Topic: How does the Bitcoin system work? (Read 803 times)

The block reward is now 25 BTC and in about a year it will halve to 12.5 four years from then it will halve again and so on and so forth until the reward is pretty much zero.

yup. The also receive the transaction fee that is sent with almost every transaction. This is an incentive to include a transaction into their block so that it becomes confirmed and irreversible.

Each block is unique. All blocks built on the same previous block are the same block height, but they each are different in what the miners decide to include. Miners have the choice of what transactions, the nonce, the timestamp, and a lot of other things that could change but still have that block be the same block height as a completely different block.

There is none. Every node is equal and connected to other nodes to create a network of nodes called the Bitcoin network. That altcoin generator site was talking about a seed node. Seed nodes are hard coded into the software so that the software knows of nodes that already exist and will attempt to connect to them. This provides a fast way to connect to the network. There are also things called DNS seeds, which are servers that will provide the IP addresses of various nodes so that new nodes can connect to the network quickly.

Nope. Every transaction is broadcast by one node, and if it fits the rules of other nodes, it is relayed to all of the nodes peers and that way to propagates through the network so that every node can see the transaction.

Mining is the process of hashing the block header to find a hash that is less than the target. Both the target and the hash are hexadecimal numbers, and if the block hash is less than the target, a block is considered to have been found. Right now, there is dedicated hardware called ASICs that mine Bitcoin and make everything else, CPUs and GPUs, unprofitable because of their high hash rate. The higher hashrate means that they have a higher chance of finding a block than lower hashrates although low hashrates can get lucky and find a block.

I suggest you also read the Bitcoin white paper available here: https://bitcoin.org/bitcoin.pdf

The miners build the block on top of the last block they received.  Working on a new block doesn't take time, but it takes luck to succeed.  They have to try it over and over again until they succeed and find a new block.  This new block then send to all other nodes on the network as fast as possible and the other miners will build on this block.  Sometimes it happens that two miners succeed at almost the same time and they didn't exchange the blocks fast enough.  In this case the other miners will build on the block they first received, which may be different for different pools.  When the next block is found, pools that received the other block first will switch to the longer chain.


No every full node is equal in Bitcoin.  They exchange their IP addresses with each other and a node then chooses random nodes to connect to.   Of course, there is the problem to find the first full node to connect to.  There are some people providing DNS services that assign random IP addresses of full nodes to a host name that is hard coded in the bitcoin sources.

This is true for Bitcoin.  It's a matter of demand and supply.  There is a huge supply of miners but a hard-coded demand of one block per 10 minutes.   The required diffulty to create a new block is adjusted so that roughly the right amount of blocks are created.   So the difficulty on Bitcoin is now so high that without a mining rig you have no chance to find a block. It is even so high that even with a decent mining rig you pay more for electricity than you earn unless you live in a region with cheap electricity.

I was considering making an altcoin as a for fun project to play around with in the skype call I'm usually in, but I figured I should learn more about how bitcoin works.

My understanding is that there is a block chain which is a collection of blocks in order. Each block acts as a record of all transfers of bitcoins and the address of those bitcoins. The blocks are then maintained by "miners" and in return, when each block is finished and added to the block chain, miners receive 50 bitcoins (might be less by now).

Assuming this is right so far, then it kind of makes sense. Miners get paid to help maintain records of bitcoin transactions and in return get bitcoins, which then adds to the bitcoin circulation.

What doesn't make sense to me, however, is how people refer to mining pools working on different blocks. If my understanding is correct (which I'm sure it isn't even close), then wouldn't everyone have to work on one block at a time?

Also I was looking at an altcoin generator site that said it would host your coin's node for 4 days, then cut off service.
"After the hosting period is over we shut down the node to which the other nodes tries to connect by default. Hopefully your coin has now enough users so our 'hosting' is not needed anymore."

Does this mean that the way bitcoins work that there is no "central computer" that actually stores this information? I read on the bitcoin.org website that the Bitcoin Core wallet is a "full node" and full nodes are essential to the network.

Is there no main server that people connect through when sending and receiving bitcoins I guess is the simple question.

Also, how does "mining" work? I've read that nowadays mining without dedicated rigs is pointless due to the number of hashes required to finish a block, so I haven't tried it yet (I also wasn't sure where or how to even start mining).

I'm dumb.