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The Workflow of the Bitcoins System

By on September 28, 2012

Here’s a flow of the Bitcoin ecosystem that shows the correlation between bitcoin wallets, addresses, encrypted private keys, bitcoin miners + bitcoin mining servers, blocks, hashes, and nonces. [ source ]

 

Bitcoin is a decentralized electronic cash system using digital signatures and cryptographic proof to enable irreversible payments between parties without relying on trust. Leveraging the breakthroughs of public-key cryptography, bitcoin also uses peer-to-peer networking to operate without a central authority whereby the new issuance and transaction verification functions are carried out collectively by the network. In the absence of a third-party processing intermediary, transactions are rapid and simple to send and receive with little to no fees.

As both a payments platform and a nonpolitical unit of account, Bitcoin has already seen astonishing growth in just over three years. Bitcoin’s total base money supply is currently valued at $125 million. Number of transactions has gone from 219 in 2009 to 4,964,513 year-to-date in 2012. The value of bitcoins transferred per year has gone from 35 trillion BTC to 60,896 trillion BTC. And, the network hashing rate, which is a measure of computational speed or horsepower, has increased from 0.008 Giga hashes per second in December 2009 to 19,284 Giga hashes per second in September 2012, thereby making it the largest distributed computing project in the world today in terms of processing performance. (Source: State of the Coin 2012)