How Bitcoin Works
bitcoin is a decentralized network of computers running identical software, maintaining synchronized copies of a shared ledger through cryptographic proof and economic incentives.
Network Architecture
bitcoin operates as a peer-to-peer network with specific roles:
• miners: process transactions and create new blocks
• wallets: manage keys and create transactions
• each participant enforces network rules independently
• no central authority or control point
The Blockchain
all bitcoin transactions are recorded in a chain of cryptographically linked blocks:
• blocks are cryptographically linked to previous blocks
• average block time is 10 minutes
• difficulty adjusts every 2016 blocks
• entire history is maintained by all full nodes
Transactions
bitcoin transactions are cryptographic structures:
• outputs specify amounts and conditions
• digital signatures prove ownership
• script system enables programmable conditions
• UTXO model prevents double-spending
Mining Process
miners secure the network through proof-of-work:
• construct candidate block meeting all rules
• compute proof-of-work by iterating nonce
• broadcast valid blocks to network
• receive block reward and transaction fees
Cryptographic Foundations
bitcoin relies on several cryptographic primitives:
• ECDSA: digital signature scheme
• Merkle Trees: efficient transaction verification
• Public Key Cryptography: address generation
• Hash Functions: proof-of-work mining
Network Consensus
nodes maintain consensus through specific rules:
• reject any invalid data
• follow longest valid chain
• propagate valid transactions and blocks
• maintain mempool of pending transactions
Economic Incentives
the system aligns incentives for all participants:
• nodes benefit from network security
• users gain monetary sovereignty
• developers enhance network value
• attackers face prohibitive costs
Scripting System
bitcoin includes a simple but powerful scripting language:
• supports multiple signature schemes
• enables time-locked transactions
• allows conditional payments
• facilitates payment channels
Network Propagation
information flows through the network efficiently:
• compact block relay reduces bandwidth
• peer discovery ensures connectivity
• DOS protection limits resource usage
• mempool manages pending transactions
Security Model
bitcoin achieves security through multiple mechanisms:
cryptographic proof makes transactions irreversible, economic incentives make honesty profitable, network consensus makes rules immutable, and proof-of-work makes attacks costly. this combination creates a system that is both theoretically sound and practically secure.