How Bitcoin Works · Interactive Schematic

FIG. 1 · SYSTEM SCHEMATIC

HOW BITCOIN WORKS

A peer-to-peer electronic cash system. Data flows left to right: keys sign transactions, the network relays them, miners commit them to the chain.

SUPPLY CAP21,000,000 BTC

BLOCK INTERVAL~10 MIN

BLOCK SUBSIDY3.125 BTC

✓ Wire labels ✓ Glossary

Tap a stage or any underlined term for details · Run transaction plays the flow and scrolls you through it.

01 · KEYSIDENTITY

PRIVATE KEY · 256-bit secret

k = 0x8f2a…c41d

↓ secp256k1 (one-way)

PUBLIC KEY

K = k · G

↓ SHA-256 then RIPEMD-160

ADDRESS

bc1q7x…e93k

The private key signs. Anyone can verify with the public key. Lose the key and the coins are gone for good.

SIGNS

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02 · TRANSACTIONUTXO MODEL

INPUTS · spend UTXOs

utxo #a4f2 · 0.80 ₿
+ signature

utxo #77c1 · 0.25 ₿
+ signature

→

OUTPUTS · new UTXOs

→ bc1qme… 1.00 ₿
locking script

→ change 0.0498 ₿

fee = Σ inputs − Σ outputs = 0.0002 ₿ → claimed by the miner

There are no account balances, only unspent outputs (UTXOs). A transaction consumes whole UTXOs and creates new ones.

BROADCAST

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03 · MEMPOOLWAITING ROOM

UNCONFIRMED TXS, SORTED BY FEE RATE

tx #f81a42 sat/vB

tx #03bd18 sat/vB

tx #c2997 sat/vB

tx #5e401 sat/vB

Every node keeps its own mempool. Higher fee rate gets picked sooner. A block holds roughly 2,000 to 3,000 txs, so fees are a live auction for space.

SELECT BY FEE

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04 · MININGPROOF-OF-WORK

THE PUZZLE
SHA-256( SHA-256( header + nonce ) ) < target

nonce = 0✗ 9e41f2…

nonce = 1✗ 71cc08…

… × 10²²✗ …

nonce = 2,083,236,893✓ 0000…a3f1

Guessing is the only strategy: hard to solve, instant to verify. Difficulty retargets every 2,016 blocks to hold ~10 min. The winner earns the subsidy (3.125 ₿, halving every 210,000 blocks) plus all fees.

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GOSSIP: VALIDATE + RELAY

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SOLVED BLOCK

05 · P2P NETWORKNO CENTER

~21,000 reachable nodes

EVERY NODE, INDEPENDENTLY:

checks signatures & scripts

rejects double-spends of UTXOs

verifies each block's proof-of-work

relays valid data to ~8 to 125 peers

Rules are enforced by everyone, not decreed by anyone. An invalid block is simply ignored, no matter who mined it.

06 · BLOCKCHAINSETTLEMENT LAYER

BLOCK 958,401hash 0000…8c2e2,914 txs

←

BLOCK 958,402 · HEADER (80 bytes) prev_hash 0000…8c2e ← links to parent merkle_root 7d1f…a980 ← fingerprint of all txs time · bits (target) · nonce

←

BLOCK 958,403being mined…ETA ~10 min

TAMPER-EVIDENCE
Change any tx and its merkle root changes, so the block hash changes, so every later prev_hash link breaks. Rewriting history means redoing all that proof-of-work faster than the honest network.

CONSENSUS & FINALITY
If two blocks tie, nodes follow the chain with the most cumulative work; the loser is orphaned. Each block on top makes reversal exponentially harder. 6 confirmations ≈ settled.

GLOSSARY UTXO unspent transaction output, the coins themselves nonce the number miners vary to change the hash target the hash must fall below it; lower is harder merkle root one hash committing to every tx in a block sha256d · secp256k1 · bitcoin.org/bitcoin.pdf (2008)

TX · 1.00 ₿