Accounting Units of Bitcoin
The accounting unit of the bitcoin system
is called bitcoin, its currency codes are BTC and XBT and Its Unicode character
is ₿.
One bitcoin is divisible max upto eight decimal
places that are the millibitcoin (mBTC), equal to 1⁄1000 bitcoin, and the
satoshi (sat). This is the smallest possible division, and named after the bitcoin's
creator, representing 1⁄100000000 (one hundred millionth)
bitcoin. 100,000 satoshis are one mBTC.
What is Blockchain
Although the blockchain technology
is older than Bitcoin, it is a core underlying component of most cryptocurrency
networks. In bitcoin blockchain is a public ledger that records bitcoin
transactions. This public digital ledger that is responsible for
keeping a permanent record (chain of blocks) of all previously confirmed
transactions.
Blockchain is maintain by a network of
communicating nodes which is running bitcoin software. Readily available
software applications are used to broadcast transactions form payer X
sends Y bitcoins to payee Z, to this network. These transactions are
validated by networks nodes which include them to their copy of ledger and broadcast
these ledger additions to other nodes.
Each network node stores its own copy of the
blockchain for independent verification of the chain of ownership. A new
group of accepted transactions, called a block, is created at varying intervals
of time averaging to every 10 minutes, added to the blockchain, and immediately
broadcast to all nodes, without requiring central oversight. This process allows
bitcoin software to regulate when a particular bitcoin was spent and help to prevent double-spending.
The blockchain is the only place where bitcoins can be said to exist in the
form of unspent outputs of transactions.
Transactions
A transfer of value between Bitcoin
wallets that gets included in the block chain is called transaction.
Ownership of Bitcoin
Bitcoin wallets keep a secret piece
of data called a private key or seed, which
is used to sign transactions, providing a mathematical proof that they have
come from the owner of the wallet. The signature also prevents the transaction from being altered by
anybody once it has been issued. All transactions are broadcast to the network
and usually begin to be confirmed within 10-20 minutes, through a process
called mining.
To ensure the security of bitcoins, the private key
must be kept secret. If the private key is revealed to a
third party, e.g. through a data breach, the third party can use it
to steal any associated bitcoins. As of December 2017, around ₿980,000 have been stolen from cryptocurrency exchanges.
Regarding ownership distribution, as of 16 March
2018, 0.5% of bitcoin wallets own 87% of all bitcoins ever mined.
Mining of Bitcoin
Mining is a record-keeping service done through
the use of computer processing power. It includes a distributed
consensus system that is used to confirm pending
transactions by including them in the block chain. It applies a chronological
order in the block chain, protects the neutrality of the network, and allows
different computers (nodes) to agree on the state of the system. To be
confirmed, transactions must be packed in a block that fits very
strict cryptographic rules (cryptographic hash) that will be verified by the
network. Example
of block hash are as under:
0000000000000000000590fc0f3eba193a278534220b2b37e9849e1a770ca959
These rules
prevent previous blocks from being modified because doing so would invalidate
all the subsequent blocks. Mining also creates the equivalent of a competitive
lottery that prevents any individual from easily adding new blocks
consecutively to the block chain. In this way, no group or individuals can
control what is included in the block chain or replace parts of the block chain
to roll back their own spends.
The vast majority of mining power is
grouped together in mining pools to reduce
variance in miner income. Independent miners may have to work for several years
to mine a single block of transactions and receive payment. In a mining pool,
all participating miners get paid every time any participant generates a block.
This payment is proportionate to the amount of work an individual miner
contributed to the pool.
Supply of Bitcoin
The miner who succeed finding the new block is permissible
by the rest of the network to collect for themselves all transaction fees from
transactions they included in the block, as well as a predetermined reward of
newly created bitcoins. This reward is currently ₿6.25 in newly created
bitcoins per block. A special transaction is included in the block called
a coinbase, to claim this reward, with the miner as the payee. All
bitcoins in existence have been created by this type of transaction. The bitcoin protocol requires
that the reward for adding a block will be reduced by half every 210,000 blocks
i.e approximately every four years. Finally, the reward will round down to
zero, and the limit of ₿21 million is
expected to be reached circa. The record keeping will then be
rewarded by transaction fees only i.e 2140 at current rates.
Decentralization Feature of
Bitcoin
Bitcoin is decentralized therefore: Bitcoin does not
have a central authority and its network is peer-to-peer, without central
servers and without central storage; the bitcoin ledger is distributed. This
ledger is public hence anybody can store it on a computer. There is no single administrator
so the ledger is maintained by a network of equally privileged miners and anyone
can become a miner. The additions to the ledger are maintained through
competition. Until a new block is added to the ledger, it is not known which
miner will create the block. The issuance of bitcoins is decentralized and they
are issued as a reward for the creation of a new block. Anyone can create a new bitcoin address or a
bitcoin counterpart of a bank account, without needing any approval and can
send a transaction to the network without needing any approval; the network
merely confirms that the transaction is legitimate.
Wallets of Bitcoins
A wallet stores the information necessary for transactions bitcoins. Wallets are described as a place to hold or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A wallet is more correctly defined as something that "A Bitcoin wallet is a tool for interacting with the Bitcoin network. Use it to buy, sell, send, receive, and trade bitcoin”. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys.