The ledger is a record of all bitcoin transactions and can be independently verified by every node.
==== A distributed ledger
==== The blockchain
Bitcoin's core innovation is, somewhat ironically, completely de-centralized. It is the _blockchain_, a distributed, timestamped ledger. The ledger consists of a cryptographically verified chain of _blocks_, each of which contains transactions, new coins and a signature (hash) of the previous block. Each full bitcoin node in the network will keep a complete local replica of the blockchain, and independently verify all transactions and balances from that replica.
Bitcoin's core innovation is the _blockchain_, a distributed, timestamped ledger. The ledger consists of a cryptographically verified chain of _blocks_, each of which contains transactions, new coins and a signature (hash) of the previous block. Each full bitcoin node in the network will keep a complete local replica of the blockchain, and independently verify all transactions and balances from that replica.
==== Proof of work and distributed issuance (mining)
==== Mining for blocks
Bitcoin's security is underpinned by computation. The blockchain is formed by solving a problem, called the _proof-of-work_ (PoW) that requires a predictable computational effort, one that takes approximately 10 minutes for the entire network of bitcoin nodes to solve. The process is called _mining_, since it has diminishing returns, just like mining for precious metals. It works a bit like a global lottery, where every bitcoin miner attempts to find a solution to a cryptographic equation. The first miner to find a solution, broadcasts it on the peer-to-peer bitcoin network for others to verify and include in the blockchain. For any transaction to be included in the global blockchain, it must be verified and included inside a new block. Each block includes the fingerprint of the previous block int he chain and any new transactions that have occured in the intervening 10 minutes.
When a bitcoin miner discovers a new solution to the proof of work algorithm, they create a new block which includes newly minted bitcoin in a transaction that pays to the miner's own bitcoin address. Bitcoin miners earn the newly minted bitcoin as a reward by creating a transaction to pay themselves. They can do this only if they discover a solution to the proof-of-work problem, thus providing an incentive to participate in mining and thereby to computationally secure the transactions.
Essentially, the bitcoin currency units are issued through mining, just like a central bank issues new money by printing bank notes. The amount of newly created bitcoin in each block decreases every four years. It started at 50 bitcoin per block in 2008 and halved to 25 bitcoin per block in 2012. It will halve again to 12.5 bitcoin per block in 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately 2140 when all 21 million bitcoin have been issued.
Bitcoin miners also earn fees from transactions. Every transaction may include a transaction fee, in the form of a surplus of bitcoin between the transaction's inputs and outputs. The bitcoin miner gets to "keep the change" on the transactions.
At the time of writing this, the fees usually represent 1% or less of a bitcoin miner's income, the vast majority coming from the newly minted bitcoins. However, as the reward decreases over time, a greater proportion of bitcoin mining earnings will come from fees, until after 2140 all bitcoin miner earnings will be in the form of transaction fees.
==== A transaction language
==== An API
A simple bitcoin transaction transfers value from one bitcoin address to another. However, there is much more to bitcoin transactions than that. Each transaction is a signed script that is evaluated using a stack-based interpreter. The language of transactions is Forth-like and not Turing-complete as it does not include looping constructs.
A transaction script can make a bitcoin payment payable to the owner of a bitcoin address, to multiple bitcoin addresses, to anyone who solves a riddle, to anyone who guesses a number or to infinitely more complex requirements.
The transaction script language is extremely powerful and can be used to express very complex and novel transactions. It is examined in more detail in <<complex_transactions>>.
==== An Application Programming Interface (API)
The reference bitcoin software implementation, known as the _Satoshi Client_ and with the application name +bitcoin-qt+ or +bitcoind+, offers a client-level API. The API is available as a JSON/RPC interface and offers programmatic access to bitcoin wallets, th blockchain and the bitcoin network.
=== Getting Bitcoin
@ -92,7 +111,7 @@ Bitcoin's core innovation is, somewhat ironically, completely de-centralized. It
Andreas M. Antonopoulos
11 years ago