How Transactions Are Verified in Bitcoin Blockchain – Longest Chain Rule Explained
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How Transactions Are Verified in Bitcoin Blockchain – Longest Chain Rule Explained
Watch our previous Blockchain videos
Blockchain simplified: https://www.youtube.com/watch?v=LWAYveDotb0&t=1s
Blockchain technology explained: https://www.youtube.com/watch?v=gVLIentRlIk&t=1s
Have you wondered how transactions are approved in a Bitcoin blockchain? Why you have to wait for 3 to 6 confirmations before the transactions appear in your wallet. This video attempts to explain how a Bitcoin transaction is approved and the process behind it.
Let's assume that Mr. Gobish transferred Bitcoin worth 100$ from one crypto exchange to another. Once it has completed the transfer, the transaction message is sent to the network and passed on to all network participants, also called nodes. This is added to the transaction pool. Currently the transaction is in 'unconfirmed' status. All transactions in the transaction pool have a status of unconfirmed.
Now we will understand who is a miner. In simple terms, those who validate new transactions and record them in Blockchain's global ledger are called miners and this activity is called mining.
To make it simple, let's assume that there are currently 3 miners trying to confirm the transactions from the transaction pool, including Gobish's $100 transaction. Normally, miners will select those transactions that will generate higher transaction fees for them.
Currently, the number of confirmed blocks in the Blockchain ledger is 998.
Once the miners determine that the 998th block is a valid block, they will attempt to create a candidate block by adding unconfirmed transactions from the transaction pool. Now these miners are trying to add the 999th block. To add the blocks, they must solve a complex math problem. This is known as Proof of Work (POW).
Let's assume that all three miners were able to solve this problem and have a Proof of Work.
Now we have 3 different candidate blocks, let's call them 999A, 999B and 999C
Which of these blocks will be part of the valid block will depend on the longest chain rule.
Let's understand what is the longest chain rule.
Now there are other miners trying to create other valid blocks and based on the rate at which a block is being created, other miners will continue to add their blocks on top of the previous blocks.
Here Minor C in this case had a better processor that could create a block faster than miner A and B and therefore new blocks were created on top of block 999C. The longest chain now is that of 999C and it will continue adding other blocks such as 1000, 1001 and so on as miner C solved the proof of work before miner A and B.
So what happens to blocks 999A and 999B? They need to recreate the Proof of Work with a new set of transactions from the accrual basis.
Each confirmation represents the addition of each block. Each confirmation takes on average about 10 minutes or more per block.
By applying the longest chain rule and proof of work, an unconfirmed transaction becomes a confirmed transaction and added to the Blockchain ledger
Once the blocks are added, the miner receives transaction fees and block fees. These are the new Bitcoin created as an incentive for approving the transactions.
The block rewards will decrease every year and eventually you will only be charged transaction fees as no new Bitcoins will be created.
In our next video we will provide more details about mining and the incentives.
Watch our previous Blockchain videos
Blockchain simplified: https://www.youtube.com/watch?v=LWAYveDotb0&t=1s
Blockchain technology explained: https://www.youtube.com/watch?v=gVLIentRlIk&t=1s
Have you wondered how transactions are approved in a Bitcoin blockchain? Why you have to wait for 3 to 6 confirmations before the transactions appear in your wallet. This video attempts to explain how a Bitcoin transaction is approved and the process behind it.
Let's assume that Mr. Gobish transferred Bitcoin worth 100$ from one crypto exchange to another. Once it has completed the transfer, the transaction message is sent to the network and passed on to all network participants, also called nodes. This is added to the transaction pool. Currently the transaction is in 'unconfirmed' status. All transactions in the transaction pool have a status of unconfirmed.
Now we will understand who is a miner. In simple terms, those who validate new transactions and record them in Blockchain's global ledger are called miners and this activity is called mining.
To make it simple, let's assume that there are currently 3 miners trying to confirm the transactions from the transaction pool, including Gobish's $100 transaction. Normally, miners will select those transactions that will generate higher transaction fees for them.
Currently, the number of confirmed blocks in the Blockchain ledger is 998.
Once the miners determine that the 998th block is a valid block, they will attempt to create a candidate block by adding unconfirmed transactions from the transaction pool. Now these miners are trying to add the 999th block. To add the blocks, they must solve a complex math problem. This is known as Proof of Work (POW).
Let's assume that all three miners were able to solve this problem and have a Proof of Work.
Now we have 3 different candidate blocks, let's call them 999A, 999B and 999C
Which of these blocks will be part of the valid block will depend on the longest chain rule.
Let's understand what is the longest chain rule.
Now there are other miners trying to create other valid blocks and based on the rate at which a block is being created, other miners will continue to add their blocks on top of the previous blocks.
Here Minor C in this case had a better processor that could create a block faster than miner A and B and therefore new blocks were created on top of block 999C. The longest chain now is that of 999C and it will continue adding other blocks such as 1000, 1001 and so on as miner C solved the proof of work before miner A and B.
So what happens to blocks 999A and 999B? They need to recreate the Proof of Work with a new set of transactions from the accrual basis.
Each confirmation represents the addition of each block. Each confirmation takes on average about 10 minutes or more per block.
By applying the longest chain rule and proof of work, an unconfirmed transaction becomes a confirmed transaction and added to the Blockchain ledger
Once the blocks are added, the miner receives transaction fees and block fees. These are the new Bitcoin created as an incentive for approving the transactions.
The block rewards will decrease every year and eventually you will only be charged transaction fees as no new Bitcoins will be created.
In our next video we will provide more details about mining and the incentives.
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