Bitcoin protocol
Its key components and principles are: a peer-to-peer decentralized network with no central oversight; the blockchain technology, a public ledger that records all bitcoin transactions; mining and proof of work, the process to create new bitcoins and verify transactions; and cryptographic security.
Users broadcast cryptographically signed messages to the network using bitcoin cryptocurrency wallet software.
Mining packages groups of transactions into blocks, and produces a hash code that follows the rules of the bitcoin protocol.
Blockchain technology is a decentralized and secure digital ledger that records transactions across a network of computers.
Blockchain is the underlying technology for cryptocurrencies like bitcoin and has applications beyond finance, such as supply chain management and smart contracts.
[2][3] Bitcoin uses a proof-of-work system or a proof-or-transaction to form a distributed timestamp server as a peer-to-peer network.
During mining, practically all of the computing power of the bitcoin network is used to solve cryptographic tasks, which is proof of work.
Their purpose is to ensure that the generation of valid blocks involves a certain amount of effort so that subsequent modification of the blockchain, such as in the 51% attack scenario, can be practically ruled out.
[4][5] Requiring a proof of work to accept a new block to the blockchain was Satoshi Nakamoto's key innovation.
The mining process involves identifying a block that, when hashed twice with SHA-256, yields a number smaller than the given difficulty target.
While the average work required increases in inverse proportion to the difficulty target, a hash can always be verified by executing a single round of double SHA-256.
Majority consensus in bitcoin is represented by the longest chain, which required the greatest amount of effort to produce.
[3] To compensate for increasing hardware speed and varying interest in running nodes over time, the difficulty of finding a valid hash is adjusted roughly every two weeks.
An "arms race" has been observed through the various hashing technologies that have been used to mine bitcoins: basic central processing units (CPUs), high-end graphics processing units (GPUs), field-programmable gate arrays (FPGAs) and application-specific integrated circuits (ASICs) all have been used, each reducing the profitability of the less-specialized technology.
As bitcoins have become more difficult to mine, computer hardware manufacturing companies have seen an increase in sales of high-end ASIC products.
Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment.
Linking the transaction to a place in the chain demonstrates that a network node has accepted it, and blocks added after it further establish the confirmation.
[21] A specific problem that an internet payment system must solve is double-spending, whereby a user pays the same coin to two or more different recipients.
