When you join Crypto, you have two options: buy into the hype or buy into the technology. If someone joins for the hype, they'll leave when it dies down. If someone believes in the value this technology offers, I bet they'll stick around. This is why I think it is so important for newbies to be educated in this space. It's up to the crypto-community to contribute to the growth of this well educated community and I really want to do my part!
In my previous post, I reviewed confirming transactions to the blockchain and the dependency created through cryptographic hash function. If you missed this article, take a minute to read it here: https://read.cash/@d23711/newbies-come-learn-about-mining-pt2-1371a566 In this post, I really want to solidify your understanding of what happens when you send someone cryptocurrency.
From the Top
Michael wants to send Scott 1 Bitcoin. Scott provides Michael with his public wallet address so Michael can initiate the transaction on his wallet. Once the transaction is initiated, the programming collects both of their public keys, Michael's private key, and and the amount of the transaction. This information is then encrypted through the use of a hash function.
This solution becomes the digital signature for this transaction. It's important to know, each and every transaction will have it's own unique digital signature. This results in increased security for the network as a fraudster wouldn't be able to use a duplicated digital signature to initiate transfers.
The nodes verify the transaction by plugging Michael's private key into the function and seeing if it receives the same digital signature. If it does, the network will come to a consensus that the transaction is valid, and it will wait in the memory pool with other verified transactions.
Make it Drop
Now that the transaction has been verified, this is the mining community's time to shine! All miners on the network compete to solve the hash value of the new block. All miners want to find it first as it's the only way for them to receive a reward. The miner will group verified transactions with the previous completed block's hash value, then try to guess the new block's hash solution.
This might be a little confusing to understand, but you can think of the process like this. Let's say you have a 3-digit lock you want to open and you already have the first and second number. To unlock it, you only need to guess the 3rd number. On a physical lock, this is pretty easy; you guess through trial and error until you're right. That's exactly what the miner's are trying to do! They want to guess the missing number.
So let's swap the first number in this example for the digital signatures, the second number for the previous block's hash value, and the third number for the hash solution. If we were using Bitcoin, which uses the SHA-256 hashing algorithm, there would be 2²⁵⁶ possible guesses (that's a lot of freaking guesses!). This is why specialized computer hardware is necessary to become a miner; the program needs strong processing capabilities to filter through all of the possible solutions.
That's a Block
Once the solution is found, the remaining nodes verify it's accuracy. If it is valid, the block is added to the ledger. Since blockchain runs on a distributed ledger, an updated copy with the new block is sent to all nodes on the network so that the process can be repeated.
What's Next?
Next I will break down the different types of consensus mechanisms starting with the original, Proof of Work. I hope you enjoyed reading and learned something! Thank you!
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