With all this Bitcoin in the news, do you want to understand the basics?
Yeah, me too.
I've spent the past week reading up on the protocol. Here's what I've learned.
Bitcoin, explained in simple terms 👇
//Thread//
(Disclaimer: I don't own BTC)
Yeah, me too.
I've spent the past week reading up on the protocol. Here's what I've learned.
Bitcoin, explained in simple terms 👇
//Thread//
(Disclaimer: I don't own BTC)
Bitcoin is a software system.
That software is used across a network of computers.
Those computers follow the rules of the software.
1/
That software is used across a network of computers.
Those computers follow the rules of the software.
1/
Individual people use digital wallets to "store" their Bitcoin.
Wallet = folder on a computer.
Each wallet has a unique ID and unique password.
The password is called a key
Using their key, an individual can authorize transfers from their wallet to other wallet(s).
2/
Wallet = folder on a computer.
Each wallet has a unique ID and unique password.
The password is called a key
Using their key, an individual can authorize transfers from their wallet to other wallet(s).
2/
Every Bitcoin transaction that's ever occurred is recorded on the blockchain.
Blockchain = fancy Google Sheet
The blockchain is a distributed ledger, similar to a spreadsheet that is maintained and monitored by multiple people all over the globe.
3/
Blockchain = fancy Google Sheet
The blockchain is a distributed ledger, similar to a spreadsheet that is maintained and monitored by multiple people all over the globe.
3/
People monitoring the blockchain are called nodes.
New wallet-to-wallet transactions are bundled into 'blocks' and appended to the blockchain (i.e. new row in the spreadsheet)
Nodes keep copies of the blockchain and 'validate' new blocks.
Validate? What does that mean...
4/
New wallet-to-wallet transactions are bundled into 'blocks' and appended to the blockchain (i.e. new row in the spreadsheet)
Nodes keep copies of the blockchain and 'validate' new blocks.
Validate? What does that mean...
4/
In order to provide validity to new blocks, proof of work (PoW) must be submitted
PoW? It's why a physically fit trainer is more trustworthy than an obese trainer.
If you've put in the work, you're more trustworthy.
What constitutes PoW on the Bitcoin network?
5/
PoW? It's why a physically fit trainer is more trustworthy than an obese trainer.
If you've put in the work, you're more trustworthy.
What constitutes PoW on the Bitcoin network?
5/
Bitcoin PoW = solving a very hard "puzzle" or "code" (code-breaking prefix = 'crypto')
This puzzle-solving is called mining.
The first miner to solve the puzzle is rewarded with Bitcoin as a prize.
Let's talk more about this puzzle
6/
This puzzle-solving is called mining.
The first miner to solve the puzzle is rewarded with Bitcoin as a prize.
Let's talk more about this puzzle
6/
The puzzle involves a code, or hash, that only works in one direction.
Everyone on the network can verify that a specific input leads to a specific output.
But it's near-impossible to start with an output and find its input.
We need a better metaphor...next!
7/
Everyone on the network can verify that a specific input leads to a specific output.
But it's near-impossible to start with an output and find its input.
We need a better metaphor...next!
7/
The challenge that miners are given is:
"Take this hash output. Find the correct input."
It's like starting with an already-made sausage and being asked to reassemble its constituent raw meat.
Sausage makers are only predictable in one direction (in to out, not out to in)
8/
"Take this hash output. Find the correct input."
It's like starting with an already-made sausage and being asked to reassemble its constituent raw meat.
Sausage makers are only predictable in one direction (in to out, not out to in)
8/
The specifics of the puzzle output (or made sausage) are based on previous blocks.
The next puzzle is only created once the previous block has been added to the blockchain.
Therefore, one cannot predict or solve a puzzle ahead of time.
9/
The next puzzle is only created once the previous block has been added to the blockchain.
Therefore, one cannot predict or solve a puzzle ahead of time.
9/
All miners compete to solve the puzzle, but only one miner can win.
That miner provides their solution, or proof of work, to the puzzle.
"If you assemble raw meat like *this*, you perfectly recreate the target output sausage."
Voila! Eureka!
/10
That miner provides their solution, or proof of work, to the puzzle.
"If you assemble raw meat like *this*, you perfectly recreate the target output sausage."
Voila! Eureka!
/10
The nodes on the network verify the solution.
"Ahh, yes. Your proposal DOES recreate the correct sausage. Your PoW is correct"
The nodes add the new block onto the blockchain, verifying the transactions therein.
The winning miner gets a prize (in Bitcoin, not sausages)
/11
"Ahh, yes. Your proposal DOES recreate the correct sausage. Your PoW is correct"
The nodes add the new block onto the blockchain, verifying the transactions therein.
The winning miner gets a prize (in Bitcoin, not sausages)
/11
All parties win.
The miner gets their Bitcoin prize.
The network gets consensus, or group agreement, that the new transactions have been validated.
/12
The miner gets their Bitcoin prize.
The network gets consensus, or group agreement, that the new transactions have been validated.
/12
Cryptography provides difficulty.
Pushing through difficulty grows trust.
Universal trust is called consensus.
And consensus in need for money to be accepted.
/13
Pushing through difficulty grows trust.
Universal trust is called consensus.
And consensus in need for money to be accepted.
/13
And then the process starts all over again.
New transactions (block)
New puzzle (crypto sausage)
New race to solve the puzzle (mining)
New solution (proof of work)
Verify the transactions (add to blockchain)
That's it.
That's explaining bitcoin in simple terms.
/14
New transactions (block)
New puzzle (crypto sausage)
New race to solve the puzzle (mining)
New solution (proof of work)
Verify the transactions (add to blockchain)
That's it.
That's explaining bitcoin in simple terms.
/14
You probably have questions.
Me too. But there are good (or least *cool*) answers out there.
Stay tuned.
I'm publishing a blog post with explanations this week.
If you got this far, you rock!
Thanks for reading🙏
/14
Me too. But there are good (or least *cool*) answers out there.
Stay tuned.
I'm publishing a blog post with explanations this week.
If you got this far, you rock!
Thanks for reading🙏
/14
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