How Transactions Work on the Bitcoin Blockchain Part 2

How Transactions Work on the Bitcoin Blockchain Part 2

How Transactions Work on the Bitcoin Blockchain – The Path of a Transaction from A to Z. Part 2


Yet another property of hashes in cryptography algorithms such as SHA-256, that the Bitcoin network uses, is that hashes for very similar sets of data are very different.

This property of hashes adds a level of security to the Bitcoin network because if someone were to change even one digit in the data about one transaction on the network, the data would produce a completely different hash from the original hash. Because blocks on the Bitcoin blockchain contain a hash for the preceding block, the network would simply reject the block with edited information.

However, creating a cryptography hash is a very simple task for most modern computers. For this reason, if all that miners on the Bitcoin network were doing was creation of hashes for the data about transactions, then someone could alter the data and create a new blockchain with blocks that have new data and new hashes. Creation of the blocks had to be harder than that and this is why Satoshi Nakamoto came up with the concept of the proof of work.


Difficulty on the Bitcoin network

In proof of work, miners need to find a hash that is smaller than the target hash. Practically speaking, this means that hashes on the Bitcoin blockchain start with a lot of zeroes. For example, the hash for the block #535046 is 00000000000000000022da8a44865554a7bfb4a583307e4edfd3b943fc5152e5, the software for the block #535045 is 00000000000000000002ef02fc8356db957d9807424cc044fd661a09c9fcd059 and so on.

The Bitcoin network aims to create a block of the blockchain every ten minutes and it adjusts the parameter of difficulty to reach this goal. If the miners are able to create the blocks faster than one in ten minutes, it increases the difficulty. If for some reason it is taking them longer, the difficulty goes down.

Because a set of data can only have one cryptography hash, miners meet the difficulty criteria by adding a number to the data about transactions on the Bitcoin network. This number is called nonce, which is short for number used once. Essentially, a nonce is a random number that miners find by trying various different numbers. They first compile data about transactions on the network into a block and then combine this data with a nonce. When they find a winning nonce, they get to create a block of the blockchain and get a reward from the network. The nonce that allowed that to create the winning block becomes a part of the block and the blockchain, which means that while the number was randomly chosen, anybody can verify that the number was a winning one and allowed the miner to meet the difficulty requirement.

After miners find a nonce and create a block, they add the blocks that they create to the public Bitcoin blockchain that you can browse using a Bitcoin blockchain explorer, for example, here:

The data on the blockchain is immutable. It is not possible to edit it or delete it.


Using a Bitcoin explorer

Using a Bitcoin blockchain explorer, you can see all information about all the transactions that have happened on the network since its inception in 2009, including the very first block that Satoshi Nakamoto has created manually because back then the network did not have thousands of users. You can also see how the popularity of the network has been growing over the years and what has been happening to various technical indicators, such as the hashrate, on the network.

When you visit the explorer website, at the top of the page you will see a table with columns that have the following names: height, age, transactions, total sent, relayed by, size and weight.

Height indicates the number of the block on the blockchain. The very first block of the Bitcoin blockchain is also known as the Genesis Block. Different versions of the Bitcoin software count it differently, some as block #0 and some as block #1. This is the block that Satoshi Nakamoto has created manually. All other blocks have been created according to the mining rules of the Bitcoin network, with miners getting rewards for creating the blocks.


Rewards for miners on the Bitcoin blockchain

For the first 210,000 blocks of the Bitcoin blockchain the reward for block creation has been 50 Bitcoins per block. The parameter of difficulty, which has an impact on what hardware the miners on the network can use to create blocks of the network, has been very low, which is why it was possible to use home computers to mine blocks on the Bitcoin network. Many people have tried it during the early years of the network, yet found it to be unprofitable because the price of the Bitcoin during those early years has been close to zero, and stopped doing it. This is the reason why today you will read in the news stories about people who have thrown out old computers and hard drives and now are trying to find them because they contain multiple bitcoins.

The reward for the next 210,000 blocks of the blockchain cut in half and has been 25 Bitcoins per block. It then divided in half again and became 12.5 blocks, which is what the reward currently is. It will divide in half again and will become 6.25 bitcoins approximately in 2020. You can see more details about when the next division of the reward will happen by visiting or some other tracker with up-to-date information about the Bitcoin network.