Cryptocurrencies and the Blockchain
The digital future of currency, storage and security: Imagine a world of frictionless business through crypto-environments.
“The first five times you think you understand it, you don’t,” Dan Kaminsky, American Security Researcher
Here’s a simple example of how a bitcoin transaction takes place.
Bob owes Alice money for lunch so he picks up his smartphone and opens his Bitcoin smartphone app
To pay Alice, he needs two pieces of information: his private key and her public key.
Bob can get Alice’s public key in two ways: by scanning a QR code from her phone or she sends him an email with the payment address which is a string of seemingly random set of numbers and letters.
Anyone who has a public key can send money to a bitcoin address, but only the private key can release money by generating a signature.
The key consists of a string of 34 seemingly random numbers and letters.
The app alerts Bitcoin ‘miners’ around the world of the impending transaction.
The miners verify that Bob has enough bitcoin to make his payment
Now is the time for miners to bundle all the bitcoin transactions over the past ten minutes or so and record the last block of transactions in the public ledger.
Through trial and error, the miners now need to solve what is known as a ‘hash’ puzzle to produce the winning ‘nonce’: a random number in order to run the transaction
The hashed block must have a certain, but arbitrary, number of zeros at the beginning. It’s unpredictable which nonce will produce a hash with the correct number of zeros
Whichever miner solves the puzzle first receives 25 bitcoins as a reward and the remaining miners check the validity of the solution.
Alice and Bob now receive confirmation of the transaction. All in all, this takes about 10 minutes.
Both receive several more confirmations to confirm as the block that recorded the transaction is now embedded into subsequent blocks.