The network requires minimal structure to share transactions. Upon reconnection, a node downloads and verifies new blocks from other nodes to complete its local copy of the blockchain. An actual bitcoin transaction including the fee from a set up bitcoin mining farm cryptocurrency exchange to a hardware wallet.
A payee can examine each previous transaction to verify the chain of ownership. Although it is possible to handle bitcoins individually, it would be unwieldy to require a separate transaction for every bitcoin in a transaction. Common transactions will have either a single input from a larger previous transaction or multiple inputs combining smaller amounts, and one or two outputs: one for the payment, and one returning the change, if any, to the sender. Any difference between the total input and output amounts of a transaction goes to miners as a transaction fee. The signature is discovered rather than provided by knowledge. Requiring a proof of work to provide the signature for the blockchain was Satoshi Nakamoto’s key innovation. While the average work required increases in inverse proportion to the difficulty target, a hash can always be verified by executing a single round of double SHA-256.
As later blocks are chained after it, the work to change the block would include redoing the work for each subsequent block. Majority consensus in bitcoin is represented by the longest chain, which required the greatest amount of effort to produce. If a majority of computing power is controlled by honest nodes, the honest chain will grow fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of that block and all blocks after it and then surpass the work of the honest nodes. The probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added. To compensate for increasing hardware speed and varying interest in running nodes over time, the difficulty of finding a valid hash is adjusted roughly every two weeks. If blocks are generated too quickly, the difficulty increases and more hashes are required to make a block and to generate new bitcoins.
Bitcoin mining is a competitive endeavor. Bitcoin-specific ASICs are now the primary method of mining bitcoin and have surpassed GPU speed by as much as 300 fold. As bitcoins have become more difficult to mine, computer hardware manufacturing companies have seen an increase in sales of high-end ASIC products. Individual mining rigs often have to wait for long periods to confirm a block of transactions and receive payment. This payment depends on the amount of work an individual miner contributed to help find that block.
In 2013, Mark Gimein estimated electricity consumption to be about 40. New transactions are broadcast to all nodes. Each miner node collects new transactions into a block. Each miner node works on finding a proof-of-work code for its block. When a node finds a proof-of-work, it broadcasts the block to all nodes.
Receiving nodes validate the transactions it holds and accept only if all are valid. Nodes express their acceptance by moving to work on the next block, incorporating the hash of the accepted block. By convention, the first transaction in a block is a special transaction that produces new bitcoins owned by the creator of the block. This is the incentive for nodes to support the network. It provides the way to move new bitcoins into circulation. The reward for mining halves every 210,000 blocks.
It started at 50 bitcoin, dropped to 25 in late 2012 and to 12. This halving process is programmed to continue for 64 times before new coin creation ceases. Various potential attacks on the bitcoin network and its use as a payment system, real or theoretical, have been considered. The bitcoin protocol includes several features that protect it against some of those attacks, such as unauthorized spending, double spending, forging bitcoins, and tampering with the blockchain. Other attacks, such as theft of private keys, require due care by users.