Archive for April 19th, 2015

April 19, 2015

Block Chain

decentralized

Bitcoin is a cryptocurrency, an online payment system secured by cryptography, released by the pseudonymous Satoshi Nakamoto in 2009. The system is peer-to-peer; users can transact directly without needing an intermediary. Transactions are verified by network nodes containing a public ledger called the block chain. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere. Bitcoin ‘mining’ is a record-keeping service. Miners keep the block chain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a ‘block.’

A new block contains information that ‘chains’ it to the previous block thus giving the block chain its name. It is a cryptographic hash (scrambled code that represents the block). Miners compute the hash functions to verify them for the network, a task that is intentionally designed to be resource-intensive and computationally difficult so that the number of blocks found each day remains steady.  Mining is also the mechanism used to introduce new coins into the system: Miners are paid transaction fees as well as a ‘subsidy’ of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.