Bitcoin network and

Transaction
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 Table of contents
01 02
Introduction To
Inroduction to
Bitcoin
Blockchain

03 04
Peer-To-Peer Bitcoin
Network Transactions
 Bitcoin
There are a number of currencies in this world
used for trading amenities. Rupee, Dollar, Pound
Euro, and Yen are some of them. These are
printed currencies and coins and you might be
having one of these in your wallet. But bitcoin is
a currency you can not touch, you can not see but
you can efficiently use it to trade amenities. It is
an electronically stored currency. It can be stored
in your mobiles, computers, or any storage media
as a virtual currency.
 Blockchain
A blockchain is a constantly growing ledger which keeps a
permanent record of all the transactions that have taken
place in a secure, chronological, and immutable way.

• Ledger: It is a file that is constantly growing.

• Permanent: It means once the transaction goes inside a
blockchain, you can put up it permanently in the ledger.
• Secure: Blockchain placed information in a secure way. It
uses very advanced cryptography to make sure that the
information is locked inside the blockchain.
• Chronological: Chronological means every transaction
happens after the previous one.
• Immutable: It means as you build all the transaction onto
the blockchain, this ledger can never be changed.
A blockchain is a chain of blocks which contain information.
Each block records all of the recent transactions, and once
completed goes into the blockchain as a permanent
database. Each time a block gets completed, a new block is
generated.
 Peer-to-peer Network

Peer-to-peer, or P2P in its

abbreviated form, refers to computer
networks using a distributed
architecture. In P2P networks, all the
computers and devices that are part
of them are referred to as peers, and
they share and exchange workloads.
Each peer in a peer-to-peer network
is equal to the other peers. There are
no privileged peers, and there is no
primary administrator device in the
center of the network.
Types of P2P networks
1.File Sharing P2P Networks:
Conference
Example: BitTorrentspeakers
Explanation: In a file sharing P2P network, users share files directly
with each other without needing a central server. 2. Communication
2.P2P Networks:
Example: Skype
Explanation: Communication P2P networks allow users to
communicate directly with each other without going through a central
server
3. Content Distribution P2P Networks:
Example: Akamai NetSession Interface
Explanation: Content distribution P2P networks distribute large files or
data across multiple nodes to improve download speeds and reduce
Distributed Computing P2P Networks:
Conference
Example: SETI@home speakers
Explanation: Distributed computing P2P networks harness the
computational power of multiple nodes to solve complex problems or
perform scientific research.
5. Cryptocurrency P2P Networks:
Example: Bitcoin
Explanation: Cryptocurrency P2P networks enable users to send and
receive digital currencies directly without the need for banks or financial
intermediaries. 6. Collaborative P2P Networks:
Example: Wikipedia
Explanation: Collaborative P2P networks facilitate collaboration and
resource sharing among users for a common purpose.
 Features of Peer to Peer network

1. Decentralization: , a P2P network doesn't rely on a central

server. Instead, each computer, or peer, in the network acts as both
a client and a server, sharing resources and communicating directly
with other peers.
2. Autonomy: Peers in a P2P network have autonomy, meaning
they can operate independently.
3. Resource Sharing: Peers can directly exchange resources with
each other without needing to go through a central server. This
direct sharing mechanism allows for efficient distribution of
resources among network participants.
4. Scalability: P2P networks are inherently scalable because
adding new peers to the network increases its capacity and
resources.
5. Resilience: Due to their decentralized nature, P2P networks are
resilient to failures and attacks.
 Architecture
In the P2P network architecture, the computers connect with
each other in a workgroup to share files, and access to
internet and printers.

• Each computer in the network has the same set of

responsibilities and capabilities.

• Each device in the network serves as both a client and

server.

• The architecture is useful in residential areas, small

offices, or small companies where each computer act as an
independent workstation and stores the data on its hard
drive.

• Each computer in the network has the ability to share data

with other computers in the network.

• The architecture is usually composed of workgroups of 12

or more computers.
 Example
BitTorrent BitTorrent is a popular example of a P2P
network used for file sharing. When you download a
file using BitTorrent, your computer connects to other
peers who have the same file. Instead of downloading
the entire file from a single server, you download
different parts of the file from multiple peers
simultaneously. At the same time, you also upload parts
of the file you've already downloaded to other peers
who are seeking it.
This decentralized approach to file sharing makes
BitTorrent efficient, as it leverages the resources of
multiple peers to distribute the workload. It also makes
the network resilient to censorship and shutdown
attempts, as there's no central authority controlling the
file-sharing process.
 Advantages
Advantages of P2P Network
• Easy to maintain: The network is easy to
maintain because each node is independent
of the other.
• Less costly: Since each node acts as a
server, therefore the cost of the central
server is saved. Thus, there is no need to
buy an expensive server.
• No network manager: In a P2P network
since each node manages his or her own
computer, thus there is no need for a
network manager.
• Adding nodes is easy: Adding, deleting,
and repairing nodes in this network is easy.
• Less network traffic: In a P2P network,
there is less network traffic than in a client/
server network.
Disadvantages
Disadvantages of P2P Network
• Data is vulnerable: Because of no central
server, data is always vulnerable to getting lost
because of no backup.
• Less secure: It becomes difficult to secure the
complete network because each node is
independent.
• Slow performance: In a P2P network, each
computer is accessed by other computers in the
network which slows down the performance of
the user.
• Files hard to locate: In a P2P network, the files
are not centrally stored, rather they are stored on
individual computers which makes it difficult to
locate the files.
 Bitcoin Transaction

Bitcoin transactions are messages that state

the movement of bitcoins from senders to
receivers. Transactions are digitally signed
using cryptography and sent to the entire
Bitcoin network for verification.
Transaction information is public and can
be found on the digital ledger known as the
'blockchain.' The history of each and every
Bitcoin transaction leads back to the point
where the bitcoins were first produced or
'mined.’
 Explanation With Example

Let’s introduce Bitcoin transaction procedures with the following scenario:

Bob, an online merchant, decides to accept Bitcoin as payment.
Alice, a buyer, has bitcoins and wants to purchase merchandise from Bob.
Wallets are files that provide access to multiple Bitcoin addresses. An address is a string of letters and
numbers, such as: 1HULMwZEPkjEPech43BeKJL1ybLCWrfDpN. Each address has its own balance
of bitcoins, and users can create as many addresses as they want. Imagine the addresses as bank
accounts that work a bit differently.
 Process
1. Transaction Initiation:
The process begins when a user, let's call her Alice, decides to send Bitcoin to another user, Bob.
Alice opens her Bitcoin wallet application, which allows her to manage her Bitcoin holdings and initiate transactions.
2. Creating the Transaction:
In her wallet app, Alice selects the option to send Bitcoin.
She specifies the recipient's Bitcoin address, which is a long alphanumeric string unique to Bob's wallet.
Alice also inputs the amount of Bitcoin she wants to send, for example, 0.1 BTC.
3. Digital Signature:
Once Alice confirms the transaction details, her wallet generates a digital signature using her private key.
This signature is a cryptographic proof that the transaction was authorized by Alice and cannot be altered.
4. Broadcasting the Transaction:
Alice's wallet broadcasts the transaction to the Bitcoin network.
This involves sending the transaction data to a number of other nodes (computers) in the Bitcoin network.
5. Verification by Nodes:
• Nodes in the Bitcoin network receive Alice's transaction and verify its validity.
• They check several things:
• That Alice has sufficient Bitcoin in her wallet to cover the transaction.
• That the transaction is properly formatted according to Bitcoin protocol rules.
• That Alice's digital signature is valid and matches the public key associated with her wallet.
6. Inclusion in the Mempool:
• Once verified, the transaction is added to the mempool, a sort of waiting area for unconfirmed transactions.
• The mempool is where transactions wait until they are selected by miners to be included in a block.
7. Mining:
• Miners are special nodes in the Bitcoin network that collect transactions from the mempool and include them in
blocks.
• Miners compete to solve a complex mathematical puzzle, known as the Proof of Work.
• The first miner to solve the puzzle gets to create a new block and add it to the blockchain.
• The block contains a collection of transactions, including Alice's transaction to Bob.
8. Confirmation:
• Once the block containing Alice's transaction is added to the blockchain, the transaction is considered confirmed.
• The more blocks added on top of the block containing Alice's transaction, the more secure and irreversible the
transaction becomes.
• Typically, for small transactions, a single confirmation (one block added) is sufficient. Larger transactions may
require multiple confirmations for added security.
9. Receiver's Wallet Update:
• Bob's Bitcoin wallet periodically scans the blockchain for new transactions involving his Bitcoin address.
• Once it detects the transaction from Alice, Bob's wallet updates his balance to reflect the incoming Bitcoin.