The Bitcoin Network Difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks. 2016 block would have been generated in exactly two weeks regarding the information of one block every ten minutes.
188.8.131.52 The Block Reward
The Miners may award themselves a certain number of bitcoin when a block is discovered. Additionally, the miner is awarded the fees paid by parties.
Chart 3.1: Bitcoin’s proof of work scheme
3.2 Digital Address and Wallets
A Bitcoin wallet is a software program where Bitcoins are stored. To be technically accurate, Bitcoins are not stored anywhere; there is a private key (secret number) for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. Bitcoin wallets facilitate sending and receiving Bitcoins and give ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms; desktop, mobile, web, and hardware are the four main types of wallets.
The Private key is just a very long string of numbers and letters that acts as the password to owners Bitcoin wallet. Transactions can be done with keys. The Private key is also used to generate Bitcoin address. The Creation, storage and use of the private key is the core function of Wallets.
3.3 How does Bitcoin Transaction Work?
The Block chain as a record of the transactions between various bitcoin addresses. These transaction records are updated by the Bitcoin network and shared across each of its nodes as balances increase and decrease. Bitcoin transaction is comprised of three parts; An input, An amount, and an output.
Having access to the public and private keys are required to send bitcoin. Public keys are random sequences of letters and numbers. Public keys are used to receive transaction thus owners can share their public keys. The private key is another sequence of letters and numbers. However, the private keys similar to passwords to an email or another account.
In order to execute transaction, owners use private key to sign a message with the transaction-specific details. This message will be sent to block chain with the three parts mentioned (Input, Amount, and output). This Transaction is broadcast to the bitcoin network where miners verify that owner’s keys are able to access the inputs owner claims to control. This process requires computational resources and rewards miners, per block solved.
Figure 1: A structure of the Merkle Tree for Transactions in a Block.
A Merkle tree is a hash based data structure that is a generalization of the hash list. It is a tree structure in which each leaf node is a hash of a block of data, and each non-leaf node is a hash of its children. Typically, Merkle trees have a branching factor of 2, meaning that each node has up to 2 children. 5