We’ll start our introduction with a simple analogy of Bitcoin blocks and building blocks. When you hear the word block, you immediately think of some sort of building blocks like Lego or Playmobil. The truth is, the concept of Bitcoin blocks is not that far from this analogy.
Cryptographically speaking, Bitcoin blocks contain the data of all Bitcoin transactions on the network and are neatly stored in a chain of blocks that build the Bitcoin blockchain. Are you curious to find out how these blocks are created and whether or not they have a limit?
If the answer is yes, keep reading this article, which will delve into the intriguing nature of Bitcoin in order to explain some of the technical and practical aspects of what is known as a Bitcoin block.
What Are Bitcoin and Blockchain Technology?
Bitcoin (BTC) is a peer-to-peer digital currency created in 2009. The idea was set in a whitepaper by a person going by the moniker Satoshi Nakamoto, who’s rumoured to be not a single person but a whole team of developers.
Bitcoin was created to provide lower transaction fees than traditional online payment systems and has the advantage of being totally decentralized. This means that Bitcoin is not operated by any central authority (central banks or governments), unlike other regular physical currencies like the US dollar.
As Bitcoin is a digital currency, there are no physical bitcoins, there are only asset balances that are stored on a public and transparent ledger that can be accessed by anyone. The Bitcoin transactions require a great deal of computing power in order to function properly and make a profit.
The Bitcoin blockchain is a database of various information stored on a computer system. The way in which blockchain arranges data is that it collects the information in groups called blocks. Miners use powerful computers to fill out the blockchain block with crypto transaction data. This process requires solutions for difficult mathematical problems needed to find the hash number that fills the block with data.
The mathematical problems are getting more difficult with more miners present on the network. The reason for this is that the time required to fill out a block must remain at 10 minutes per block. The more miners join the Bitcoin network, the quicker they will solve the mathematical problem and fill out the block if the difficulty remains the same.
Every block has a storage capacity limit and when that limit is reached, the block is chained to the previous block, while a new block takes its place. When that block is filled, a next block comes on, and so forth.
What Is a Bitcoin Block?
Bitcoin blocks are files where miners permanently store the data that goes through the Bitcoin network. The block can record the most recent and new transactions that have not been recorded by the previous, or any other, block. This makes the block appear as a sort of a public ledger page, or a record-keeping book.
When the block is fulfilled, it goes on the chain, and in comes the next block. . Once completed, the block can’t be altered. There are millions of blocks in the blockchain network in a state of flux, and they are almost impossible to hack.
How Do Bitcoin Blocks Operate?
The Bitcoin network is subjected to countless transactions daily. Keeping records of these transactions assists the users in tracking who bought, transferred, or sold the assets and in what amount. As we explained already, these transactions are recorded and kept in files called blocks, which are the basis of the blockchain network.
What’s interesting is that the block operates in the present but has information about its future and past. What we mean is that when a block is completed, it becomes a part of the past and frees space for a new block to take its place on the blockchain (in the future). The block that was completed now becomes a permanent record of previous transactions while the new transactions are stored in the upcoming block.
Basically, the entire system operates as a cycle of permanently stored data. Using a complex mechanism called cryptographic hash, miners make sure that every block holds data that references the preceding block. This makes it impossible for users to tamper with previously documented transaction data.
Bitcoin Mining and Reward Blocks
On the Bitcoin network, the miners are continuously processing and verifying transactions as if they are in a race. The race is about filling the current block as fast as possible in order to receive the mining reward.
When a miner solves the mathematical problem, they’re deemed the winner of the race and the answer they get is shared with and validated by the other nodes. When a miner solves a mathematical problem, they receive a small amount of freshly minted bitcoins as a block reward.
This transaction containing the new BTC becomes the first one to get recorded on the new block, thus tying the last block with the next. The difficulty of the mathematical equation regulates the creation of new bitcoins since you have to solve it before new blocks can be added to the network. Usually, it takes about 10 minutes to figure out the answer.
To slow down inflation, the creator Satoshi Nakamoto designed his cryptocurrency to have a limit of 21 million bitcoins. This is why the amount of Bitcoin blocks reward is halved after 210,000 bitcoins have been mined, usually around every 4 years. This process is called Bitcoin halving. When Bitcoin was initially released, the block reward for Bitcoin miners was 50 BTC, while more than a decade later, the reward was halved for a third time to 6.25 BTC.
Let’s go back to the mathematical problem that miners need to solve to create a new block and explain it a bit better.
The puzzle requires the miner to create a brand new block by fetching the new and unconfirmed transactions in the network and the information of the previous block known as block header.
Then, they need to hash the information using the SHA-256 algorithm. In simple terms, hashing is the process where the miner enters a specific input, in our case the most recent data transactions and the block header, into the algorithm in order to generate an output.
The miner takes this input and guesses a random number called a nonce. When this number is entered in the SHA-256 algorithm, it will generate an output that fulfills the output threshold of the Bitcoin protocol. All in all, mining comes down to guessing these nonces as quickly as possible. When the miner strikes the determined output threshold, their new block and nonce will be broadcasted to the other miners on the network, allowing them to hash it and verify the solution.
When the majority of miners, or more than 51%, accept the solution, the miner will be allowed to add the new block to the blockchain and get the block reward. This goes on in a cycle like a never-ending race for rewards.
Here’s an important detail. If anyone tampers with the transaction data, even if they change just one satoshi (0.00000001 BTC), the hash output will permanently change. When this happens, the miners will be unable to accept the solution of the nonce in order to solve the equation. This works as a failsafe system against corrupt miners and encourages miners to behave ethically with their computational resources.
The Anatomy of a Bitcoin Block
Every Bitcoin block is limited to 1MB of data in size. For the Segregated Witness or “SegWit” block, the transaction data is also limited to 1MB, but the signature data, known as witness data, is segregated and limited to 3MB. This keeps the block size at 1MB but provides extra block space for data transactions.
Every block contains the following information:
- The current blockchain version;
- The hash of the previous block header;
- The hash of the root of the Merkle tree and all the transaction hashes in the current block;
- The timestamp;
- The level of difficulty of the current block (the difficulty of the hash solution);
- The nonce.
The data for every transaction contains:
- The version number;
- The Flag (only for SegWit transactions);
- The transaction input;
- The transaction output;
- Witnesses (also for SegWit only);
- The blockchain lock time.
The Link Between Bitcoin Blocks and Bitcoin Forks
A fork from the Bitcoin core is created when an already existing blockchain is split into two separate blockchains. This could happen when a protocol update is applied and not all the nodes adopt it. There are two types of forks that the blockchain can be subjected to a soft fork and a hard fork.
A soft fork is when the old nodes and the new nodes have the ability to read both blockchains and are inter-compatible, while a hard fork is when the old nodes don’t have the ability to read the new blockchain and the other way around, i.e. they are incompatible.
Hard forks give way to two entirely different blockchains with recognizable native digital tokens that are separate and independent from each other.
The connection between blockchain blocks and forks has a key role in creating both hard forks and soft forks because the forks are created between the blocks. When a fork occurs, the last block that was filled with data on the blockchain contains the information about the fork.
Throughout the years, Bitcoin has survived numerous forks (both soft and hard). One of the most popular ones was the Bitcoin Cash hard fork. This hard fork happened at block 661,647, the last block on the original blockchain before it split into two different versions.
Moreover, the fork took place as a result of the disagreement among the users of the network in relation to the Bitcoin block size. Bitcoin Cash went for an 8MB block size to increase the transaction throughput, while Bitcoin’s block size remained at 1MB in order to motivate node participation and make sure that Bitcoin remains decentralized.
A Few Words Before You Go…
In this article, we’ve aimed to shed some light on the operations of Bitcoin blocks, mining, rewards, and hard forks in the journey of cryptocurrencies. Whether you are a beginner or a veteran miner with several mining pools or solo excavations under your belt, it’s always a good thing to brush up on some basics about blockchain blocks and how they are related to Bitcoin’s operation.
It might be that Bitcoin makes additional changes to its blocks and that there will be many more forks down the road as the supply of new coins comes to an end, but we’ll have to wait and see what happens in some 80 years. Until then, keep mining and get those block rewards before the Bitcoin well runs dry.