Before you jump onto investing your hard earned money on Bitcoins, it is preferable to understand what happens under the hood. If you have been hearing your friends talk about Bitcoins, its mining, blockchain and how they work; then you would have come across many questions.
What happens when you send Bitcoins to your friends?
How does a client post a new transaction on to the network?
What happens when you broadcast a transaction on the Bitcoin network?
And many more. So, let’s find out.
Bitcoin encompasses two pieces, blockchain, and nodes. A node maintains its version of blockchain and updates it once it gets a more extended version. To simplify it, even more, blockchain comprises of blocks and blocks comprises of transactions. Let’s put the entire transaction process in a more non-technical manner.
- Buyer initiates a bitcoin payment using a bitcoin wallet or an exchange.
- This transaction along with many others is broadcasted on the bitcoin network.
- Once in every ten minutes, miners with specialized computers collect some transactions from the Bitcoin network, verify and combine them in a ‘BLOCK’. Which is called mining.
- For mining a block & validating a transaction, these miners solve a complex mathematical equation called a hash function. Any miner who solves the equation first needs to process the block and broadcast his proof-of-work on the Bitcoin network.
- Other miners check this work & validate the transactions. For every approved work, the winning miner gets 12.5(As of 2018) minted bitcoins as a reward. So, every miner earns the incentive for his computing power.
- Every mined block is now added to the blockchain, which serves as an unbreakable, shared public ledger on the Bitcoin network that saves the record of all the transactions.
- The buyer uses his wallet to check if the bitcoins transaction was successful.
Every Bitcoin wallet holds a private key, which is used to sign transactions. This signature prevents the transaction from being hacked or altered by anyone, once it has been issued. Every transaction is broadcasted on the network and starts getting validated in following ten minutes.
In the process of mining, every transaction is confirmed and is included in the blockchain. This helps maintain the neutrality of the network and also allows different computers to agree on the system state. Moreover, with strict cryptographic rules, no individual can control a blockchain or replace the parts of it to roll back their investments.
Investing in Bitcoin
In 2017, Bitcoin started with a bang with no signs of slowing down. By the end of next year, one in three millennial is expected to be invested in Bitcoin. Currently, the Bitcoin price is Rs. 1068038.74 and is likely to boost even higher in the coming years. So, if you have already made up your mind to invest some money in this cryptocurrency, make sure you do your share of research.