Blocks: batches of validated transactions

Chain: blocks linked via cryptographic hashes

Immutability: changing history requires redoing work and overtaking the network

Full nodes

Lightweight clients (SPV)

Package transactions into blocks

Compete to solve Proof-of-Work (PoW)

Earn rewards for adding blocks

Manage private/public keys

Create and sign transactions

Types

Public-key signatures (authorize spending)

Hash functions (link blocks, secure PoW)

User selects spendable funds (UTXOs)

Specifies outputs

Adds a fee (in sats/vByte)

Signs inputs with private key (proves authorization)

Wallet sends transaction to peers

Peers relay it through the P2P network

Transaction enters the mempool (waiting area) if valid

Checks include

Miners pick transactions (often highest fees first)

Build a candidate block

Miner searches for a nonce producing a block hash below a target

This requires significant computation (work)

First miner to find a valid hash broadcasts the block

Nodes verify the new block

If valid, they append it to their chain tip and relay it

1 confirmation: transaction is in a block

More confirmations reduce the risk of reorgs

High-value transfers often wait ~6 confirmations (common practice)

Define valid blocks/transactions

Enforced by full nodes independently (no central authority)

Nodes follow the chain with the most cumulative PoW

Resolves temporary forks when two blocks are found close together

Soft fork

Hard fork

Bitcoin Core is the reference implementation

Changes require broad ecosystem consensus (nodes, miners, users, businesses)

Maximum of 21 million BTC

New coins minted in the coinbase transaction

Halving roughly every 210,000 blocks (~4 years)

Decreases over time until subsidy approaches zero

Paid by users to incentivize miners

Expected to become the primary miner revenue long-term

Bitcoin doesn’t store “account balances” directly

Your “balance” is the sum of UTXOs you can spend

Inputs reference previous outputs

Outputs specify spending conditions (scripts)

Most transactions create a change UTXO back to the sender

Legacy (P2PKH), SegWit (bech32), Taproot (bech32m)

Locking script (scriptPubKey): conditions to spend

Unlocking data (scriptSig/witness): proves conditions met

Requires M-of-N signatures

Used for shared custody, corporate treasury, escrow

Enhances privacy and efficiency for complex spending conditions

Nodes reject transactions that spend already-spent UTXOs

Confirmations make reversing history increasingly expensive

Attacker could reorganize recent blocks and double-spend

Cannot create coins from nothing or break cryptographic signatures

Costly and difficult on large networks

If private key is stolen, funds can be spent

Backups (seed phrases) are critical; losing keys means losing access

~10 minutes per block on average

Every 2016 blocks, difficulty retargets based on recent block times

Helps stabilize issuance rate despite hashpower changes

Limited block capacity leads to fee markets during congestion

More efficient block weight usage

Fixes transaction malleability (enables certain layer-2 designs)

Off-chain payment channels for fast, low-fee payments

Only channel opens/closes settle on-chain

Uses routing across a network of channels

Alternative networks pegged to BTC (vary by trust/assumptions)

Trade-offs between decentralization, speed, and functionality

All transactions are visible on-chain

Addresses are pseudonymous, not inherently tied to identity

Address reuse links activity

Network-level metadata can leak information

Use new addresses for receipts

Avoid address reuse and consolidate carefully

Use Lightning for certain payment privacy benefits (with caveats)

Transaction validation (done by nodes)

Monetary issuance schedule (enforced by consensus rules)

Transaction ordering (miners propose, nodes accept/reject)

Miners are incentivized economically

Users can choose which software/rules to run

1 BTC = 100,000,000 sats

Pool of unconfirmed transactions waiting to be mined

Number of blocks added after the block containing your transaction

Total computational power securing the network