Bitcoin is a internet of money. Invented in 2008. Started in 2009
Bitcoin consists of –
- Bitcoin Protocol – A denetralized peer-to-peer network
- Blockchain – Public transaction ledger
- Consensus rule – Set of rules for independent transaction validation and currency issuance
- Proof-of-Work – Distributed computation system.
Mining– A decentralized mathematical and deterministic currency issuance. Competing to find solutions to a mathematical problem while processing bitcoin transactions (power to verify and record transactions) which is done every 10 minutes.
The mining process serves two purposes
in bitcoin:
- Mining nodes validate all transactions by reference to bitcoin’s consensus rules.
Therefore, mining provides security for bitcoin transactions by rejecting invalid
or malformed transactions. - Mining creates new bitcoin in each block, almost like a central bank printing new
money. The amount of bitcoin created per block is limited and diminishes with
time, following a fixed issuance schedule
Transaction script – A decentralized transaction verification system.
Paper title – “Bitcoin: A Peer-to-Peer Electronic Cash System” written by Satoshi Nakamoto.
Fast, Secure and Borderless. Distributed, peer-to-peer system. No central server or point of control. Created through a process called as mining.
Bitcoin is completerly decentralised by design and free of any central authority or point of control that can be attacked or corrupted.
Every 10 minutes or so, Mining computers compete against thousands of similar systems in a global race to find a solution to a block of transactions. Finding such a solution, the so called Proof-of-Work (PoW)
Fixed total 21 millions coins will be created by the year 2140.
Bitcoin is virtual. User of bitcoin own keys that allow then to prove ownership stored in digital wallet.
Application Specific Integrated Circuits (ASIC)
Unverified transactions when included in a new block it is called as candidate block.
Bitcoin Improvement Proposal
Important Notes-
- Bitcoin currency will defalte in long term as the rate of issuance will reduce and ultimately diminish.
- Bitcoin is not a physical or digital coins. The coins are implied in transactions that can be transfered from sender to receipient.
- Bitcoin users can transfer funds using the keys that a re stored in digital wallet/ledger. They need to sign a tranasction to unlock the value and spend it by transfering the funds. key that can sign the transactions is the only pre-requisite to spend bitcoin.
Types of wallets-
- Desktop Wallet
- Mobile Wallet
- Web Wallet
- Hardware signing devices (Harware wallet – most secure)
Full node versus lightweight
- Full node – offers complete autonomy to its users (self governance)
- Lightweight client. simplified-payment-verification (SPV)
- Third-party API client
Abbrevations –
- SPV – Simplified Payment Verification
- NFC – Near field communication
- POW – Proof of work
- P2P – peer-to-peer network
Computing problems –
- Byzantine Generals problem – consensus between various parties without a leader in distributed computing
Alogrithms-
- proof-of-work algorithm (pow)