model relies on miner revenue (subsidy + fees) denominated in fiat being sufficient to incentivize hash rate participation. Each halving compresses the block subsidy, but if BTC's price rises commensurately (historically it has, though not guaranteed) or the fee market matures, total revenue in USD/EUR terms can remain stable or grow. This is why halvings are not expected to collapse security in models assuming long-run price appreciation and fee-driven revenue. Option D is incorrect — difficulty adjusts to hash rate, not to miner profitability, and it cannot guarantee constant fiat revenue. Option B assumes price remains static, which is an incomplete model.

A mining pool operator implements a FPPS+ (Full Pay Per Share Plus) payout scheme. Compared to standard FPPS, the key distinguishing feature of FPPS+ is:

Answer: Miners receive their proportional share of transaction fees in addition to the standard block subsidy share

Standard FPPS pays miners based on expected value of shares submitted, covering the block subsidy, but typically socializes or excludes fee income. FPPS+ extends this by also distributing transaction fee income proportionally to hash rate contributed, giving miners exposure to high-fee periods (e.g., during Ordinals inscription spikes or congestion events). Option A describes FPPS generally. Option C correctly characterizes that the pool bears variance risk in FPPS/FPPS+, but does not distinguish the two. Option D describes a PPS or PPLNS model where payment is tied to actual block discovery.

Stratum V2 (the next-generation mining communication protocol) introduces 'Job Negotiation' as an optional sub-protocol. What is the primary purpose of this feature, and why does it represent a meaningful change from Stratum V1?

Answer: It enables individual miners or mining firmware to construct their own block templates rather than accepting pool-dictated templates, decentralizing transaction selection

In Stratum V1, pools have exclusive control over block template construction, meaning they decide which transactions are included — a meaningful centralization vector. Stratum V2's Job Negotiation sub-protocol shifts this power to miners (or their firmware/middleware), allowing them to propose or construct their own block templates that the pool then validates for proof-of-work. This is significant for censorship resistance and transaction inclusion policy. Option C describes another V2 feature (noise protocol encryption) but is not what Job Negotiation does. Option D describes share aggregation, not job negotiation. Option A conflates economic negotiation with protocol-level template selection.