Without the Blockchain Public Ledger, Bitcoin and all other crypto-currencies simply could not function. The Blockchain is literally distributed everywhere.
- The Blockchain Public Ledger is a relatively simple data file, which is central to the entire Bitcoin crypto-currency system.
- The Blockchain contains a record of every single Bitcoin transaction ever made, but it distributes this information in a unique way.
- As we record this in March of twenty eighteen, the Blockchain is around one hundred and fifty gigabytes in size, roughly the equivalent of thirty DVD films.
- What makes the Blockchain special is that it is shared across the Internet, in what is called a distributed network, which means it is not actually in one single place.
- Unique Bitcoin Receiving Addresses for most transactions help maintain Privacy.
Blockchain Public Ledger Explained
A copy of the BlockChain Public Ledger can be found on all Bitcoin Mining Computers as it is required in the process of Mining Blocks of new Bitcoin Transactions, validating the senders of Bitcoins have the right to spend them, and writing new confirmed Transaction Blocks into the BlockChain.
- Picture a single spreadsheet that is duplicated thousands of times across a network of thousands of computers.
- Now imagine that this network is designed to regularly update this spreadsheet across all of these computers all at the same time.
You now have a basic understanding of the Blockchain and a distributed network.
The Mining Process & The BlockChain
The Blockchain is not stored in any one place, it is distributed across hundreds of thousands of Mining Computers and some Bitcoin Wallet Applications across the entire Internet. As the Blockchain is updated with new Bitcoin Transactions, it is updated across all of these Computers, all at the same time. The Blockchain is the distributed ledger technology at the heart of Bitcoin and many other cryptocurrencies.
- When a Bitcoin transaction is first sent, in both the Senders and Receiver’s Bitcoin Wallet’s the transaction will actually say ‘unconfirmed’ for some time, and the recipient will not be able to spend these Bitcoins.
- Every few minutes, all the latest unconfirmed bitcoin transactions are gathered together into a single block, usually containing a few hundred, to a couple of thousand individual bitcoin transactions.
- This new Block of transactions then poses a mathematical puzzle to Bitcoin Mining Computers who compete with each other to guess the correct answer that will unlock this new block of transactions.
- The puzzle that needs solving is to find a number that when combined with the data inside the block, produces a result that is within a certain range. This acts like a key, and unlocks the block.
- No advanced mathematics or computation is involved, it’s basically just guesswork.
- The first Miner to guess correctly will unlock the new block of transactions. When this happens, the Miner announces this to the other Miners on the Internet.
- The other miners then check that the solution to the block puzzle is correct, and that the Senders of the Bitcoin transactions included inside the block have the right to spend the included Bitcoins.
For doing this work, the winning Miners receive a reward in Bitcoin. In order for Miners to earn Bitcoin rewards, they must verify at least one megabytes worth of transactions, and also be the first Miner to arrive at the right answer that unlocks a block puzzle. This is called “proof of work”.
6 Confirmed Blocks & Double-Spending check.
Before the Bitcoin in the Recipients Wallet can actually be spent, the transaction must be at least six blocks deep within the Blockchain Public Ledger. This is an auditing technique which prevents the possibility of fraud called “double-spending”. By waiting until a further six blocks of transactions have been confirmed, this ensures that there has been no attempt to fraudulently spend the same Bitcoins in other transactions. Six confirmed blocks is the usual minimum for Confirming a Bitcoin Transaction, but for some Bitcoin Wallets or Exchanges, more confirmed blocks, sometimes twenty or more, will be required before the Bitcoin transaction is trusted and fully confirmed.
Blockchain Public Ledger versus Bank Accounts
If you compare Bitcoin and the Blockchain to a regular Bank Account from a regular bank, it’s as if everybody’s accounts were grouped together in one huge single file that recorded all transactions, and that could also be opened and read by anyone. So, how do we guarantee everyone’s privacy, if all accounts, and all transactions are kept in one single file that can be read by anyone?
Your Wallet will generally never use the same Bitcoin Address (to Receive Bitcoin) more than once.
The vast majority of Bitcoin Transactions are sent to Receiving Bitcoin Addresses that are used only once, for one transaction. Without the Private Keys that created the Receiving Bitcoin Address, it’s impossible to identify the Wallet that actually owns the Address. Wallets can be setup to use a fixed Bitcoin Address, but the vast majority of Bitcoin Transactions are received into Bitcoin Addresses that are unique and used only once. An Electrum Wallet for example, can make around twenty one billion unique Bitcoin Addresses for receiving Bitcoin, all linked to the unique set of Private Keys that mathematically created them.
- Think of Bitcoin received into your Wallet, as being cash held inside a sealed envelope. Onto this sealed envelope is written the Bitcoin Address used to receive it. This is the way that your Wallet actually stores your Bitcoin.
- Through the magic of mathematics, the number of valid but unique Bitcoin addresses that your Wallet can make is unlimited.
- To the casual observer looking at the Blockchain, all Bitcoin Addresses appear random, with the exception of permanent addresses used by some businesses or Websites.
- Only the Private Keys held on your own Wallet, could mathematically identify the transactions recorded on the Blockchain that actually belong to your Wallet.
- This is why your Private Keys should always remain a secret to you alone, as there is a risk of theft from your Wallet if someone discovered them.
When you first install your Bitcoin Wallet on your Computer or Smartphone, it will generate a set of Private Keys, usually around sixty four characters in length, made from a mixture of both letters and numbers. You don’t need to do anything with your Private Keys, except keep them safe and confidential.
- Your Private keys mathematically generate your Wallet’s Public Keys, and a set of unique Bitcoin addresses which are used to receive Bitcoins.
- Importantly, the mathematical process that creates your Bitcoin Addresses from your Private Keys cannot be reversed. This means it’s impossible for anyone with a list of your Wallet’s Bitcoin Addresses – to work out in reverse what your Private Keys are. All of the Bitcoin Addresses that your Wallet generates will appear to be completely random.
- Your Private keys are also used to authorize Bitcoin transactions leaving your wallet.
- Your Private Keys must always remain confidential to you alone, as losing your Private Keys could mean losing the contents of your Wallet.
- The number of possible mathematical variations of each Private Key is a number larger than all the grains of sand on the Earth – combined. This immense number of possible variations for each Private Key prevents anyone or anything from simply guessing what your Private Keys actually are.
You can open the BlockChain yourself and browse through every Bitcoin Transaction ever made, by visiting blockexplorer.com On BlockExplorer.com, on the bottom of the page are live, real-time Bitcoin transactions that are flowing in from Bitcoin Wallets all around the world. These transactions are actually being slowed down so we can see them. The actual speed of transactions is much faster. In the left column, we have the heading called “Hash”, which contains rows of random letters and numbers. These random letters and numbers are actually what Bitcoin transactions look like when they leave your wallet. They are called a “Hash”.
Bitcoin Hash Transactions
A Hash is a mathematical process that encodes Bitcoin Transactions leaving your Wallet. This returns this long set of apparently random letters and numbers.
- All transactions are made public, which is why it’s called a Public Ledger. However, to maintain privacy, the receiving Bitcoin Addresses are random in the vast majority of cases, so it’s impossible to tell to which actual wallet a particular transaction was sent.
- There is no Bitcoin Address for the Wallet of the person sending the Bitcoin, but the actual Bitcoin being sent will have an associated Bitcoin Address. This is the Bitcoin Address that this Bitcoin obtained when it was received into the Wallet of the person who’s now sending it on. Generally, that address will also be a random, one-time-only bitcoin address.
A unique Bitcoin Address for (most) Received Bitcoin Transactions
With BlockExplorer and websites like it, you can search for any Bitcoin transaction ever made, including your own. All you need to do is search for a valid Bitcoin Address, and blockexplorer.com will show you the full transaction record. Excluding addresses used by businesses or donation websites, ninety nine percent of all Bitcoin Addresses that you can search for will have been used only once, and for only one transaction.
- Mining Bitcoin requires computers to guess the answer to a mathematical puzzle that unlocks blocks of Bitcoin Transactions.
- There is no complex decryption taking place, it’s all basically guess work.
- But the answer to the puzzle that unlocks blocks of transactions becomes exponentially more difficult as fewer Bitcoins remain to be mined.
- The puzzle that computers attempt to unlock is called a Hash, which is why if you look at professional Bitcoin Mining Computers, they will all advertise their Hash rate.
- Computers with high hash rates can make more guesses per second, which gives a better chance of winning Bitcoin from the Mining process.