Bitcoin has been a star right after its launch to the public. It became a source of income for people who are doing financial mining and investing. However, having a wider understanding of it is needed, especially if you are an aspiring user of it also. Given that, here are the two things to know about Bitcoin.
Storage is a potential problem considered in a decentralized network. How can you then store your transaction histories and balances?
Well, in conventional centralized systems, dedicated servers are put, owned, and maintained by different financial institutions, including banks, to store every inch of data. Although the data needs to be highly confidential and secured, there are somehow instances wherein hackers can still gain access to it.
Moreover, the Bitcoin system uses no single authority for data control. Instead, the information is all made public.
This is done by Bitcoin by employing a distributed peer-to-peer network. Here, the data is spread across thousands of computer participants called nodes, and these are all connected through the internet. Also, the nodes have access to the blockchain or ledger that gets updated when a new transaction is added. The transactions are then carried out based on the set of rules called the Bitcoin protocol. You can invest in bitcoins using bitcoins circuit
Process to Carry out Transactions
Let us say that Alice will send Ben one Bitcoin.
The first thing to do here is to verify that Alice is the legit owner of at least one Bitcoin. Next, the blockchain network will not allow any single entry where the currency of a person can be seen by others. Instead, through the calculation of all previous transactions, it will result to a balance. This process is also called the transaction chain.
When you download the Bitcoin software for the first time, you will be sent a complete transaction chain copy that is why the download time can reach up to a day. Once the transaction chain is already received, you will have an easier time in determining Alice’s current balance.
Then, once Alice have verified her ownership of the Bitcoin and to proceed to the transaction, there must be a broadcast of the transaction message. The message contains the addresses of both the sender and receiver. It also has the amount to be transferred, as well as the digital signature of the sender. As it is publicly broadcasted, any of the network’s node can relay the message to pick up for execution.
But before the execution, the transaction must be added to the pile of unconfirmed transactions called the mempool. From this, it will then proceed to the picking of miners, who are basically the validators of transactions. After completing and validating the transaction, it will be added by the miners to new blocks.
Take note that blocks have a fixed size, as well as a number of transactions to create new blocks. Also, the current block has a linkage to the earlier block to form a blockchain.
However, who is responsible for making decisions to which transactions will be added next to the latest block?
Well, typically, the miners have the freedom to leave or pick whichever transaction they want. To make incentives from them to pick yours, pay them a part of the transaction. But it must not be viewed as a compulsory since there are other incentives offered to miners to make blocks called block rewards.
Whenever there is a newly added block to the chain, a miner will be rewarded with a new Bitcoin. There is also a change in the exact amount over time, as well as a decrease as the network is growing. It is also the block rewards that serve as the natural way of the system to mint new money.