Bitcoin uses the blockchain to store information about transactions of bitcoin between people. Every transaction is linked to previous transactions in the blockchain, utilizing the linkage between the blocks.
By letting an entire network handle security, there is no central point of attack for hackers in order to get hold of passwords or private keys. Instead we create a network of huge redundancy where it doesn’t matter if a few nodes in the network gets taken down, the network would still be secure. With that being said, we can’t have too few nodes securing the network either as that would increase the risk of for example a 51% attack, which you will learn more about later on.
The public key allows users to receive bitcoins. Many people believe that the bitcoin address and the public key is the same. This is not true, but the are related on a mathematical level. Because the public key is so long (65 bytes), the address is a shorter, hashed version of the public key.
The public key is created using the private key and the public key is then used to create the bitcoin address.
The private key is used to sign transactions and is what allows bitcoins to be spent. Therefore it is of importance that the private key is kept secure at all times and not shared with untrusted parties.
A private key is always mathematically related to the public key and the bitcoin address, but because of the strong encryption it is practically impossible to reverse-engineer.
If you lose your private key, it is impossible to access your bitcoin wallet and send funds.
Networks like bitcoin are completely driven by market forces. Which means that the miners usually will pick the transactions with the highest transaction fees. That’s because those transactions would give the miner the most profit from their work.
When the mempool grows the transaction fees go up. This is because there is a larger competition to get your transaction into the next block. Large mempool leads to long waiting times and some people are willing to offer larger transaction fees to the miners in order to get their transaction picked first. The mempool is really only an open marketplace, where people compete around who’s transaction is going to be picked first.
Frequently asked questions
The most popular
Ethereum uses the blockchain to store information about the applications running on the network. The blockchain network keeps track of the execution of code and what states all the applications are in.
When you have control over your private key you have total control over your coins. When you store your coins in any other way you hand over final control to a 3rd party. Many people use online wallets and exchanges to store cryptocurrency. This puts their private key in the hands of the corporation running the site and exposes their keys to greater risk of hacking and fraud.
There are also security risks when storing your own private keys. Make sure to store them on a hardware wallet or some other cold storage option for maximum security.