In this section, we are going to learn about the four basic components of bitcoin. These four elements will help us to understand the bitcoin blockchain in a more clear way.
Here, we are going to put up every object that we have learned previously in a single SCENE. As we know that a block is made up of hash and complex cryptography environment, but this is only the one side of the coin. The bitcoin blockchain is more interesting than we thought.
We can see the basic components of bitcoin in the following image:
- Miners(Gaming Theory)
1. First Component: Software
Bitcoin is basically a software at the core that defines what a bitcoin is, as well as how a bitcoin gets transferred. It identifies what the rules of a valid bitcoin, who can be inside bitcoin, who cannot be inside bitcoin, what is valid, what is not, etc. Everything is based on software, which is the bitcoin software. The bitcoin software is always operated in 24*7.
2. Second component: Cryptography
The software, at its core, uses cryptography and bitcoin as a cryptocurrency. Bitcoin uses cryptography to regulate the transfer of bitcoin between parties, as well as the creation of new units of bitcoin. Without cryptography, Bitcoin would simply not be possible. So, we’ve got that this software uses cryptography to control the transfer of bitcoin over the internet.
Cryptography is a mathematical approach which is solvable by computers and not by humans. So all the stuff that protects your data is served by the cryptography.
3. Third Component: Hardware
To run and solve cryptography, it needs HARDWARE. This hardware is composed of those thousands of miners around the world running their computers. So there are thousands of computers around the world that are basically running the Bitcoin software or the Bitcoin client. This hardware is specially designed for finding Nonce to validate block and hash. It requires a lot of CPU power to complete a simple task on the bitcoin blockchain.
If you try to mine bitcoin right now with your smartphone or home computer, then you will End up losing your computer along with a hefty electric bill.
4. Fourth Component: Mining(Gaming Theory)
Miners are users who involved in a gaming theory because bitcoin is truly a game which is run by these miners around the world. In the above, we have seen that the first component is software for bitcoin that issues a cryptography challenge in every 10 minutes. The cryptography challenge involves in trying to find a Nonce which will make the hash for a specific block valid. All the hashes and validations are done by these miners. After successful creation of the block, the new block is added to the blockchain.
Let’s see how gaming theory works!
- Bitcoin software creates a challenge. Now, there is a game begins, and there is a race that goes off. The race involves all these miners competing against each other to solve the challenges.
- This task or challenge will take approximately 10 minutes to be completed.
- Every single miner starts trying to find the solution to that one Nonce that will satisfy the hash for the block.
- At some specific point, one of those miners in the global community with higher speed and great hardware specs will solve the cryptography challenge and be the winner of that race.
- Now, the rest of the community will start verifying that block which is mined by the winner. This makes Bitcoin so strong, because in one stage of this cycle, the miners are competing against each other, and in the next stage of the cycle, the rest of the community rallies together to ensure that that solution is correct.
- If the Nonce is correct, it will end up with the new block which will be added to the blockchain.
- For this task or challenge, the winner will earn a reward. That reward is currently 12.5 bitcoins.