What Is The Blockchain?
The blockchain is the public record of bitcoin transactions, which are organized into blocks that are all chronologically linked to one another.
Because every block is linked to the previous block in chronological order, it forms a “chain of blocks.” Thus, the name “Blockchain.” The very first block that was ever mined is commonly known as the Genesis block and every block that has been mined since the beginning is ultimately linked all the way back to the Genesis Block.
A full and complete copy of the blockchain is kept and constantly updated by the network of full nodesWhat Is A Bitcoin Node? A bitcoin node is any computer that runs the bitcoin software, enforces the bitcoin consensus rules, and validates bitcoin transactions and blocks. Bitcoin nodes are... distributed all around the world and specialized computers known as bitcoin miners confirm new blocks of transactions.
How Does The Blockchain Work?
The blockchain has two main components: adding transactions to the blockchain and storing the blockchain. Both are critical to making the network decentralized, safe, and honest.
Specialized bitcoin nodesWhat Is A Bitcoin Node? A bitcoin node is any computer that runs the bitcoin software, enforces the bitcoin consensus rules, and validates bitcoin transactions and blocks. Bitcoin nodes are..., known as miners, are responsible for adding transactions to the blockchain, while other specialized bitcoin nodes, known as full nodes, are responsible for keeping and maintaining a complete record of the entire blockchain.
Mining nodes add to the blockchain, whereas full nodes keep a complete record of the entire blockchain. When bitcoin miners locate a new block they fill it with transactions that are awaiting confirmation and then send it to the full nodes to be added to the blockchain. The full nodes will verify that all of the data in the block complies with the bitcoin consensus rulesWhat Are The Bitcoin Consensus Rules? The Bitcoin consensus rules are the set of rules that all of the bitcoin nodes agree on that govern and maintain the Bitcoin protocol..... If all of the data is valid, the block is added to the blockchain.
The Genesis Block
The Genesis Block, also known as Block 0, marks the birth of Bitcoin and the blockchain. Satoshi NakamotoWho Is Satoshi Nakamoto? Satoshi Nakamoto is the creator of Bitcoin and the first user of the original Bitcoin client. He has said in a P2P foundation profile that he..., the creator of Bitcoin, mined The Genesis Block on January 3rd, 2009. This one-of-a-kind block was the first to be recorded, and all subsequent blocks are ultimately linked to it.
A message from the front page of the UK newspaper “The Times” was encoded within the block itself. The headline reads, “Chancellor on brink of second bailout for banks.” This serves as both a timestamp for when the Genesis block was mined as well as a reminder that bitcoin was created to provide the world with an alternative to the global banking system.
Adding A Block To The Chain
Bitcoin miners compete to complete a computationally difficult task in order to add a new block of transactions to the chain. They are racing against each other to guess a very precise number that requires an enormous amount of work to discover. This precise number is called a nonceWhat Is A Nonce? A nonce, short for "number used once", is a pseudo-random number used by miners to iterate the output of their block hash. Miners use a trial-and-error.... Bitcoin miners systematically estimate billions upon billions of random nonces until they locate the one that solves a mathematical equation. When a miner discovers this exact number, they have discovered the critical piece of information necessary to add a fresh block of transactions to the chain. Because this math problem can only be solved by huge amounts of guesswork, discovering the solution and publishing it shows proof of workWhat Is Proof Of Work? Proof Of Work, often abbreviated as PoW, is both the method for achieving consensus across the entire Bitcoin network as well as a piece of... done to find the number.
For finding this very specific number, miners are rewarded with a couple of things. First and foremost, they are paid with newly generated bitcoin. Second, they get to pick which unconfirmed transactions to include in their newly discovered block and the transaction fees for those transaction.
Since the size of bitcoin blocks is limited to 1MB, Bitcoin miners have a financial incentive to include the transactions that pay the greatest fee rateWhat Is The Fee Rate? The fee rate for a Bitcoin transaction is the number of sats a sender is willing to pay for each byte of on-chain transaction data.... when deciding which transactions to choose from the pool of available transactions. After the miner selects the transactions they want to include, they receive the fee for each payment they include in the block. The miner then sends this block of new transactions to a full nodeWhat Is A Bitcoin Node? A bitcoin node is any computer that runs the bitcoin software, enforces the bitcoin consensus rules, and validates bitcoin transactions and blocks. Bitcoin nodes are... to check that the number they discovered is correct. After all of this has taken place, the process of locating a new nonce starts all over again.
Storing The Blockchain
Instead of the Blockchain being stored on a single server or database, the Blockchain is stored on servers that are spread out across the world. These servers are referred to as full nodes and they can be run by anyone. Because each full node maintains a complete record of the entire blockchain, it is impossible for any single entity to modify the data without all of the other nodes in the network being aware of it. Once a single node has successfully added a valid block to the blockchain, it will notify other nodes, referred to as “peers,” that a new block has been added. Those peers will also check to make sure that all of the information is correct and that it does not violate any of the Bitcoin consensus rules. Once again, if everything is correct, they will relay the block to more peers until the entire network has been informed of the new block of transactions and the blockchain has been updated accordingly. Because every node validates every block of transactions uploaded to the blockchain, every node has EXACTLY the same record.
This decentralized design is a critical part of what makes Bitcoin secure.