In this blog, we are going to learn about the four basic components of bitcoin. These four elements will help us to understand the bitcoin blockchain in a clearer way.
Here, we are going to put up every object that we have learned previously in a single SCENE. As we know that a block is made up of hash and complex cryptography environment, but this is only the one side of the coin. The bitcoin blockchain is more interesting than we thought.
We can see the basic components of bitcoin in the following image:
1. Software
2. Cryptography
3. Hardware
4. Miners(Gaming Theory)

First Component: Software

Bitcoin is basically a software at the core that defines what a bitcoin is, as well as how a bitcoin gets transferred. It identifies what the rules of a valid bitcoin, who can be inside bitcoin, who cannot be inside bitcoin, what is valid, what is not, etc. Everything is based on software, which is the bitcoin software. The bitcoin software is always operated in 24*7.

Second component: Cryptography

The software, at its core, uses cryptography and bitcoin as a cryptocurrency. Bitcoin uses cryptography to regulate the transfer of bitcoin between parties, as well as the creation of new units of bitcoin. Without cryptography, Bitcoin would simply not be possible. So, we’ve got that this software uses cryptography to control the transfer of bitcoin over the internet.
Cryptography is a mathematical approach which is solvable by computers and not by humans. So all the stuff that protects your data is served by the cryptography.

Third Component: Hardware

To run and solve cryptography, it needs HARDWARE. This hardware is composed of those thousands of miners around the world running their computers. So there are thousands of computers around the world that are basically running the Bitcoin software or the Bitcoin client. This hardware is specially designed for finding Nonce to validate block and hash. It requires a lot of CPU power to complete a simple task on the bitcoin blockchain.
If you try to mine bitcoin right now with your smartphone or home computer, then you will End up losing your computer along with a hefty electric bill.

Fourth Component: Mining (Gaming Theory)

Miners are users who involved in a gaming theory because bitcoin is truly a game which is run by these miners around the world. In the above, we have seen that the first component is software for bitcoin that issues a cryptography challenge in every 10 minutes. The cryptography challenge involves in trying to find a Nonce which will make the hash for a specific block valid. All the hashes and validations are done by these miners. After successful creation of the block, the new block is added to the blockchain.
Let’s see how gaming theory works!
• Bitcoin software creates a challenge. Now, there is a game begins, and there is a race that goes off. The race involves all these miners competing against each other to solve the challenges.
• This task or challenge will take approximately 10 minutes to be completed.
• Every single miner starts trying to find the solution to that one Nonce that will satisfy the hash for the block.
• At some specific point, one of those miners in the global community with higher speed and great hardware specs will solve the cryptography challenge and be the winner of that race.
• Now, the rest of the community will start verifying that block which is mined by the winner. This makes Bitcoin so strong, because in one stage of this cycle, the miners are competing against each other, and in the next stage of the cycle, the rest of the community rallies together to ensure that that solution is correct.
• If the Nonce is correct, it will end up with the new block which will be added to the blockchain.
• For this task or challenge, the winner will earn a reward. That reward is currently 12.5 bitcoins.

Blockchain Proof of work

Proof of Work(PoW) is the original consensus algorithm in a blockchain network. The algorithm is used to confirm the transaction and creates a new block to the chain. In this algorithm, minors (a group of people) compete against each other to complete the transaction on the network. The process of competing against each other is called mining. As soon as miners successfully created a valid block, he gets rewarded. The most famous application of Proof of Work(PoW) is Bitcoin.
Producing proof of work can be a random process with low probability. In this, a lot of trial and error is required before a valid proof of work is generated. The main working principle of proof of work is a mathematical puzzle which can easily prove the solution. Proof of work can be implemented in a blockchain by the Hashcash proof of work system.
In the below image, you can see that this block is composed of a block number, data field, cryptographic hash associated with it and a nonce. The nonce is responsible for making the block valid.

In the puzzle game, bitcoin software creates a challenge, and there is a game begins. This game involves all miners competing against each other to solve the challenges, and this challenge will take approximately 10 minutes to be completed. Every single miner starts trying to find the solution to that one Nonce that will satisfy the hash for the block. At some specific point, one of those miners in the global community with higher speed and great hardware specs will solve the cryptography challenge and be the winner of the game. Now, the rest of the community will start verifying that block which is mined by the winner. If the nonce is correct, it will end up with the new block that will be added to the blockchain. The concept of generating a block provides a clear explanation of proof of work(PoW).

Coinbase Transaction

A coinbase transaction is the first transaction in a block. It is a unique type of bitcoin transaction that can be created by a miner. The miners use it to collect the block reward for their work and any other transaction fees collected by the miner are also sent in this transaction.

Explanation

Each transaction executed on the bitcoin network are combined together to form a block. When a block is formed, immediately, it will be added in the blockchain. Now, these blocks are immutable and tamper-proof for all transactions that are made on the bitcoin network. Each block must contain one or more transactions, and the first transaction in the block is called the Coinbase transaction.

The miners are always responsible for creating a block. When a block is successfully created, he will be rewarded from bitcoin for their work. The bitcoin block reward is always dependent on the number of blocks from the genesis block and the number of fees included in the transactions of the block. The total amount of rewards that a miner will collect is the sum of the block reward and the transaction fees taken from all the transactions that have been included in the block.
In the start of the bitcoin, the block reward is 50 bitcoin per block. The block reward is reduced by half after every 210, 000 blocks, i.e. approximately in every four years. The current reward for successfully creating a block is 12.5 bitcoin. It will be going to get reduced 6.25 bitcoin per block in the year 2020.
There is one important feature of a coinbase transaction is that bitcoins involved in the transaction cannot be spent until they have received at least 100 block confirmations in the blockchain.
So, this brings us to the end of blog. This Tecklearn ‘Basic Components of Bitcoin and BlockChain Proof of Work’ blog helps you with commonly asked questions if you are looking out for a job in BlockChain or Ethereum. If you wish to learn BlockChain or Ethereum and build a career in BlockChain domain, then check out our interactive, Blockchain and Ethereum Developer Training, that comes with 24*7 support to guide you throughout your learning period. Please find the link for course details:

https://www.tecklearn.com/course/blockchain-and-ethereum-certification-training/

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Tecklearn’s Blockchain and Ethereum Certification Training course in the blockchain technology that covers essential concepts like Blockchain programming, Ethereum, Solidity, Digital ledger types, Smart Contracts, Multichain, Bitcoin mining, Cryptocurrency, etc. The course provides an overview of the structure and mechanism of Blockchain. You will learn about the Ethereum ecosystem, how smart contracts are developed using Solidity and how to deploy a business network using Hyperledger Compose.

Why Should you take BlockChain and Ethereum Certification Training?

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What you will Learn in this Course?

Introduction and origin of Blockchain

• How does our current financial system work?
• What can be the possible solution
• What is a distributed system
• What is Blockchain
• How does a Blockchain work
• Components of Blockchain
• Business network
• Consensus, Provenances, immutability and finality

Cryptocurrency and Blockchain

• Distributed system
• Distributed Ledger technology
• Global Payments
• Why BlockChain
• BlockChain and use case needs
• Requirements of blockchain for business
• BlockChain benefits
• Types of BlockChain
• Hands on

Bitcoin Platform

• What is Bitcoin?
• Why use Bitcoins?
• Bitcoin Ecosystem
• Structure of a Bitcoin Transaction
• Merkel Trees
• Scripting language in Bitcoin
• Applications of Bitcoin script
• Nodes in a Bitcoin Network
• Bitcoin Economics
• What is Bitcoin Mining?
• Types of Mining
• Mining and Consensus
• Hands On

Introduction to Ethereum

• What is Ethereum?
• Ethereum Layers
• Introducing Smart Contracts
• Cryptocurrency in Ethereum
• Mining in Ethereum
• Consensus Mechanism
• Platform Functions in Ethereum
• Technologies that support Ethereum
• Ethereum Programming Language
• Components for the development of Ethereum DApps
• Editors and tools
• Frontend Development
• Ethereum Test Networks
• ERC Tokens
• Hands On

Solidity

• Introducing Solidity
• Sample Code, Layout of Source File
• Structure of a Contract
• State Variables, Functions Types, Reference Types
• Special Variables and Functions, Expressions and Control Structures
• Function Calls, Error Handling
• Visibility for Functions and State Variables
• Inheritance, Constructors
• Importing Smart Contracts
• Gas Limit and Loops
• Sending and Receiving Ether
• Recommendations
• Contract ABI
• Setting up the development environment and Deploying DApp
• Hands On

Hyperledger

• Introduction to Hyperledger
• Hyperledger architecture
• Hyperledger Fabric V1 Architecture
• Consensus
• Hyperledger API
• Hyperledger Application Model
• Hyperledger project and tools
• Network Topology
• Exploring Hyperledger frameworks
• Business Network Deployment on Hyperledger Composer Playground
• Sample Transaction
• Service invoices
• Hands On

Hyperledger Composer

• Development Environment using Composer
• Developing business networks
• Testing business networks
• Introduction to Hyperledger Fabric
• Hyperledger Fabric Model
• Ways to create Hyperledger Fabric Blockchain Network
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Create and Deploy Your Private Blockchain On Multichain

• What Is MultiChain
• MultiChain Privacy and Permissions
• Mining in MultiChain
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• Setting up a Private Blockchain
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Blockchain Use Cases

• Potential use cases in Blockchain
• BlockChain project

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