An overview

Picture this: you’ve stumbled into a conversation where folks are going on about Bitcoin, tossing around words like “pseudonymous,” “decentralized,” and “blockchain,” and it feels like you’ve accidentally walked into an alien convention.

Photo by Towfiqu barbhuiya on Unsplash
Honestly, trying to get a grip on Bitcoin can be as bewildering as trying to nail jelly to the wall.

So let’s slice through the techie talk and keep it simple: Bitcoin’s pretty much a rebel in the financial world, a digital maverick that lets you handle your dough without any nosy banks butting in.

Imagine you’re kicking back, flipping through apps on your computer. You click Spotify, and boom, tunes for days. Bitcoin’s like that, but instead of jamming to beats, you’re joining a digital money party.

No cover charge, no ID needed, just download the Bitcoin software, and you’re connected to a global crew of like-minded folks.

Now, the Bitcoin network is like a sprawling digital treehouse with over 55,000 rooms (those are the “nodes”), and each room’s got someone like you or me running the show.

These nodes are the behind-the-scenes wizards keeping Bitcoin in check, making sure that all transactions are legit, and that no one’s trying to be sneaky with money they don’t have.

You might be asking yourself, “How do these nodes know what’s what?” Well, they’ve got a secret handshake — a ginormous file that’s basically a diary of every Bitcoin transaction ever made.

This file, also known as the blockchain, gets fatter by the second as new transactions are scribbled into it.

So, you’re probably wondering how it all ticks. Every time Bitcoin changes hands, it’s like sending a super-secret coded message, and these messages get bundled up into blocks, then loaded onto a never-ending digital freight train — the blockchain.

Every ten minutes, the Bitcoin workers, also known as miners, race to stamp these transactions into the blockchain. And what do they get for sweating over complex puzzles and burning enough electricity to power a small country? Bitcoins, fresh from the digital mint.

That’s right; they’re literally crafting coins out of thin air as a high-five for keeping the whole shebang running smoothly.

Nodes

Bitcoin operates through a network of computers called nodes, each running Bitcoin software. Once you join the network by running this software, you become a node.

Nodes enforce the network’s rules, ensuring only valid transactions circulate. They prevent fraudulent activity, such as attempts to spend more Bitcoin than owned. Each node has a copy of the blockchain, the exhaustive ledger of all transactions, allowing them to share updated information with other nodes.

Nodes also play a critical role in distributing transaction data.

They handle two types of information: new, unconfirmed transactions that await recording on the blockchain, and the confirmed transactions already inscribed in it.

Nodes receive and propagate the transactions, queuing them in the memory pool until miners, a specialized subset of nodes, confirm and append them to the blockchain.

The decentralization of Bitcoin lies in these nodes; they independently verify and relay transactions, each autonomously making decisions based on the same core rules.

This distributed agreement (or consensus) is the backbone of Bitcoin’s security and reliability, as no single entity controls the network. The sum of nodes, each verifying transactions and maintaining a copy of the blockchain, creates a robust system resistant to attacks and manipulation.

Transactions

The blockchain operates as a comprehensive log of all Bitcoin transactions. Nodes within this network are in charge of its upkeep.

Transactions in Bitcoin translate to lines of detailed information that convey the movement of currency: sender, receiver, and the amount. They take a form such as this: 8dd581d41d8ff5a37f4119468073016625ad33c5bd4a9d8705aa09fbff31d34d.

Initiating a transaction means dispatching this stream of information into the Bitcoin network.

Nodes, specifically miners, take on the role of inscribing your transaction into the blockchain. This inscription, known as mining, is not a solitary affair.

Transactions amass in bundles or blocks, each containing around 2000 transactions and measuring roughly 1MB.

Clients on the network engage in mining — the action of embedding your transaction into a block and integrating it into the blockchain, joining the continuum of recorded transactions.

Blocks

Blocks are the backbone of the Bitcoin network, each containing up to 2000 transactions and filling about 1MB of digital space.

Nodes on the network, also known as miners, create these blocks. They select transactions from a waiting area, the memory pool, and work relentlessly to carve them into the blockchain’s history. The process is ruthless, a non-stop competition among nodes to validate and record transactions.

Miners assemble transactions into a candidate block, a block-in-waiting, and label it with metadata — simple identifiers that serve as a block’s content summary.

To become part of the blockchain, candidate blocks must meet a strict criterion set every two weeks by the network — a target. This target acts like a finish line that defines the difficulty of the race. If miners cross the finish line too quickly, the network raises the bar, making it tougher to find the next block.

Miners increment a number within the candidate block, known as a nonce, running it through a hash function — a digital crucible that spits out a unique, fixed-length hash for the data. The goal is to produce a hash that falls below the target.

When a miner’s nonce adjustment finally produces an acceptable hash, the block is verified and snapped into the blockchain’s ever-lengthening chain.

The successful miner then plunges back into the memory pool to forge the next link in the chain, using the hash of their newly minted block as the starting point for the next round of the relentless mining race.

Blockchain

The blockchain doesn’t deal in isolation; it aggregates transactions into blocks before integration.

Every 10 minutes, a new set of 2000 transactions becomes a block, adding to the blockchain’s length. Blocks stack upon each other, creating a tower of digital record-keeping.

The longest chain of blocks forms the accepted history, setting the standard for all nodes in the network.

Miners engage in a relentless cycle, striving to extend the longest chain. They race, not for glory but for validation, for the chance to cement their block atop the tower.

Transactions on the blockchain equate to inputs and outputs; they trace Bitcoin’s path from one owner to another. These outputs are akin to vaults within the blockchain, each housing a specific Bitcoin amount. When you transfer Bitcoin, you’re not just sending currency, you’re assigning access to a vault only the recipient can open.

Consider Alice sending Bob 0.5 BTC. The transaction selects specific vaults Alice controls, empties them, and pours their contents into a new vault for Bob. Alice locks this vault in such a way that only Bob can open it, transferring ownership on the blockchain.

Owning some Bitcoin

To own bitcoins, you enter the digital realm where traditional banking protocols turn obsolete. Here, instead of an account and PIN, you secure a public key and a private key. Both keys are strings of numbers; the public key compresses into an address for practical use.

Public key: 02b4632d08485ff1df2db55b9dafd23347d1c47a457072a1e87be26896549a8737
Private key: ef235aacf90d9f4aadd8c92e4b2562e1d9eb97f0df9ba3b508258739cb013db2
Address: 1EUXSxuUVy2PC5enGXR1a3yxbEjNWMHuem

The public key and address serve the same function; the address merely a shorter form of the public key for ease of use. The private key guards against unauthorized Bitcoin transfers from your address.

When you receive Bitcoin, it locks into a virtual safe that only your private key can open. If you wish to transfer Bitcoin, a digital signature is required, proving ownership without revealing your private key. This signature, coupled with the transaction data, undergoes cryptographic validation to ensure integrity. The result confirms the legitimacy of the private key and, by extension, the transaction itself.

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