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Topic: Bitcoins - How Do They Work? (Read 3025 times) previous topic - next topic

012anonymousxyz

Aug 06, 2013, 06:35 am Last Edit: Aug 06, 2013, 06:41 am by 012anonymousxyz Reason: 1
Hello and thank you! Firstly, I know there are plenty guides out there. I just have a few things I need to clarify. Second, this question has nothing to do with Arduino but when I am at a loss for places to go (aka after almighty Google fails me) I turn to this forum for trivially obvious reasons (best community, technology orientated)!

1. Where is the public transaction log? See: http://bitcoin.org/en/how-it-works
Excerpt:
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The block chain is a shared public transaction log on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain with no exception. This way, new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.


2. Who maintains the public transaction log? Is there an official company associated with bitcoin?

3. Related to above, where is the ledger that contains the amount of bitcoins each address is suppose to have? If there is no public company, does everybody keep a personal log of how much bitcoins each address is "suppose to have" for when they do the calculations to confirm and agree that a valid transaction happened?

Personally, if I understood the purpose of bitcoins right, there is absolutely no organization, company that is running servers or anything to maintain bitcoins. I became baffled when I saw this public transaction log where every record of all transaction is kept (which implies there is a server running that logs them and therefore there IS a company involved). But if you think about it, it makes sense. A person can't be expected to keep a ledger with terabytes of information. So confused :S.

Thanks a lot!

johnwasser

> 1. Where is the public transaction log?

It's called the blockchain.  Many members of the peer-to-peer Bitcoin network have a copy.  If you install the free Bitcoin-QT program from http://bitcoin.org/en/download it will download the entire blockchain to your computer and allow you to create addresses that can then receive and send Bitcoins. You can see and search the blockchain at http://blockchain.info/

> 2. Who maintains the public transaction log?

Blocks are added to the blockchain by Bitcoin miners.  Each block added gets the miner a reward (currently 25 Bitcoins) plus the transaction fees for any transactions they include in the block.  Adding a block requires a LOT of calculations so it takes, on average, ten minutes for the sum total of all the miners working at the same time to generate a new block.  Way back in May 2013 the Bitcoin network was estimated to be faster than the world's 500 fastest supercomputers combined.  Since then the Bitcoin network has increased in speed by a factor of about 10.

> Is there an official company associated with bitcoin?

No.  There is an organization that maintains the official software (bitcoin.org) by they don't maintain servers or have control over the network.

> 3. Related to above, where is the ledger that contains the amount of bitcoins each address is suppose to have?

That's the blockchain.  The coins are created when a new block is added to the chain.  Every transaction moves some amount of Bitcoins from some addresses to other addresses.  By reading the entire blockchain you can see how many Bitcoins have been moved TO and address and have not been moved FROM that address.  That lets you calculate the amount of Bitcoins that address owns.

> If there is no public company, does everybody keep a personal log of how much bitcoins each
> address is "suppose to have" for when they do the calculations to confirm and agree that a
> valid transaction happened?

The miners all have a copy of the blockchain.  They won't accept a transaction to include in a block if it is trying to move more Bitcoins from an address than that address has. Such a transaction would make the block invalid so they would not get their reward.

> A person can't be expected to keep a ledger with terabytes of information. So confused :S.

The blockchain is getting close to 9 GB (https://blockchain.info/charts/blocks-size).  At some time the blockchain will be pruned of transactions for addresses that no longer have any Bitcoins (See: https://en.bitcoin.it/wiki/Scalability)
Send Bitcoin tips to: 1G2qoGwMRXx8az71DVP1E81jShxtbSh5Hp

012anonymousxyz

#2
Aug 06, 2013, 05:08 pm Last Edit: Aug 06, 2013, 05:12 pm by 012anonymousxyz Reason: 1
I appreciate the reply!

I see I made some deadly assumptions. Namely assuming the log was terabytes big and that it was hosted on servers. I really appreciate the clarifications!

I had seen http://blockchain.info/ before too, but was not sure because they were a for-profit wallet company (part of the reason I got confused). I guess they have the same software and just update/post the log on their website.

Once again, I really appreciate it!

cmiyc

You might be interested in this Security Now episode, where Steve Gibson goes into depth on Bitcoins:
https://www.grc.com/sn/sn-287.htm

Capacitor Expert By Day, Enginerd by night.  ||  Personal Blog: www.baldengineer.com  || Electronics Tutorials for Beginners:  www.addohms.com

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