Transactions

An actual bitcoin transaction including the fee from a web-based cryptocurrency exchange to a hardware wallet

The best chain   consists of the longest series of transaction records from the genesis block   to the current block or record. Orphaned records   exist outside of the best chain.

A bitcoin is defined by a sequence of digitally signed transactions that began with the bitcoin's creation, as a block reward. The owner of a bitcoin transfers it by digitally signing it over to the next owner using a bitcoin transaction, much like endorsing a traditional bank check. A payee can examine each previous transaction to verify the chain of ownership. Unlike traditional check endorsements, bitcoin transactions are irreversible, which eliminates risk of chargeback fraud.

Although it is possible to handle bitcoins individually, it would be unwieldy to require a separate transaction for every bitcoin in a transaction. Transactions are therefore allowed to contain multiple inputs and outputs, allowing bitcoins to be split and combined. Common transactions will have either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and one or two outputs: one for the payment, and one returning the change, if any, to the sender. Any difference between the total input and output amounts of a transaction goes to miners as a transaction fee.[2]

Mining

To form a distributed timestamp server as a peer-to-peer network, bitcoin uses a proof-of-work system.[3] This work is often called bitcoin mining.

During mining, practically the entire computing power of the Bitcoin network is used to solve cryptographic tasks, the proof of work. Their purpose is to ensure that the generation of valid blocks involves a certain amount of effort, so that subsequent modification of the block chain, such as in the 51% attack scenario, can be practically ruled out. Because of the difficulty, miners form "mining pools" to get payouts despite these high power requirements, costly hardware deployments, and/or hardware under their own control. The largest proportion of mining pools are based in China, which is also where most of the miners—or about 75% of the computing power—of the cryptocurrency are based.[4]

Requiring a proof of work to accept a new block to the blockchain was Satoshi Nakamoto's key innovation. The mining process involves identifying a block that, when hashed twice with SHA-256, yields a number smaller than the given difficulty target. While the average work required increases in inverse proportion to the difficulty target, a hash can always be verified by executing a single round of double SHA-256.

For the bitcoin timestamp network, a valid proof of work is found by incrementing a nonce until a value is found that gives the block's hash the required number of leading zero bits. Once the hashing has produced a valid result, the block cannot be changed without redoing the work. As later blocks are chained after it, the work to change the block would include redoing the work for each subsequent block. If there is a deviation in consensus then a blockchain fork can occur.

Majority consensus in bitcoin is represented by the longest chain, which required the greatest amount of effort to produce. If a majority of computing power is controlled by honest nodes, the honest chain will grow fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of that block and all blocks after it and then surpass the work of the honest nodes. The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.[3]

Mining difficulty has increased significantly.

To compensate for increasing hardware speed and varying interest in running nodes over time, the difficulty of finding a valid hash is adjusted roughly every two weeks. If blocks are generated too quickly, the difficulty increases and more hashes are required to make a block and to generate new bitcoins.[3]

Difficulty and mining pools

Further information: Mining pool

The largest Bitcoin mining pools as of April 2020 by nation in which they are based[clarification needed]

Bitcoin mining is a competitive endeavor. An "arms race" has been observed through the various hashing technologies that have been used to mine bitcoins: basic central processing units (CPUs), high-end graphics processing units (GPUs), field-programmable gate arrays (FPGAs) and application-specific integrated circuits (ASICs) all have been used, each reducing the profitability of the less-specialized technology. Bitcoin-specific ASICs are now the primary method of mining bitcoin and have surpassed GPU speed by as much as 300-fold. The difficulty within the mining process involves self-adjusting to the network's accumulated mining power. As bitcoins have become more difficult to mine, computer hardware manufacturing companies have seen an increase in sales of high-end ASIC products.[5]

Computing power is often bundled together or "pooled" to reduce variance in miner income. Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment. In a pool, all participating miners get paid every time a participating server solves a block. This payment depends on the amount of work an individual miner contributed to help find that block.

subscriber-edition://0x7c66536F8056A6eEA984Ca61868f5474446A20A5?tokenId=2