BITCOIN DATA MINING
Bitcoin mining is the process of verifying and adding transactions to a public record called the blockchain, which is like a digital ledger of all Bitcoin transactions.
To understand Bitcoin mining, we first need to know what Bitcoin is. Bitcoin is a type of digital money, and its value changes over time. It doesn’t have a central authority or government regulating it. Bitcoin was created by someone using the name Satoshi Nakamoto, who introduced the idea and made the software open-source, meaning anyone could use or improve it. Bitcoin allows people to send money directly to one another online, without needing banks or middlemen.
In simple terms, Bitcoin is a system where people can transfer ownership of digital coins called bitcoins. These bitcoins are limited in number, so only a set amount can exist. When one person sends bitcoins to another, this transaction is shared with the network of computers that support Bitcoin, and it gets added to the blockchain.
Bitcoins are not physical currency; they exist purely as digital data. However, they can be exchanged for real money and are widely accepted in many countries around the world. Unlike traditional currencies managed by central authorities like the Reserve Bank of India (RBI), Bitcoin operates without a central governing body. Instead, transactions are validated by solving complex mathematical puzzles in a process known as Bitcoin mining.
HOW THE BITCOIN MINING WORK:
Bitcoin mining involves solving a very complex task that is hard to complete but easy to check. It uses cryptography and a special hash function called double SHA-256. This function takes any input data and turns it into a fixed 256-bit string, called a hash.
A hash works by taking large data and condensing it into a smaller value. With cryptographic hashing, the only way to get the desired hash value is through trial and error, testing many possibilities. Once the correct input is found, anyone can quickly verify that it produces the desired hash.
This process is the basis of Bitcoin's "Proof-of-Work," a system where miners prove they’ve done the work by solving a complex problem that is difficult to create but easy for others to verify.
To mine a block, the first step is to gather new transactions and organize them into a block. Next, the block is hashed to generate a 256-bit hash value. If the hash starts with enough leading zeros, the block is successfully mined and is then shared with the Bitcoin network. The hash also serves as the block's unique identifier.
However, the process often fails to produce a valid hash on the first try. In such cases, the block is slightly modified, and the hashing process is repeated over and over until a valid hash is found.
BITCOIN TRANSACTION:
A Bitcoin transaction is a piece of data sent to the network, and if it’s valid, it gets added to a block in the blockchain. The purpose of a Bitcoin transaction is to transfer ownership of a certain amount of Bitcoin to another person’s Bitcoin address.
When you send Bitcoin, your wallet creates a Bitcoin transaction and broadcasts it to the network. If the transaction is valid, it gets picked up by nodes that are mining a new block. Within 10-20 minutes, the transaction is added to the blockchain along with other transactions. Once this happens, the recipient will see the transferred amount in their wallet.
Here are some key points about Bitcoin transactions:
- When we send Bitcoin, it is always sent to a specific address.
- The Bitcoin we receive is tied to the receiving address linked to our wallet.
- Whenever we spend Bitcoin, the amount comes from the funds we previously received and still have in our wallet.
- Bitcoin is received by addresses, but it is sent from the wallet, not directly from the address.
BITCOIN WALLETS:
While we understand how Bitcoin transactions are made and processed, the question of where they are stored is important. Unlike physical money, which is kept in a wallet, Bitcoin is stored digitally. However, it's not the bitcoins themselves that are stored, but the encrypted keys required to access a public bitcoin address and authorize transactions.
1.Desktop Wallets:
First, you need to install the original Bitcoin software (Bitcoin Core). If you've already installed it, you're already running a wallet, even if you're not aware of it. This software helps you manage transactions on the network and allows you to create a Bitcoin address for sending and receiving cryptocurrency.
MultiBit is a Bitcoin wallet that works on Mac OSX, Windows, and Linux. Hive is another wallet, designed for OSX, with unique features like an app store that connects directly to Bitcoin services.
2.Mobile Wallets:
A mobile wallet can store the security keys for your Bitcoin addresses, allowing you to easily make payments using your phone. Many Bitcoin wallets even take advantage of your phone’s near-field communication (NFC) feature, so you can simply tap your phone against a reader to pay with Bitcoin, without entering any data.
Bitcoin clients typically need to download the entire Bitcoin blockchain, which is large and constantly growing. Since many mobile phones can’t store the full blockchain, they use alternative methods. These mobile wallets often rely on Simplified Payment Verification (SPV), which allows users to download only a small part of the blockchain and trust other nodes in the Bitcoin network to verify their transactions.
Mycelium is an example of a mobile wallet, specifically designed for Android, that follows this approach.
Electronic wallets store our security keys online, on a computer, or on servers controlled by someone else, and they are connected to the internet. Various online services are available, allowing us to sync our wallet across multiple devices, such as mobile phones and desktops, making our Bitcoin addresses accessible on any device we use. One key advantage of online wallets is the ability to access them from anywhere, no matter which device you're using.
Hardware Wallets:
A hardware wallet is a physical device designed to securely store the private keys used for accessing and managing Bitcoin (and other cryptocurrencies). Unlike software wallets, which store keys on a computer or online, hardware wallets keep the keys offline, making them less vulnerable to hacking or malware.
These wallets are usually small USB-like devices that generate and store private keys in a secure environment. To make transactions, the user must connect the hardware wallet to a computer or mobile device, sign the transaction with the wallet, and then send it to the network. Since the private keys never leave the device, even if the connected computer or mobile phone is compromised, the wallet’s keys remain safe.
Paper Wallets:
The cheapest way to keep your bitcoins safe is by using a paper wallet. Many websites offer paper wallet services, which generate a Bitcoin address for you and create an image with two QR codes. One QR code is for the public address, which you use to receive bitcoins, and the other is for the private key, which you use to spend or transfer your bitcoins.
The main advantage of a paper wallet is that the private keys are not stored digitally, so there’s no risk of cyber attacks or online theft. This makes it a secure way to store your bitcoins offline.
