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Bitcoin is an assembly of&nbsp; technologies and principles that interact in a predefined manner, securing the whole system performance.&nbsp;So how does it work? 



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<a href="https://d.center/explore/keys-and-addresses" class="ek-link">Keys and addresses</a>. Bitcoin is a decentralized system without any trusted third party, which means that no one can dispose of coins except for their rightful owner. Such feature necessitates extensive security measures, and Bitcoin ensures them using a system of cryptographic keys and addresses. 



<a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Wallets</a><a href="https://d.center/explore/bitcoin-wallets" class="ek-link"> </a>are programs capable of communicating with the Bitcoin network. They generate keys and addresses that allow sending and receiving bitcoins, and can reconstitute the bitcoin balance of a particular account by researching the blockchain. 



<a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Transactions </a>are generated and sent by wallets. Bitcoin transactions have a simple structure called UTXO, and a limited coding language script, which ensure the system’s robustness. 



<a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> enjoys a Peer-to-Peer, or <a href="https://d.center/explore/p2p-network" class="ek-link">P2P</a>, architecture - its nodes communicate with each other without any central server. Network nodes run Bitcoin protocol to verify if a transaction is valid (the sender has enough coins on their account and their signatures are correct) and if a candidate block (set of confirmed transactions) sent by a miner is OK, then propagate them to the network. 



<a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Consensus </a>is needed in order to determine which node will add the next block to the blockchain and to guarantee that this block is not fraudulent. Bitcoin utilizes <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, where nodes need to find a solution to a cryptographic problem, which necessitates a big amount of electricity and specific equipment. As a reward for such work a node gets to add a block and receives newly created bitcoins. Such “bitcoin extraction” activity is called mining and the nodes engaging in it - miners. Mining is the only way to create new bitcoins.



 The node who finds a PoW solution first broadcasts a new block to the network, where, if the block is validated by the network, other nodes start working on the following blocks. Each block having a cryptographic reference to the previous one, a <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">blockchain </a>is being formed.

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Bitcoin transactions are securely stored by the network, organized within a particular architecture called blockchain. 



<h2>Block structure </h2>



Transactions are gathered into blocks created by a miner approximately every 10 minutes. A block is made of a header, which contains specific data (notably the reference to the block’s content) and the <a href="https://d.center/explore/bitcoin-transaction" class="ek-link">transactions</a><a href="https://d.center/explore/bitcoin-transaction" class="ek-link"> </a>confirmed within the block. Every block contains a reference to the previous block in the form of its header’s [tooltip content=" fixed-length result of applying mathematical hash function to any volume of data. Hash is a one-way function: it is easy to get the result (also called hash) from the data, but impossible to get the data from the hash"] hash [/tooltip] - its unique identifier. The blocks always carrying a reference to the previous ones, a chain of blocks is formed. 



The first block ever created is called the Genesis block, i.e. block 0. The block 1 was created with the reference to the block 0, and so on. Block number is also called the block height (as if the blocks were built one above the other) and measures the distance to the Genesis block. The block n, whose header hash is mentioned in the header of the block n+1, is called the parent block, whereas the block n+1 is called the child block. 



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<h2>Forks </h2>



While a block can have only one parent, it could have several children - a temporary situation that appears when several miners simultaneously propose a new block to the network. This situation is called a fork, because the blockchain splits into several valid branches. 



In the majority of cases the forks are not intentional, but rather due to the nature of the consensus. It is theoretically possible though to create them intentionally in order to try and fraud the system and execute a double spending (even if such endeavour would require more than 51% of the network computational power). 



Some estimate that a 10 minutes interval between blocks is a compromise between the scalability (theoretical number of possible transactions per second) and the probability to have a fork. The shorter the block creation time, the more nodes have a chance to find themselves with candidate blocks at the same time. In the case of Bitcoin it is quite rare that a fork holds for more than two blocks. 



In order to secure the blockchain the miners have to find a <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof of Work</a> before submitting a block to the network. The PoW process is such that anyone willing to rewrite the history and modify the data within the block n must redo the PoW of this block and of all others that follow, since they will contain references to the previous blocks. Such electricity spending cannot possibly be cost-effective. It is thus considered that beyond n+5 (the 5th confirmed block after n), the n  becomes near definitive. 



<h2>Merkle root</h2>



 The <a href="https://d.center/explore/bitcoin-wallets" class="ek-link">wallets </a>refer to the data within the blockchain in order to keep their balances and to initialize transactions. Therefore they have to maintain a copy of the whole blockchain at any moment. Full node wallets keep the entire blockchain, which makes them reliable, but also quite heavy and cumbersome. There is also another way of accessing the blockchain without downloading all of it - by using a piece of data called the Merkle root. This data sits within the header of every block and enables the usage of the so-called SVP wallets (SPV for Simplified Payment Verification). These wallets only download block headers, which makes them lighter and more user-friendly, however they have to connect to a full node wallet in order to function properly (see <a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a>).

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A block is the basic element of the blockchain. A Bitcoin block is made up of 4 parts: 



<ul>
<li>the block size, </li>



<li>the header (which itself has a specific structure), </li>



<li>the number of transactions, and </li>



<li>the list of transactions.</li>
</ul>



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The block header contains particularly important information:



➡️ the version number of the protocol used to create the block



➡️ the ID (unique identifier) of the previous block (n-1), which is the hash of its header. The ID of block n will be found in the header of block n+1. The block ID is calculated by applying the SHA256 hash function twice to the header data. The only block that has no reference to the previous block is the first block created - the Genesis block. It is statically present in all Bitcoin clients from the outset, preventing its alteration and thus providing a secure basis for loading the blockchain.



➡️ the <a href="https://d.center/explore/merkle-tree" class="ek-link">Merkle root</a> is the cryptographic fingerprint of all transactions confirmed in this block (read more here).



➡️ the Timestamp is the approximate time at which the block was created.



➡️ difficulty target and Nonce are characteristics relating to mining operations, indicating the quantity of '0s' required to obtain a PoW of the block and the number used to achieve it.



In the part of the block that assembles the transactions, the first transaction is always special - it's the coinbase, the transaction by which the miner is remunerated.