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internet yet again. In the past few weeks you would have come across news
headlines, Facebook posts or overheard people discussing the ever-growing price
of a single bitcoin. While most people understand the bitcoin is a digital
currency, they are yet skeptical over its limited usability and acceptance in
daily transactions. People not familiar with cryptocurrencies assume that it is
like any other asset, say real estate or gold which can be purchased with
adequate money, which ,however ,is not true. So what makes the bitcoin so
coveted yet so elusive? Well, keeping it short, the answer is blockchain. In
this post, we’ll look at blockchain only for bitcoins, but keep in mind that it
is a piece of technology that can revolutionize any and every other industry
and service, government or private sector. Blockchain is simply a ledger or a
register that keeps track of transactions in the form of blocks, that are
taking place between bitcoin owners. Each block contains the record of
transactions taking place. Additionally, it contains a time-stamp, the amount
transacted among other things. In picture: What a block looks like to the
public. The blockchain is updated in real-time. It is a distributed ledger,
which means everyone on the network can see what it contains, who sent the BTC
and who received it. So this means that whenever a party transacts using BTC,
everyone on the network can validate it. Further, each block has a hash
associated with it, in simple terms this is like a fingerprint or signature,
thus acting as an identity for that block. Each block also contains the hash of
the previous block, excepting the first block called the Genesis Block-Because
it has nothing before it. This system of hashing gives room to security because
if you want to tamper with the data in one block, you will have to change its
hash value and that would mean changing the hash value of every subsequent
block, because each block consists of its own and its predecessors hash, both
required for authentication. The parties who want to add a block are called
miners. So how does one add a new block to the chain? All one has to do is
perform a series of mathematical computations, a method called the
proof-of-work. In picture: A block contains the values shown. This method
consists of a challenge (a puzzle) and a proof (a solution). Now once you come
up with a proof, you run them together through a cryptographic hash function (SHA-256
to be specific. To the more informed, both the proof and challenge are strings,
you concatenate them and input it into the function). A cryptographic hash
function has a series of steps such as turning input sequence to binary,
converting to ASCII text, converting to hexadecimal system, inverting the
sequence and so on in a particular order. It is extremely difficult to find two
different inputs that generate the same output, also it is equally hard to
reconstruct the original input given the output hash value. Its as good as
saying I have a number, say 12876472, and it is the result of an addition
between two numbers. What could be those numbers? Yes, exactly, the number of
possibilities is enormous. Note that this is an over-simplified explanation of
a feature of the function called ‘One-way hash functions’. Each transaction has
a hash associated with it and combing two transactions’ numeric sequences and
running it through the hash function generates another hash (more popularly
called ‘digest’). As you combine the hashes of every two transactions you keep
halving the number of hashes, and at the end you have a final hash. A final
hash of a block must start with a certain number of zeros. The probability of
calculating a hash that starts with many zeros is very low, therefore many
attempts must be made (introducing a slight change in the final hash) and there
is noway around it, no shortcuts at all. Its just like a numeric lock, you need
to try out many sequences of numbers before you find the right one that unlocks
it. The salient or remarkable feature in this system is that once a user (or
node) claims to have found the hash, all other competing users immediately
start working to verify the claim, and it is much, much easier to verify the
hash than to find it yourself. In picture: Each block consist the hash of the
previous block. What’s really happening is that bitcoin is a reward for adding
a new block to the set of existing blocks, called the blockchain. The user who
added a block is rewarded with 12.5 Bitcoins (a fixed value set by the network,
value halves every 210,000 blocks added), also note that, a miner who wants to
add a block has liberty to choose the transactions it wants to include in the
block, this choice maybe influenced by the fact that each time someone spends
their bitcoin, they beforehand declare a transaction fee that the miner will
receive if he includes this transaction in his block. The present scenario is
such, that it takes 10 minutes to add a block to the blockchain. Sadly, this
means that if you were thinking of purchasing a McChicken next year using your
Bitcoin Wallet, McDonald’s will receive it only after at least 10 minutes of
your initiating the spending. And finally, why is the price of a bitcoin so
high? So every miner who is looking to add a new block has to calculate the
right hash, and to do that tremendous computing power is necessary. It is an
energy intensive process, requiring lots of computers to work in collaboration
and hence requires electricity. The bitcoin miner sets the price so as to
recover the price he pays for running his devices and that should tell you how
much electricity is needed to mine these coins. SNEAK 

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