Bitcoin represents the first member of a revolutionary asset class where value is saved and transferred in a fully digital record without a physical object. There are a few key components of the Bitcoin blockchain.
- the public Bitcoin network
- transactions made with Bitcoin
- the entities that secure the network
Here’s a bit of information about each of these components.
a. The Bitcoin Blockchain
Bitcoin at its core is a distributed database, a digital ledger. This means that identical copies of this database, which is updated in real time, exist on numerous computers located in various places of the world. These computers are called nodes and the database they record and validate is a public one. Anyone has access to the data contained in it, and also anyone is welcome to participate by becoming a node.
b. Transacting with Bitcoin
Transactions on the Bitcoin network are simply a way to transfer value from one person to another. What Bitcoin brings is the fact that it eliminates intermediaries, which in the traditional system are banks or other payment processors. The decentralized group of network members plays the role of intermediary, ensuring security between two parties who may not know or trust each other.
c. Bitcoin Network Validators
Each transaction is transmitted across the network from the node where it originated to the rest of the nodes in the Bitcoin network. Nodes verify that transactions are valid and that no one is spending someone else’s money or spending their own money more than once.
Because Bitcoin is a decentralized network, the danger of a fake transaction being validated is minimal. That’s because all nodes in the network verify each transaction individually, without trusting the other nodes, and only validate it if it meets the listed conditions.
Bitcoin miners are another type of important validator entity that work with notes to record transactions. When nodes have validated transactions, miners then batch them together and build “blocks” that include the transactions in them. So, while some entities verify and validate transactions (i.e., the nodes), other entities (i.e., the miners) confirm and secure them into the shared ledger.