bitcoin.pdf

The mining process serves two purposes in Bitcoin: Miners can only receive honest income from creating blocks that follow all of Bitcoin’s consensus rules. Therefore, miners are normally incentivized to only include valid transactions in their blocks and the blocks they build upon. This allows users to optionally make a trust-based assumption that

The first transaction in each block is a special case. Most older documentation calls this a generation transaction, but most newer documentation calls it a coinbase transaction (not to be confused with…

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Mining is two coupled markets for settlement and security; transaction fees are users’ bids for settlement rights; and the mempool is the miners’ ask for ordering transactions by offered fees. Similarly, hashes are miners’ bids for the right to add the next block, and the difficulty adjustment is the users’ asks for how much security they desire to

When a transaction is executed, it is broadcast to all the computers in the network for them to update their ledgers. Transactions are bunched together to form a block of data, and once that block runs out of space (1 megabyte right now), computers race to solve a complex mathematical puzzle to verify the transactions, seal the block, and record it

A block is a collection of records, like a record of transaction. 

Blocks have limits, so they can only have so many transactions in them. When the blocks are full, we add them to the network by mining them. 

A hashing function outputs a hash when you put something into it. Bitcoin uses the SHA-256 hashing function. 

With hashing fun

Satoshi Nakamoto's motivation for Bitcoin was to create a “purely peer‐to‐peer form of electronic cash” that would not require trust in third parties for transactions and whose supply cannot be altered by any other party. In other words, Bitcoin would bring the desirable features of physical cash (lack of intermediaries, finality of transactions) t