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Key Concepts of the Bitcoin Network
Bitcoin is a whole virtual world. To find a way in this world, you need to know the key concepts. Today, we’ll tell you all about blockchain, blocks, nodes and mining.
Blocks in the Bitcoin blockchain are, in essence, registers that contain both information about each particular transaction (transfer) and information about all network transactions. Each block has a fixed size which imposes certain restrictions on the Bitcoin network operations.
This is the cornerstone of Bitcoin. One might as well say that it was not Bitcoin that created the blockchain — rather, it was the blockchain that created Bitcoin. All types and kinds of existing blockchains are based on the Bitcoin blockchain. Blockchain is, in essence, a linked chain of blocks, which one block following another chronologically. A block in the Bitcoin network is no more than 1 MB. Overall, the entire Bitcoin network is about 142.5 GB.
Mining is a process of supporting network operations and generating bitcoins. It involves solving mathematical problems — hashes — by making calculations. When the right answer is obtained, new blocks are created and new coins are generated. The process is automatic and uses special software. In the first few years of Bitcoin’s existence, mining could be carried out using regular computers, but now it can only be done using specialized powerful equipment. Bitcoin is virtually not mined by separate users — it’s a real industry: huge “farms” with maintenance costs amounting to the biggest part of mined coins.
Before traders and investors owning huge amounts of bitcoins appeared, miners were dominating the Bitcoin network. But even now the network’s very existence depends on miners since their main functions is validating transactions, adding new blocks into the blockchain and generating new bitcoins which are then given to them as a reward after hash is calculated. The reward is large — 12.5 ВТС per generated block. In addition, miners receive the fees paid by other network users for transaction validation.
A node is any computer in the Bitcoin network (where mining is “enabled”). Miners use nodes to support network operations. Each node stores a copy of blockchain and verifies the block chain sequence against that stored by other nodes on a continuous basis. If a node finds a block that does not correspond to the block chain sequence in the network, this block is rejected and is not included into the blockchain. This principle explains the invulnerability of Blockchain that cannot be hacked and modified.