What Bitcoin Did

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Beginner’s Guide #6: How Bitcoin Works with Shinobi

Peter McCormack

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BBG Part 6: How Bitcoin Works with Shinobi - WBD187 Peter McCormack

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Location: Skype
Date: Friday, 17th January
Project: Block Digest
Role: Host

Welcome to the Beginner's Guide to Bitcoin.

Bitcoin can be intimidating for beginners. The protocol is complicated, the community can be aggressive and unforgiving, silly mistakes can lose you money, and it is easy to succumb to altcoin marketing. 

Bitcoin does though, offer you the opportunity to hold a new type of monetary asset, one which can't be seized by the government and is censorship resistance and It has the potential to change the way the world. 

The goal of What Bitcoin Did has always been about making things simple; there are no stupid questions, and the show is here to help beginners navigate this new world. To kick off 2020, we are launching a special series to help beginners understand Bitcoin. We will be looking at the basics from breaking down the protocol to explaining the economics and discussing the potential societal shift. 

Beginners Guide Part 6 - How Bitcoin Works with Shinobi

As a newcomer to Bitcoin, you can begin using the network without understanding the protocol. While in the early days Bitcoin required a level of technical knowledge, there is now a plethora of companies creating products which abstract this away. 

As Bitcoin is such a unique form of money, you should invest time in understanding some of the more complicated aspects such as how the protocol works. While there are good wallets which will take care of validating transactions for you, by operating a node, you can become fully self-sovereign by validating your transactions.

The Bitcoin protocol is complicated, so in this episode, we give you an introduction and overview of how it works:

  • Supply - Bitcoin has a fixed supply of 21 million coins and a fixed supply issuance. Starting at 50BTC per block this reward is cut in half every 210,000 blocks (or ~every four years).

  • UTXOs - an Unspent Transaction Output which is used as an input for a new transaction.

  • Open-source - openly available source code that anyone can access allowing anyone to review and contribute to the code.

  • Consensus rules - the rules that full nodes must follow to be in agreement with all other nodes on the state of the blockchain

  • Full Node - a program that verifies and validates all transactions and blocks for the entire history of the Bitcoin blockchain

  • Mining - the process of adding transactions to the Bitcoin ledger and securing the network. Miners create blocks by spending energy in what is known as proof of work. 

  • The difficulty adjustment - this alters every 2016 blocks (~2 weeks) based on the time it took to mine the previous 2016 blocks, which is how the network can maintain a ~10 minute block time.

In Part 6 of the Bitcoin Beginner’s Guide, I am joined by Shinobi, host of Block Digest. In this episode, we are looking at how the Bitcoin protocol works. We discuss the supply & halvings, transactions & UTXOs, consensus rules, mining and nodes.

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00:04:20: Introductions
00:07:04: Bitcoin’s key principles
00:13:52: Why Bitcoin is needed globally
00:18:07: Bitcoin transactions irreversibility
00:21:25: Bitcoin’s pseudo-anonymous nature
00:24:05: Fungibility
00:27:20: Bitcoin’s open source code
00:31:29: Decentralization
00:42:21: Bitcoin’s peer-to-peer network
00:44:25: Cryptography
00:48:46: How Bitcoin works
00:55:04: Blockchains and miners
00:57:28: Bitcoin’s designed
01:01:47: Consensus rules
01:06:36: Nodes function in the network
01:09:59: How Bitcoin is mined
01:18:13: Block re-orgs
01:21:56: Can blocks to be solved at the same time
01:23:28: The importance of transaction confirmations
01:26:31: Hard and soft forks
01:36:17: Bitcoin Improvement Proposals
01:40:28: Risk of bugs in the Bitcoin code
01:43:58: Block maximum weight of 1mb
01:47:26: Why block times are 10 minutes
01:51:03: Fees in the network
01:53:53: Final comments

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SUPPORT THE SHOW

If you enjoy The What Bitcoin Did Podcast you can help support the show my doing the following:

If you are interested in sponsoring the show, you can read more about that here or please feel free to drop me an email to discuss options.

SPONSORS

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