236
views

The Undocumented Features of Bitcoin’s (BTC) Architecture

The introduction of Bitcoin in 2009 marked the start of a new financial era marked by the introduction of a decentralized financial control structure that eliminates third parties in financial transactions. Bitcoin is more than just a digital currency; it’s a revolutionary technology that has helped shape the modern economy. 

Bitcoin also helped popularize blockchain technology, which has gained widespread use cases in various sectors, including supply chain services, Internet of Things (IoT), and reputation systems with the launch of blockchain-based applications. 

Despite Bitcoin’s popularity, few people actually understand the technical aspects of the world’s popular cryptocurrency. While the whitepaper lies down Bitcoin’s network architecture, some aspects of the network have been undocumented, outdated, or omitted. Here are some undocumented features of Bitcoin’s architecture.    

Bitcoin Technical

Bitcoin constitutes three main technical components: the consensus protocol, transactions (including scripts), and the communication network. 

Bitcoin architecture is overly complicated and requires a sufficient technical background to understand the network architecture. Nonetheless, here is a simple breakdown of Bitcoin’s architecture. 

Bitcoin Architecture

When analyzing Bitcoin’s architecture, you’ll want to consider five key aspects. These are the Bitcoin application itself, nodes and the nodes discovery process, transactions, security implementation, and adding new blocks to the Bitcoin chain. 

Bitcoin network itself runs on a set of distributed servers. At the core of the network is a transaction database that functions as a secure ledger. The secure ledger is shared by all nodes (servers) that run the Bitcoin protocol’s full-stack—the protocol functions as a decentralized transaction system with the tendencies of a highly transparent ledger. 

Nodes running on the blockchain protocol runs the entire network locally. Bitcoin nodes install the full stack of software in their devices then sync up automatically with other network nodes in a peer-to-peer fashion. Therefore, the nodes ensure that all transactions on the network are valid and are arranged in chronological order, and are enforced by cryptographic rules. 

The nodes in the network employ a peer-to-peer IP network to process and verify transactions. A consensus is reached when nodes are in the same block as individual databases. 

Bitcoin Blockchain Design

The bitcoin blockchain is designed to create and disseminate a global public ledger with a record of all bitcoins in the system. Each entry in the public ledger is a transaction representing the transfer of a crypto coin from one virtual account to another. Bitcoin transactions consist of inputs and outputs: a transaction “spends” a set of transaction inputs and “creates” a transaction output. 

All transactions contain an input reference, i.e., a hash of an output of a previous transaction. As such, each transaction output consists of a value representing the quantity of bitcoin currency plus information regarding the coin owners. Transactions on the network are usually structured as a directed graph to allow users to maintain invariants concerning the transaction log.  

Regarding blocks, the Bitcoin network’s first block was not as a result of the Bitcoin consensus mechanism that supports mining. Instead, the first block was hard-coded into the source code. This was unique since the block doesn’t reference a previous block, and it’s referred to as the Genesis block. 

Another architectural concept in the Bitcoin network was the limited number of Bitcoins, resulting from mining (evaluating) a new block and the reward that a miner can earn from the mining process. On the Bitcoin network, a new block is mined every 10 minutes (regardless of the technology used, as discussed later), and the mining reward at the beginning of the system was 50 Bitcoins per block. The block reward is halved every four years (or every 210 000 blocks on average) 

A crucial aspect of Bitcoin’s architecture is the block size. At the moment, the block size is restricted to 1MB (on average), and one block can therefore cover around 4000 transactions with an average size of 250 bytes. This results in an overall rate of about seven transactions per second (tps.) Each block information is recorded on the Bitcoin blockchain.  

Any node can broadcast transactions on the Bitcoin Network in the system simultaneously. At its best, a Bitcoin transaction comprises three parts, i.e., an input, an amount, and an output.  

The decision on which transactions of those broadcasted to be included in a new block is dependent on the node (the miner) running the proof-of-work (PoW) algorithm since the miners are responsible for picking a transaction from the so-called mem-pool where all validated transactions are stored, grouping them and including them in the block.

The miner’s selection of transactions depends on the transaction fee (the standard fee is 1.000 Satoshi= 10 µBTC = 0.01 mBTC = 0.0001 BTC per kB), which forms a reward for the miner’s efforts in addition to the Coinbase reward. To initiate a transaction on the Bitcoin blockchain, users must first generate the necessary Bitcoin keys starting with a random 256-bit private key. 

This private key is required to sign a transaction and Bitcoins. The elliptic curve DSA algorithm is required to generate a 512-bit public key from the private key. The public key is used to verify the signature for a transaction. However, the public key is not revealed until a transaction is signed.  

The Lightning Network

Following Bitcoin’s scalability challenges, the lighting network was introduced to enable fast transaction time. The Lightning Network is a “layer 2” payment protocol that operates on Bitcoin to allow for fast transactions among participating nodes. 

Transactions conducted on the lightning network are fast, cost much less, and are readily confirmed compared to those confirmed on the bitcoin blockchain. The Lightning Network was designed to decongest the bitcoin blockchain by making transactions off-chain away from the main blockchain and reducing the associated transaction fees. It allows for fast transactions among participating nodes. 

The Bitcoin Network Consensus

Bitcoin Network achieves consensus via mining using the PoW algorithm. While the generation of rewards primarily incentivizes mining in the network, the primary purpose of mining in the Bitcoin network is to achieve a decentralized consensus in a trustless network. Mining enables a network-wide consensus without a central authority. 

Bitcoin’s decentralized consensus arises from the interplay of four processes occurring independently on nodes across the network. Bitcoin’s decentralized network consensus follows four major processes as below: 

  • Independent verification of each transaction by every full node, based on a comprehensive list of criteria
  • Independent aggregation of these transactions into new blocks by mining nodes, coupled with computational efforts using a proof of work algorithm
  • Independent verification of the new blocks by every node and assembly into a chain
  • Independent selection by every node of the chain with the most cumulative computational effort demonstrated through a proof of work.

Since the Bitcoin network is decentralized, two nodes may announce a valid block simultaneously, meaning two blockchains encompass different transactions. The situation is dependent on the block creation time relative to the block propagation time. 

Conclusion 

The Bitcoin network employs peer-to-peer broadcast to confirm blocks and distribute pending transactions. Transactions on the network are first analyzed based on Bitcoin’s protocol rules and then validated using a scripting language based on locking and unlocking scripts. 

Bitcoin live price
Btc
Bitcoin
$29.062
price
0.57892%
price change
BUY NOW

For a transaction to be validated on the network, full Bitcoin nodes (miners) will select transactions from the memory-pool, hashing pairs of transaction values until only one hash remains anchoring the transaction tree into the block header. In essence, Bitcoin employs a unique and extraordinary architecture where transactions are private or anonymous.    

Stay up to date with our latest articles

More posts

How Can You Determine the Rarity of an NFT?

The rarity of a non-fungible token (NFT) is one of the most often debated topics on the internet. The rarity of an NFT is one of the most critical elements in determining its value. Understanding how rarity works is a significant advantage for anyone investing in the NFT market. How can traders learn to measure this feature for any digital asset? Our guide today will share more insight on this critical aspect. Is It Possible to Measure Rarity? There has…

What is Tornado Cash, and How Does It Work?

Decentralized and non-custodial, Tornado Cash is an Ethereum-based solution for privacy and anonymity. Severing the on-chain link between those who send and receive coins enhances transaction anonymity.  This guide will provide our readers with more insight into Tornado Cash. We will start with a general introduction and move deeper into how Tornado Cash works. We will also add a list of pros and cons to this system for the reader's benefit. Understanding Tornado Cash Decentralized protocols such as Tornado Cash…

How Can Crypto Trading Bots Help You Manage Your Investments?

Bots are computer programs designed to carry out specific activities automatically. They operate with the least amount of human input possible.  Crypto trading bots are automated programs that trade a single coin or a portfolio of cryptocurrencies. They trade on one or more exchanges on behalf of the owner or user.  Cryptocurrency bots can automate trading tactics to increase portfolio profits. Today, we'll take a closer look at this ever-expanding technology.  A Simple Way to See Crypto Trading Bots Artificial…

Can You Really Protect Your Crypto Investments Against Whales?

It is only natural that the price of BTC changes following whales' transactions. Because altcoins have smaller market capitalizations, this effect is even more pronounced on their prices. The ways whales manage to manipulate the market are inventive and can lead to heavy losses for small traders. In our guide, we look into the matter and reflect on how to protect a wallet against whales. Understanding the Concept of Whales The term "crypto whale" refers to a person or organization…

What Are Fractionalized NFTs?

Most people who use the internet regularly, whether for business or pleasure, are familiar with NFTs. Everyone in the crypto/blockchain community looks at these "Non-Fungible Tokens” with interest.  The only problem is that NFTs are becoming extremely popular and too costly to own.  In this context, Fractional NFTs, or F-NFTs, have entered the market to attract new investors. Imagine dividing a single NFT into smaller parts and making it available for purchase. This concept is the principle governing the growing…

Diluted Market Cap – A Beginners’ Guide

The value of a cryptocurrency is difficult to predict, especially if we are dealing with a new token. If you're looking to invest in cryptocurrency, measures like the fully diluted market cap can guide your choices.  The term "fully diluted market cap” will represent the core of today’s guide. We'll begin by defining the sector's market capitalization before moving on to more advanced notions. Market Cap in the Crypto Industry The total worth of an asset now in circulation corresponds…

Top Crypto Marketing Agencies to Promote Your Cryptocurrency Project in 2022

Nowadays, launching a crypto project can be a daunting task for most developers, especially considering the competition. This report claims that the industry amasses over 18,000 cryptocurrencies as of March 2022. Whether you focus on NFTs, DeFi, or any other crypto-related activity, you will have to face stiff competition. Fortunately, you can gain a competitive advantage over your peers with the help of crypto marketing agencies. These services cover all the promotional aspects your project needs to get into the…

The Difference Between Capped and Uncapped ICOs

Some ICOs decide to set a cap on how many coins investors can buy. However, some people choose to offer unlimited coins at the sale. Different teams can follow different strategies to obtain success in this growing market. Today, our guide aims to make a clear distinction between capped and uncapped ICOs. Understanding the Concept of ICOs An ICO (“Initial Coin Offering”) is a way to launch a new cryptocurrency. ICOs are a way to raise money for a project…

Is It Possible to Spot a Fake NFT?

Blockchain technology should have made life simpler for digital artists selling unique tokens of ownership to other people. A public ledger can give buyers a record of who owns a piece of art in perpetuity. Blockchain gave some artists a new chance to earn money. However, some artists admit that the last year's crypto boom has been a real mess.  Anyone can "mint" a digital asset as an NFT, even if they don't own it. How do you spot a…

Unstoppable Domains – A Beginner’s Guide

Unstoppable Domains are an intriguing and unique new option that is gaining traction in the crypto industry as more people become aware of them. Even though you may be inclined to dismiss them as simply another "crypto craze,” you may not want to be so hasty in your judgment. Whether you have your wallet or just learning about crypto, unstoppable domains have some unique advantages that you might consider utilizing for your website. This post will go over all you…