A Quick Guide to Blockchain Technology for Beginners

How The Bitcoin Blockchain Works

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The principles of The Blockchain

As mentioned in my post History of The Blockchain, there are the principles that when combined create a blockchain. Public key cryptography, distributed network with a shared a, an incentive to service transactions, record-keeping, and security.

We can transact on a blockchain due to public key cryptography and the financial context of blockchain that use tokens. The first step is creating a transaction message in a wallet and sending it to the blockchain. We can create messages in a wallet by way of specifying how much we would like to spend. We enter the public key of the recipient to send our message and use a private key to sign the message and verify that we have the secret knowledge to send that message. Afterwards the transaction message is broadcasted to other computers on the blockchain. There is no way to reverse a bitcoin transaction.

Steps on How to Use the Blockchain

Open a wallet app.
Then create a new message specifying the amount of bitcoin to send, as well as the recipient’s address.
We are able to use our private key to “sign” the message.
After double-checking the message contents, we can broadcast the message to the network of computers running the full bitcoin blockchain.
The network then verifies that our message represents a valid transaction (specifically, it is checking to see if we have the amount of bitcoin we claim as well as we were the ones with access).
The the miners race to record new transactions into a block and guess the proof of work problem (specifically, to find a nonce that produces a block hash with the correct number of leading zeros).
A miner who finds a solution shares its proof of work with the other miners in the network. The other miners accept the block by beginning to work on the next block (which has to include the hash of the newly made block).
The winning miner receives a set quantity of new bitcoins as a reward.
After 10 minutes, you and the seller each receive confirmation that the transaction went through. You receive your goods/services from the seller. Done deal!

How Does Bitcoin Work?

The Bitcoin blockchain is structured as a peer-to-peer communications protocol secured by a network of computers that record transactions on a public ledger into a block of data. The ledger is updated when another block is linked to the previous block by nodes of computers. Some of the computers that make up this network are verifying transactions while others are participating in securing the chain through a process called mining.

Proof-of-Work Mining

Blocks are represented by hashes which are like fingerprints. These hashes reference data from a particular block. In other words, a hash will always be a certain set of characters no matter how much data is added to it. Data from a block can include a nonce (which I will describe later), transaction, the hash of the previous and current block. Each block points backward to the one before it by referencing the previous hash. Valid blocks in the chain act as a timestamp showing the state of the network at a particular time.

The software of the bitcoin protocol attaches a hash to a random number called nonce. This hash is a complex number with a certain number of zeros in front of it. Mining nodes try to guess the random number by generating random numbers. The node that generates the correct number first is awarded the next block and tokens from the protocol.

Think of hash rate as the total processing power needed to win the lottery and find the number to verify the next block. The higher the hash rate the more difficult it is for the Miners to find the nonce. Once the nonce is discovered miners share their Proof-of-Work record it took to find the nonce. This is recorded on the block. Proof-of-work is the breakthrough in distributed computing. It is very important because it is a way that allows a network to reach consensus.