[[ch02_bitcoin_overview]] == How Bitcoin Works ((("bitcoin", "overview of", id="BCover02")))((("central trusted authority")))((("decentralized systems", "bitcoin overview", id="DCSover02")))The Bitcoin system, unlike traditional banking and payment systems, does not require trust in third parties. Instead of a central trusted authority, in Bitcoin, each user can use software running on their own computer to verify the correct operation of every aspect of the Bitcoin system. In this chapter, we will examine bitcoin from a high level by tracking a single transaction through the Bitcoin system and watch as it is recorded on the blockchain, the distributed ledger of all transactions. Subsequent chapters will delve into the technology behind transactions, the network, and mining. === Bitcoin Overview In the overview diagram shown in <>, we see that the Bitcoin system consists of users with wallets containing keys, transactions that are propagated across the network, and miners who produce (through competitive computation) the consensus blockchain, which is the authoritative ledger of all transactions. ((("blockchain explorer sites")))Each example in this chapter is based on an actual transaction made on the Bitcoin network, simulating the interactions between several users by sending funds from one wallet to another. While tracking a transaction through the Bitcoin network to the blockchain, we will use a _blockchain explorer_ site to visualize each step. A blockchain explorer is a web application that operates as a bitcoin search engine, in that it allows you to search for addresses, transactions, and blocks and see the relationships and flows between them. //FIXME: priv key to P2PKH address [[bitcoin-overview]] .Bitcoin overview image::images/mbc2_0201.png["Bitcoin Overview"] ((("Bitcoin Block Explorer")))((("BlockCypher Explorer")))((("blockchain.info")))((("BitPay Insight")))Popular blockchain explorers include: * https://blockstream.info/[Blockstream Explorer] * https://mempool.space[Mempool.Space] * https://live.blockcypher.com[BlockCypher Explorer] Each of these has a search function that can take a Bitcoin address, transaction hash, block number, or block hash and retrieve corresponding information from the Bitcoin network. With each transaction or block example, we will provide a URL so you can look it up yourself and study it in detail. [[block-explorer-privacy]] .Block explorer privacy warning [WARNING] ==== Searching information on a block explorer may disclose to its operator that you're interested in that information, allowing them to associate it with your IP address, browser fingerprint, past searches, or other identifiable information. If you look up the transactions in this book, the operator of the block explorer might guess that you're learning about Bitcoin, which shouldn't be a problem. But if you look up your own transactions, the operator may be able to guess how many bitcoins you've received, spent, and currently own. ==== [[spending_bitcoin]] ==== Buying from an Online Store Alice, introduced in the previous chapter, is a new user who has just acquired her first bitcoins. In <>, Alice met with her friend Joe to exchange some cash for bitcoins. Since then, Alice has bought additional bitcoins. Now Alice will make her first retail transaction, buying access to a premium podcast episode from Bob's online store. Bob's web store recently started accepting bitcoin payments by adding a bitcoin option to its website. The prices at Bob's store are listed in the local currency (US dollars), but at checkout, customers have the option of paying in either dollars or bitcoin. Alice finds the podcast episode she wants to buy and proceeds to the checkout page. At checkout, Alice is offered the option to pay with bitcoin, in addition to the usual options. The checkout cart displays the price in US dollars and also in bitcoin (BTC), at Bitcoin's prevailing exchange rate. ((("payment requests")))((("QR codes", "payment requests")))Bob's e-commerce system will automatically create a QR code containing an _invoice_ (<>). Unlike a QR code that simply contains a destination Bitcoin address, this invoice is a QR-encoded URI that contains a destination address, a payment amount, and a description. This allows a bitcoin wallet application to prefill the information used to send the payment while showing a human-readable description to the user. You can scan the QR code with a bitcoin wallet application to see what Alice would see. //// TODO: Replace QR code with test-BTC address //// [[invoice-QR]] .Invoice QR code image::images/mbc2_0202.png["payment-request"] [TIP] ==== ((("QR codes", "warnings and cautions")))((("transactions", "warnings and cautions")))((("warnings and cautions", "avoid sending money to addresses appearing in book")))Try to scan this with your wallet to see the address and amount but DO NOT SEND MONEY. ==== [[invoice-URI]] .The invoice QR code encodes the following URI, defined in BIP21: ---- bitcoin:bc1qk2g6u8p4qm2s2lh3gts5cpt2mrv5skcuu7u3e4?amount=0.01577764& label=Bob%27s%20Store& message=Purchase%20at%20Bob%27s%20Store Components of the URI A Bitcoin address: "bc1qk2g6u8p4qm2s2lh3gts5cpt2mrv5skcuu7u3e4" The payment amount: "0.01577764" A label for the recipient address: "Bob's Store" A description for the payment: "Purchase at Bob's Store" ---- Alice uses her smartphone to scan the barcode on display. Her smartphone shows a payment for the correct amount to +Bob's Store+ and she selects Send to authorize the payment. Within a few seconds (about the same amount of time as a credit card authorization), Bob sees the transaction on the register. [NOTE] ==== ((("fractional values")))((("milli-bitcoin")))((("satoshis")))The Bitcoin network can transact in fractional values, e.g., from millibitcoin (1/1000th of a bitcoin) down to 1/100,000,000th of a bitcoin, which is known as a satoshi. This book uses the same pluralization rules used for dollars and other traditional currencies when talking about amounts greater than one bitcoin and when using decimal notation, such as "10 bitcoins" or "0.001 bitcoins." The same rules also apply to other bitcoin bookkeeping units, such as millibitcoins and satoshis. ==== You can examine Alice's transaction to Bob's Store on the blockchain using a block explorer site (<>): [[view_alice_transaction]] .View Alice's transaction on https://blockstream.info/tx/674616f1fbc6cc748213648754724eebff0fc04506f2c81efb1349d1ebc8a2ef[Blockstream Explorer] ==== ---- https://blockstream.info/tx/674616f1fbc6cc748213648754724eebff0fc04506f2c81efb1349d1ebc8a2ef ---- ==== In the following sections, we will examine this transaction in more detail. We'll see how Alice's wallet constructed it, how it was propagated across the network, how it was verified, and finally, how Bob can spend that amount in subsequent transactions. === Bitcoin Transactions ((("transactions", "defined")))In simple terms, a transaction tells the network that the owner of some bitcoin value has authorized the transfer of that value to another owner. The new owner can now spend the bitcoin by creating another transaction that authorizes the transfer to another owner, and so on, in a chain of ownership. ==== Transaction Inputs and Outputs ((("transactions", "overview of", id="Tover02")))((("outputs and inputs", "basics of")))Transactions are like lines in a double-entry bookkeeping ledger. Each transaction contains one or more "inputs," which spend funds. On the other side of the transaction, there are one or more "outputs," which receive funds. ((("fees", "transaction fees")))The inputs and outputs do not necessarily add up to the same amount. Instead, outputs add up to slightly less than inputs and the difference represents an implied _transaction fee_, which is a small payment collected by the miner who includes the transaction in the ledger. A bitcoin transaction is shown as a bookkeeping ledger entry in <>. The transaction also contains proof of ownership for each amount of bitcoin (inputs) whose value is being spent, in the form of a digital signature from the owner, which can be independently validated by anyone. ((("spending bitcoin", "defined")))In bitcoin terms, "spending" is signing a transaction that transfers value from a previous transaction over to a new owner identified by a Bitcoin address. [[transaction-double-entry]] .Transaction as double-entry bookkeeping image::images/mbc2_0203.png["Transaction Double-Entry"] ==== Transaction Chains ((("chain of transactions")))Alice's payment to Bob's Store uses a previous transaction's output as its input. In the previous chapter, Alice received bitcoin from her friend Joe in return for cash. We've labeled that as _Transaction 1_ (Tx1) in <>. Tx1 sent 0.001 bitcoins (100,000 satoshis) to an output locked by Alice's key. Her new transaction to Bob's Store (Tx2) references the previous output as an input. In the illustration, we show that reference using an arrow and by labeling the input as "Tx1:0". In an actual transaction, the reference is the 32-byte transaction identifier (txid) for the transaction where Alice received the money from Joe. The ":0" indicates the position of the output where Alice received the money; in this case, the first position (position 0). As shown, actual Bitcoin transactions don't explicitly include the value of their input. To determine the value of an input, software needs to use the input's reference to find the previous transaction output being spent. Alice's Tx2 contains two new outputs, one paying 75,000 satoshis for the podcast and another paying 20,000 satoshis back to Alice to receive change. //// @startditaa Transaction 1 Tx2 Tx3 Inputs Outputs In Out In Out +-------+---------+ +-------+--------+ +-------+--------+ | | | | | cDDD | | | | <--+ Tx0꞉0 | 100,000 |<--+ Tx1꞉0 | 20,000 | +-+ Tx2꞉1 | 67,000 | | | | | | | | | | | +-------+---------+ +-------+--------+ | +-------+--------+ | | cDDD | | | | | | | | | | 500,000 | | | 75,000 |<-+ | | | | | | | | | | | | +-------+---------+ +-------+--------+ +-------+--------+ Fee꞉ (unknown) Fee꞉ 5,000 Fee꞉ 8,000 @enddittaa //// //FIXME: clarify that these aren't the same transactions as described in //the text [[transaction-chain]] .A chain of transactions, where the output of one transaction is the input of the next transaction image::images/transaction-chain.png["Transaction chain"] [TIP] ==== Serialized Bitcoin transactions---the data format that software uses for sending transactions---encodes the value to transfer using an integer of the smallest defined onchain unit of value. When Bitcoin was first created, this unit didn't have a name and some developers simply called it the _base unit._ Later many users began calling this unit a _satoshi_ (sat) in honor of Bitcoin's creator. In <> and some other illustrations in this book, we use satoshi values because that's what the protocol itself uses. ==== ==== Making Change ((("change, making")))((("change addresses")))((("addresses", "change addresses")))In addition to one or more outputs that pay the receiver of bitcoins, many transactions will also include an output that pays the spender of the bitcoins, called a _change_ output. This is because transaction inputs, like currency notes, cannot be partly spent. If you purchase a $5 US dollar item in a store but use a $20 dollar bill to pay for the item, you expect to receive $15 dollars in change. The same concept applies to bitcoin transaction inputs. If you purchased an item that costs 5 bitcoins but only had an input worth 20 bitcoins to use, you would send one output of 5 bitcoins to the store owner and one output of 15 bitcoins back to yourself as change (not counting your transaction fee). At the level of the Bitcoin protocol, there is no difference between a change output (and the address it pays, called a _change address_) and a payment output. Importantly, the change address does not have to be the same address as that of the input and for privacy reasons is often a new address from the owner's wallet. In ideal circumstances, the two different uses of outputs both use never-before-been addresses and otherwise look identical, preventing any third party from determining which outputs are change and which are payments. However, for illustration purposes, we've added shading to the change outputs in <>. ==== Coin selection Different wallets use different strategies when choosing which inputs to use to a payment, called _coin selection_. They might aggregate many small inputs, or use one that is equal to or larger than the desired payment. Unless the wallet can aggregate inputs in such a way to exactly match the desired payment plus transaction fees, the wallet will need to generate some change. This is very similar to how people handle cash. If you always use the largest bill in your pocket, you will end up with a pocket full of loose change. If you only use the loose change, you'll always have only big bills. People subconsciously find a balance between these two extremes, and bitcoin wallet developers strive to program this balance. ==== Common Transaction Forms A very common form of transaction is a simple payment. This type of transaction has one input and two outputs and is shown in <>. [[transaction-common]] .Most common transaction image::images/mbc2_0205.png["Common Transaction"] Another common form of transaction is a _consolidation transaction_ one that spends several inputs into a single output (<>). This represents the real-world equivalent of exchanging a pile of coins and currency notes for a single larger note. Transactions like these are sometimes generated by wallets and businesses to clean up lots of smaller amounts. [[transaction-consolidating]] .Transaction aggregating funds image::images/mbc2_0206.png["Aggregating Transaction"] Finally, another transaction form that is seen often on the bitcoin ledger is _payment batching_ that pays to multiple outputs representing multiple recipients (<>). This type of transaction is sometimes used by commercial entities to distribute funds, such as when processing payroll payments to multiple employees.((("", startref="Tover02"))) [[transaction-distributing]] .Transaction distributing funds image::images/mbc2_0207.png["Distributing Transaction"] === Constructing a Transaction ((("transactions", "constructing", id="Tconstruct02")))((("wallets", "constructing transactions")))Alice's wallet application contains all the logic for selecting inputs and generating outputs to build a transaction to Alice's specification. Alice only needs to choose a destination, amount, and transaction fee, and the rest happens in the wallet application without her seeing the details. Importantly, if a wallet already knows what inputs it controls, it can construct transactions even if it is completely offline. Like writing a check at home and later sending it to the bank in an envelope, the transaction does not need to be constructed and signed while connected to the Bitcoin network. ==== Getting the Right Inputs ((("outputs and inputs", "locating and tracking inputs")))Alice's wallet application will first have to find inputs that can pay the amount she wants to send to Bob. Most wallets keep track of all the available outputs belonging to addresses in the wallet. Therefore, Alice's wallet would contain a copy of the transaction output from Joe's transaction, which was created in exchange for cash (see <>). A bitcoin wallet application that runs on a full node actually contains a copy of every confirmed transaction's unspent outputs, called _Unspent Transaction Outputs_ (UTXOs). However, because full nodes use more resources, most user wallets run "lightweight" clients that track only the user's own UTXOs. In this case, this single UTXO is sufficient to pay for the podcast. Had this not been the case, Alice's wallet application might have to combine several smaller UTXOs, like picking coins from a purse until it could find enough to pay for the podcast. In both cases, there might be a need to get some change back, which we will see in the next section, as the wallet application creates the transaction outputs (payments). ==== Creating the Outputs ((("outputs and inputs", "creating outputs")))A transaction output is created in the form of a script that creates an encumbrance on the value and can only be redeemed by the introduction of a solution to the script. In simpler terms, Alice's transaction output will contain a script that says something like, "This output is payable to whoever can present a signature from the key corresponding to Bob's public address." Because only Bob has the wallet with the keys corresponding to that address, only Bob's wallet can present such a signature to redeem this output. Alice will therefore "encumber" the output value with a demand for a signature from Bob. This transaction will also include a second output, because Alice's funds contain more money than the cost of the podcast. Alice's change output is created in the very same transaction as the payment to Bob. Essentially, Alice's wallet breaks her funds into two outputs: one to Bob and one back to herself. She can then spend the change output in a subsequent transaction. Finally, for the transaction to be processed by the network in a timely fashion, Alice's wallet application will add a small fee. The fee is not explicitly stated in the transaction; it is implied by the difference in value between inputs and outputs. This _transaction fee_ is collected by the miner as a fee for validating and including the transaction in a block to be recorded on the blockchain. [[transaction-alice-url]] [TIP] ==== View the https://blockstream.info/tx/466200308696215bbc949d5141a49a4138ecdfdfaa2a8029c1f9bcecd1f96177[transaction from Alice to Bob's Store]. ==== ==== Adding the Transaction to the Ledger The transaction created by Alice's wallet application contains everything necessary to confirm ownership of the funds and assign new owners. Now, the transaction must be transmitted to the Bitcoin network where it will become part of the blockchain. In the next section we will see how a transaction becomes part of a new block and how the block is mined. Finally, we will see how the new block, once added to the blockchain, is increasingly trusted by the network as more blocks are added. ===== Transmitting the transaction ((("propagation", "process of")))Because the transaction contains all the information necessary to process, it does not matter how or where it is transmitted to the Bitcoin network. The Bitcoin network is a peer-to-peer network, with each Bitcoin peer participating by connecting to several other Bitcoin peers. The purpose of the Bitcoin network is to propagate transactions and blocks to all participants. ===== How it propagates ((("Bitcoin nodes", "defined")))((("nodes", see="Bitcoin nodes"))) Peers in the Bitcoin peer-to-peer network are programs that have both the software logic and the data necessary for them to fully verify the correctness of a new transaction. The connections between peers are often visualized as edges (lines) in a graph, with the peers themselves being the nodes (dots). For that reason, Bitcoin peers are commonly called "full verification nodes", or _full nodes_ for short. Alice's wallet application can send the new transaction to any Bitcoin node it is connected to over any type of connection: wired, WiFi, mobile, etc. It can also send the transaction to another program (such as a block explorer) that will relay it to a node. Her bitcoin wallet does not have to be connected to Bob's bitcoin wallet directly and she does not have to use the internet connection offered by Bob, though both those options are possible, too. ((("propagation", "flooding technique")))((("flooding technique")))Any Bitcoin node that receives a valid transaction it has not seen before will forward it to all other nodes to which it is connected, a propagation technique known as _gossiping_. Thus, the transaction rapidly propagates out across the peer-to-peer network, reaching a large percentage of the nodes within a few seconds. ===== Bob's view If Bob's bitcoin wallet application is directly connected to Alice's wallet application, Bob's wallet application might be the first to receive the transaction. However, even if Alice's wallet sends the transaction through other nodes, it will reach Bob's wallet within a few seconds. Bob's wallet will immediately identify Alice's transaction as an incoming payment because it contains an output redeemable by Bob's keys. Bob's wallet application can also independently verify that the transaction is well formed. If Bob is using his own full node, his wallet can further verify Alice's transaction only spends valid UTXOs. === Bitcoin Mining ((("mining and consensus", "overview of", id="MACover02")))((("blockchain (the)", "overview of mining", id="BToverview02")))Alice's transaction is now propagated on the Bitcoin network. It does not become part of the _blockchain_ until it is included in a block by a process called _mining_ and that block has been validated by full nodes. See <> for a detailed explanation. The Bitcoin system of counterfeit protection is based on computation. Transactions are bundled into _blocks_. Blocks have a very small header that must be formed in a very specific way, requiring an enormous amount of computation to get right--but only a small amount of computation to verify as correct. The mining process serves two purposes in bitcoin: * ((("mining and consensus", "consensus rules", "security provided by")))((("consensus", see="mining and consensus")))Miners can only receive honest income from creating blocks that follow all of Bitcoin's _consensus rules_. Therefore, miners are normally incentivized to only include valid transactions in their blocks and the blocks they build upon. This allows users to optionally trust that any transaction in a block is a valid transaction. * Mining currently creates new bitcoin in each block, almost like a central bank printing new money. The amount of bitcoin created per block is limited and diminishes with time, following a fixed issuance schedule. Mining achieves a fine balance between cost and reward. Mining uses electricity to solve a computational problem. A successful miner will collect a _reward_ in the form of new bitcoin and transaction fees. However, the reward will only be collected if the miner has correctly validated all the transactions, to the satisfaction of the rules of _consensus_. This delicate balance provides security for bitcoin without a central authority. Mining is designed to be a decentralized lottery. Each miner can create their own lottery ticket by creating a _block template_ that includes the new transactions they want to mine plus some additional data fields. The miner inputs their template into a specially-designed algorithm that scrambles (or "hashes") the data, producing output that looks nothing like the input data. This _hash_ function will always produce the same output for the same input--but nobody can predict what the output will look like for a new input, even if it is only slighly different from a previous input. If the output of hash function matches a template determined by the Bitcoin protocol, the miner wins the lottery and Bitcoin users will accept the block template with its transactions as a valid block. If the output doesn't match the template, the miner makes a small change to their block template and tries again. As of this writing, the number of block templates miners need to try before finding a winning combination is about 168 billion trillions. That's also how many times the hash function needs to be run. However, once a winning combination has been found, anyone can verify the block is valid by running the hash function just once. That makes a valid block something that requires an incredible amount of work to create but only a trivial amount of work to verify. The simple verification process is able to probabalistically prove the work was done, so the data necessary to generate that proof--in this case, the block--is called Proof-of-Work (PoW). ((("mining and consensus", "mining farms and pools"))) ((("use cases", "mining for bitcoin")))Jing is an entrepreneur in Shanghai. Jing runs a _mining farm_, which is a business that runs thousands of specialized mining computers, competing for the block reward. Jing's mining computers compete against thousands of similar systems in the global lottery to create the next block. Jing started mining in 2010 using a very fast desktop computer to find a suitable Proof-of-Work for new blocks. As more miners started joining the Bitcoin network, the Bitcoin protocol automatically increased the difficulty of finding a new block. Soon, Jing and other miners upgraded to more specialized hardware, such as high-end dedicated graphical processing units (GPUs) used in gaming desktops. At the time of this writing, the difficulty is so high that it is profitable only to mine with ((("application-specific integrated circuits (ASIC)")))application-specific integrated circuits (ASIC), essentially hundreds of mining algorithms printed in hardware, running in parallel on a single silicon chip. ((("mining pools", "defined")))Jing's company also participates in a _mining pool_, which much like a lottery pool allows several participants to share their efforts and rewards. Jing's company now runs a warehouse containing thousands of ASIC miners to mine for bitcoin 24 hours a day. The company pays its electricity costs by selling the bitcoin it is able to generate from mining, creating some income from the profits. [[confirmation_score]] === Mining Transactions in Blocks ((("blocks", "mining transactions in")))New transactions are constantly flowing into the network from user wallets and other applications. As these are seen by the Bitcoin network nodes, they get added to a temporary pool of unverified transactions maintained by each node. As miners construct a new candidate block, they add unverified transactions from this pool to the candidate block and then attempt to prove the validity of that candidate block, with the mining algorithm (Proof-of-Work). The process of mining is explained in detail in <>. Transactions are added to the new block, prioritized by the highest fee rate transactions first and a few other criteria. Each miner starts the process of mining a new candidate block of transactions as soon as he receives the previous block from the network, knowing he has lost that previous round of competition. He immediately creates a new candidate block, fills it with transactions and the fingerprint of the previous block, and starts calculating the Proof-of-Work for the candidate block. Each miner includes a special transaction in his candidate block, one that pays his own Bitcoin address the block reward (currently 12.5 newly created bitcoin) plus the sum of transaction fees from all the transactions included in the candidate block. If he finds a solution that makes the candidate into a valid block, he "wins" this reward because his successful block is added to the global blockchain and the reward transaction he included becomes spendable. ((("mining pools", "operation of")))Jing, who participates in a mining pool, has set up his software to create candidate blocks that assign the reward to a pool address. From there, a share of the reward is distributed to Jing and other miners in proportion to the amount of work they contributed in the last round. ((("candidate blocks")))((("blocks", "candidate blocks")))Alice's transaction was picked up by the network and included in the pool of unverified transactions. Once validated by a full node, it was included in a block template generated by Jing's mining pool. All the miners participating in that mining pool immediately start trying to generate a Proof-of-Work for the block template. Approximately five minutes after the transaction was first transmitted by Alice's wallet, one of Jing's ASIC miners found a solution for the block and announced it to the network. After each other miner validates the winning block, they start a new lottery to generate the next block. //FIXME:Murch CH2 feedback about most-PoW chain Jing's winning block containing Alice's transaction became part of the blockchain. The block containing Alice's transaction is counted as one "confirmation" of that transaction. After the block containing Alice's transaction has propagated through the network, creating an alternative block with a different version of Alice's transaction (such as a transaction that doesn't pay Bob) would require performing the same amount of work as it will take all Bitcoin miners to create an entirely new block. For the entire network to accept an alternative block, an additional new block would need to be mined on top of the alternative. That means miners have a choice. They can work with Alice on an alternative version of the transaction where she pays Bob, perhaps with Alice paying miners a share of the money she previously paid Bob. This dishonest behavior will require they expend the effort required to create two new blocks. Instead, miners who behave honestly can create a single new block and and receive all of the fees from the transactions they include in it, plus the block reward. Normally, the high cost of dishonestly creating two blocks for a small additional payment is much less profitable than honestly creating a new block, making it unlikely that a confirmed transaction will be deliberately changed. For Bob, this means that he can begin to believe that the payment from Alice can be relied upon. [TIP] ==== You can see the block that includes https://blockstream.info/block/000000000000000000027d39da52dd790d98f85895b02e764611cb7acf552e90[Alice's transaction]. ==== ((("confirmations", "role in transactions")))Approximately 19 minutes after Jing's block, a new block is mined by another miner. Because this new block is built on top of the block that contained Alice's transaction (giving Alice's transaction two confirmations) Alice's transaction can now only be changed if two alternative blocks are mined--plus a new block built on top of them--for a total of three blocks that would need to be mined for Alice to take back the money she sent Bob. Each block mined on top of the one containing Alice's transaction counts as an additional confirmation. As the blocks pile on top of each other, it becomes harder to reverse the transaction, thereby giving Bob more and more confidence that Alice's payment is secure. ((("genesis block")))((("blocks", "genesis block")))((("blockchain (the)", "genesis block")))In <>, we can the block which contains Alice's transaction. Below it are hundreds of thousands of blocks, linked to each other in a chain of blocks (blockchain) all the way back to block #0, known as the _genesis block_. Over time, as the "height" of new blocks increases, so does the computation difficulty for the chain as a whole. By convention, any block with more than six confirmations is considered very hard to change, because it would require an immense amount of computation to recalculate six blocks (plus one new block). We will examine the process of mining and the way it builds confidence in more detail in <>.((("", startref="BToverview02")))((("", startref="MACover02"))) [[block-alice1]] .Alice's transaction included in a block image::images/mbc2_0209.png["Alice's transaction included in a block"] === Spending the Transaction ((("spending bitcoin", "simple-payment-verification (SPV)")))((("simple-payment-verification (SPV)")))Now that Alice's transaction has been embedded in the blockchain as part of a block, it is part of the distributed ledger of Bitcoin and visible to all Bitcoin applications. Each bitcoin full node can independently verify the transaction as valid and spendable. Full nodes validate every transfer of the funds from the moment the bitcoin were first generated in a block through each subsequent transaction until they reach Bob's address. Lightweight clients can do what is called a simplified payment verification (see <>) by confirming that the transaction is in the blockchain and has several blocks mined after it, thus providing assurance that the miners expended significant effort committing to it. Bob can now spend the output from this and other transactions. For example, Bob can pay a contractor or supplier by transferring value from Alice's podcast payment to these new owners. As Bob spends the payments received from Alice and other customers, he extends the chain of transactions. Let's assume that Bob pays his web designer Gopesh((("use cases", "offshore contract services"))) in Bangalore for a new website page. Now the chain of transactions will look like <>. [[block-alice2]] .Alice's transaction as part of a transaction chain from Joe to Gopesh image::images/mbc2_0210.png["Alice's transaction as part of a transaction chain"] In this chapter, we saw how transactions build a chain that moves value from owner to owner. We also tracked Alice's transaction, from the moment it was created in her wallet, through the Bitcoin network and to the miners who recorded it on the blockchain. In the rest of this book, we will examine the specific technologies behind wallets, addresses, signatures, transactions, the network, and finally mining.