Bitcoin and the Story of the Empty Transactions’ Block
Is this allowed? Why do some BTC miners do this?
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My goal with this newsletter has not changed since the first issue. I try to give you a complete overview of the Bitcoin revolution on all levels. I offer you articles on the price of Bitcoin, opinion articles on Bitcoin, but also articles that are a bit more technical to allow you to understand in more detail how Bitcoin works.
As such, feel free to ask me your questions in the comments. Every question deserves an answer because the philosophy of Bitcoin is above all to allow you to understand everything if you want to. I often get ideas for articles that I write based on questions from readers.
Writing this type of article allows me to answer the reader in detail while helping others who may have the same question. Last weekend, a reader asked me a very interesting question about a block of transactions added to the Bitcoin blockchain on February 1, 2022, that contained no transactions except the coinbase transaction.
As a reminder, each block of transactions in the Bitcoin Blockchain contains as its first transaction, the one that miners send to one of their addresses to get paid the mining reward. This is called the coinbase transaction. The block 721,366 mined on February 1, 2022, contained only the reward that the miners had to be paid for their work to secure the network:
To give you an idea, here is what a block of transactions added to the Bitcoin Blockchain normally looks like:
As you can see, a block normally contains transactions made by users of the Bitcoin network. This is how these transactions will be validated.
The reader who saw this phenomenon occur on February 1, 2022, logically asked me the following questions:
Is it allowed to mine an empty block of transactions?
Why do Bitcoin miners try to mine empty blocks?
Does this harm the Bitcoin network?
Mining an empty block is allowed. This is called SPV Mining.
To answer the first question, it is allowed to mine a block of transactions containing only the coinbase transaction. By doing so, however, miners forgo the revenue from transaction fees that they collect by successfully mining the next block of transactions. It is therefore not necessarily economically worthwhile to try to mine an empty transactions’ block.
This technique has a name: SPV Mining.
SPV mining means that miners will skip the step of validating the block and the transactions it contains to gain time over their competitors. They will immediately start mining a new block referencing the block they just obtained the cryptographic signature, the famous hash. Since they decided to skip the block verification step, they don't know which transactions will be included in this block. They will have to try to mine a block without any transactions, except the coinbase transaction. If they did not do this, they would risk including transactions in their block that are being mined that were already included in the previous block. Their block would be rejected by the network for not enforcing Bitcoin protocol rules.
So sometimes miners get lucky and manage to mine a new block directly after a block, which will be empty because they started working on it as soon as they got the hash of the previous block.
SPV Mining is a topic of debate within the community. Some miners refuse to apply this strategy to generate more profits.
It is important to understand that mining pools are in a continuous competition in which they always try to create the longest valid blockchain possible, to maximize their profits. Miner pools have therefore put in place strategies to allocate part of their computing power to SPV Mining.
This practice has been debated within the Bitcoin community for ages. Some say it is part of the game and a normal way to make money from Bitcoin mining. Opponents say it reduces the transaction validation capacity of the Bitcoin network, as empty blocks are mined faster than the average 10-minute delay, which will then lead to an increase in mining difficulty.
It can be seen that there was only one minute instead of the average ten minutes between block 721,365 and 721,366, which was an empty block produced by this SPV Mining practice:
Opponents of this practice also argue that it increases the likelihood that an invalid block will receive more confirmations, which could make the network less reliable for payments as the risk of double-spending becomes greater.
Some mining pools, therefore, outlaw this practice, while others continue to practice it.
The last point to remember is that mining pools do not lose more than 30 to 40 seconds with SPV Mining. Indeed, beyond this time, they have had time to validate the content of the next block by including transactions. This makes SPV Mining less profitable financially than trying to mine the next block with transactions inside. You can think of SPV mining as an attempt to win the Bitcoin mining lottery by letting chance work in your favor. If it doesn't work out quickly, Bitcoin miners who adopt this strategy focus on the more traditional strategy.
The next time you hear about an empty block story on the Bitcoin blockchain, you won't be surprised. Better yet, you'll be able to explain to anyone who asks what it is.
Some reading
Discover How a Transaction Is Added to the Bitcoin Blockchain and Secured via Mining in 9 Steps. Understanding the fundamentals of Bitcoin is essential.
What You Need To Know on Bitcoin 51% Attacks. Much has been said about this topic, but the economic interest in mounting such attacks is non-existent.
Bitcoin Price Hits $45.5K, but a Pullback With Consolidation on Supports Is Needed To Confirm the Momentum Reversal. For now, it's just the usual volatility of Bitcoin that is operating.
Bitcoin Futures Market 101. Everything you need to know.
The Digital Dollar Will Not Be a Threat to Bitcoin, but Rather a Trojan Horse Pushed by the Fed Itself. This would solve a major problem in the adoption of Bitcoin by the general public.