Bitcoin (What is Bitcoin ?) is one of the most famous implementation of blockchain. Infact bitcoin is the 1st implementation of Blockchain so lets take a moment to look at how transaction flows in blockchain, for example if Mr. A want to send some bitcoin to his fried Mr. B, how the flow will look like.
Here are the steps:
Step 1: A want to send money to B. A started the transaction.
Step 2: Transaction is added on a block. For simplicity lets assuming block has the details of this transaction. (In practice block will have more than one transaction).
Step 3: Block is broadcasted to all the parties (all computers) in the network.
Step 4: Transaction is validated and approved by all the party (all computer) in the network.
Step 5: Block is then added to the chain, which provides an immutable and transparent record of transaction.
Step 6: The money moves from A to B.
This is a typical cycle of transaction of bitcoin and blockchain in general. There is couple of points to note here-
- No manual involvement in the transaction, it’s just managed by computers on the networks. It didn’t go through any central agency or Bank.
- The computer on the network is called miners.
- Miners are responsible for adding the block (read transaction for now ) to the network. To add block on the network, Miner need to show Proof of Work. Also miner get rewarded for the work.
- Once a block added to n/w, all other miners validate it. After validation transition is added in the blockchain as permanent record.
Let’s review mining and Proof Of work in more details. I will take bitcoin n/w as example but it’s mostly true and applicable for other blockchain.
Mining
Block
Transaction data is permanently recorded in files called blocks. A block consists of some or all of the most recent bitcoin transactions.
What is Mining?
Mining is the process by which transaction are verified over the network. Once a transaction is verified it’s marked as success and added to the public ledger. This is also means through new bitcoin are released. Mining is important and integral part of bitcoin which ensures fairness and transparency.
Miner provides their resources like computing power, electricity to help with the bitcoin transactions. Mining is a compute intensive work, to add a block (set of new transactions) in the blockchain miners need to solve a puzzle called ‘Proof of Work’, anyone who solve the puzzle first gets to add the block in the network and rewarded for that. As a reward miner gets transaction fees associated with the transactions in the block and they also get newly generated bitcoin.
This is the process by which new bitcoin is generated, that’s why it’s called mining.
Who Can do Mining?
Any one from anywhere in the globe can participate in the mining process. You can do that, I can do that. However it worth noting that, the puzzle that miner needs to solve to place a block in the n/w is very compute intensive. This means if you are looking for mining, you should get power full machine otherwise you may not be able to beat fellow miners in the race of puzzle solving. If you don’t solve puzzle, you don’t get a chance to put new block on the network and hence no reward.
Is there any Transaction fee for bitcoin transfer?
Yes, however it’s up to you to decide how much transaction fee you are willing to pay for the transaction you are making. If you need a very quick transfer you may like to give more as fees, miner generally looks to add transactions with higher fee first in the block. This is for obvious reason as they get paid as the transaction fee for the block they added in the n/w.
Proof of Work
Proof of work is an important concepts used for fraud prevention on the network , to read more click on explain proof of work like a child
If you are looking to get started with blockchain or want to build basic concepts on blockchain, you may like to review this book.
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