Understanding Bitcoin: From Its Origin to Wallets, Transactions, Mining, and the Blockchain

Recently, virtual currencies such as Bitcoin, Ethereum, and Dogecoin have dominated headlines, prompting many to wonder about the underlying technology.

Bitcoin was introduced in a 2008 paper by the pseudonymous Satoshi Nakamoto, who proposed a currency that operates without government control.

1. Asymmetric Encryption

Understanding Bitcoin starts with asymmetric encryption, which uses a public key for encryption and a private key for decryption. The private key also enables digital signatures, proving ownership of a transaction.

When a public key encrypts a value (money), only the holder of the corresponding private key can unlock and spend it, ensuring secure payments.

2. Bitcoin Wallets

Bitcoin does not send money to a person but to a private key. A wallet stores the public‑key/private‑key pair; the public key is 512 bits, and a 160‑bit fingerprint (the address) is derived for easier use.

Example address: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 . The address uniquely identifies a wallet.

3. Transaction Process

A transaction moves Bitcoin from one address to another. To prevent fraud, the sender must provide the previous transaction hash, both addresses, the sender’s public key, and a digital signature generated with the private key.

Verification involves locating the previous transaction, confirming the public‑key fingerprint matches the address, and validating the digital signature.

4. Confirmation and the Blockchain

After verification, the transaction is sent to miners, who bundle many transactions into a block (max 1 MB, ~2000 transactions) and compute a hash—a process called mining.

The winning miner adds the block to the blockchain, making the transaction immutable.

5. Miner Rewards

Miners receive a block reward (initially 50 BTC, halved every four years; currently 12.5 BTC) plus transaction fees. As rewards halve, fees become the primary incentive.

6. Block Size Scaling

The 1 MB block limit caps processing to about 3‑5 transactions per second, creating a scalability bottleneck. In 2017 a fork created Bitcoin Cash (BCH) with an 8 MB block size, increasing throughput eightfold.

7. Peer‑to‑Peer Network

Bitcoin operates as a global P2P network. Each node stores the full blockchain (≈100 GB) and synchronizes with peers. When a transaction is broadcast, it propagates across the network until miners include it in a block, after which all nodes update to the latest chain.

Source: 阮一峰的网络日志, author: 阮一峰