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How Bitcoin works

A little description to discover how Bitcoin and other cryptocurrencies work.

How Bitcoin works


All cryptocurrencies works at the almost same way. Cryptocurrencies are based on a Peer to Peer (P2P) network. Down here we cover multiple arguments inerhit how cryptocurrencies works:

  • The Peer, the central unit (software) where the code cumputes the actions to do.
  • Public Key and Private Key, how are is generated and how difficult are to decipher.
  • The Proof of Work protocol, the core job to generate block.
  • The Block' structure, probably most easy part to understand.

At the end of reading you will be able to understand the basics. Each section here it is only a little overview of how the bitcoin and cryptocurrencies works. In the next months I will deeply going over any section below.

The Peer, the unit where the code cumputes the actions to do.

The BitCoin Core software works as a Peer in a network composed by thousand of peer (that's why most of people call it: decentralization). The two main task of a peer are:

  • storing an identical copy of all blocks of the blockchain.
  • staying update with the network.
  • Bitcoin Core could be used as:
    • Wallet, there are a lot of Wallet software that are lighter and more easy to use.
    • Miner, probably today only big companies use to mine Bitcoin. For common user it has an energy cost to do not undervaluated. At this mode: it is here where Proof of work protocol is working.

Currently you don't know yet about the:

  • Public Key, we will cover soon at the next section.
  • Private Key, important to know right now it is: Peer does not save any Private Key, at this layer of knoledgement: peer is agnostic.

Public Key and Private Key, how are is generated and how difficult are to decipher.

The Address or Public Key, it is the code to share with your friends and with business's people and get the payments! Take care that if you share your main Public Key, people knows how many bitcoin you own. So, attention to the Privacy, the privacy concern about BitCoin is completely misinterpreted, there is no privacy between payments (if I send some bitcoin to your main address/public-key, and you have shared your main address/public-key, I can read and know all your payments you did). But in a context where you know how to operate, the Public Key and the sharable address that it is the same, works exactly like your IBAN or Swift code.

But what is it the Private Key and how the Public is generated?

First thing to know is: the Secret Key is a random big number (2^256, a 256-bit number, about a number composed by 70 digits, it means if you did "heads or tails" 256 times you get your "private key") based on an ellyptic curve (y^2 = x^3+7 aka Secp256k1, it means your "Public Key", that it is your y in the formula, is derived by your Private Key that is your x). Also if you see as a sequence of letter and number from A to F and from 0 to 9 is called Hexadecimal (here a realtime converter to test/check and understand) derived from a Binary number.

The process to derive Public Key from the Private Key it's a very easy task. But to calculate the Private Key from the Public Key it's pretty impossible. The Public and Private keys are strictly connected together. With Private Key it is an easy and fast task to generate the Public Key, by the way the inverse path it is the one most difficult process that exists (a super computer could do it in about more than billion billion of years, let me say: don't try this at home).

The Mining. The Proof of Work protocol, the core job to generate the block.

The working protocol is based in a few main steps, but also there are some few rules.

  • Only one node/peer can write a block, at the same time is generated by the miner a big number problem (a numeric problem), other miners start to generate random number to solve the asterisks. (********72051185846664238833589 in this short example a miner has to get right combination, here an easy example: https://bitcoin.stackexchange.com/questions/8031/what-are-bitcoin-miners-really-solving).
  • Once the block is shared in to the p2p network, the mining process restart in a loop.

First of all, we have a block genesis at start of each blockchain project. We have also a timing, in bitcoin is around 10/11 minutes per block. While the block is generated there is also a transaction pool where transactions go in a queue list. The timing is given foe the main process: The Mining Process. After the first block, it's generated also a problem to solve, this problem will solve by a brute force attack by miner (simply try to decode), so the computer of miner are generating million of random numbers, it's like a lottery. If any miners could get the solution

The Block' Structure. It's like any other informatic package.

To make some examples, a bitcoin block it's similar any kind of package, like TCP/IP. There is a header, and a content block with all transactions. Anyway, the blockchain is agnostic at public key levels. If you generate your wallet, until you make a payment, the blockchain doesn't know about your existence. In to the block of blockchain are stored only the transactions sent by wallet. The record it is simply the value to move from a public key sender and the public key as receiver. Tha's all.

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Giorgio Tedesco

Giorgio Tedesco

Just a web developer

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There is a why my photo is low res. I'm working in a little web game!

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