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bitcoin

the bitcoin blockchain history

the Bitcoin blockchain was born in 2009, by a pseudonym Satoshi Nakomoto.

this is the 1st block (block 0) or the “genesis block” of bitcoin blockchain.

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https://www.blockchain.com/btc/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f⁠

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there is only 1 transaction in this block to Satoshi Nakomoto’s address.

interestingly Satoshi’s account address has never been used to transfer out money...

this block has 1,660 transactions

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a bitcoin transaction

a transaction is a record of transfer of bitcoins from one address to another.

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membership/transaction signing

a transaction is always digitally signed by the ‘from’ an account holder

to ensure that only the owner of account can perform a transaction using their balance.

in bitcoin, anyone can generate an asymmetric keypair and start transacting on the bitcoin blockchain.

calculating account totals

consider 3 blocks with multiple transactions in each block.

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after executing all transactions the totals for each account are

A = 20

B = 70

C = 60

D = 150

mining

coin generation

in our example, each block has a transaction from “Sys” which awards some balance to an account.

in Bitcoin, this is labelled as “newly generated coins” and these are the new coins the system awards to the miner of the block.

mining peers continuously receive new transactions submitted on the chain.

in order for a transaction to be confirmed, it should be put in a block, that needs to be created.

simply adding transactions to a block is simple -

you get the hash or prev block, increment the block number, add the list of transactions, and take its hash.

in order to incentivize to run a node, Bitcoin awards miners for creating new blocks by giving them newly generated Bitcoins.

nonce mining

since it would be simple to mine a block and devalue the generated coin,

Bitcoin has made the block creation process challenging.

the difficulty self-adjusts to ensure the global pool of miners are able to mine around 1 block every 10 minutes.

there is an extra field added in each block called nonce

the block hash of the new block with the nonce has X number of leading zeros.

this X is adjusted by the protocol to control the speed of coin generation.

the higher the value of X, the harder it is to calculate a nonce.

since hash functions are one-way functions the nonce cannot really be ‘calculated’...

miners do a hit and trial kind of algorithm to find a nonce that satisfies the requirement (X leading zeros) for the next block.

the value of bitcoin

value for anything is driven by the balance of its demand and supply.

Bitcoin’s supply is limited due to the proof-of-work requirement that adds new Bitcoins into the system.

demand is higher for things people find useful. something is useful for...

the actual utility it provides.

cars for example provide a transportation utility.

Bitcoin provides instant value transfer facilities which is not found in traditional currencies.

the satisfaction it brings.

people like to have diamonds for physiological satisfaction for example.

crystals are just as comparable in terms of utility.

decoration pieces are desirable for aesthetic satisfaction.

a supply-demand balance makes Bitcoin a valuable and desirable currency.

it’s important to keep in mind that money doesn’t really exist.

moneyness is a property.

this property is held by fiat currency (legal tender whose value is backed by the government that issued it)

and bills due to the State Bank (trusted authority) that promises to hold its value.

moneyness is in anything we deem valuable

and therefore can be used as a unit of account, a store of value, or a medium of exchange.

besides being digital and providing immutable, trustable log of transfer transactions

bitcoin allows to store value,

to consume value (better than fiat)

and to exchange value (better than fiat)

all these properties give it great utility and therefore value!

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