Bitcoin and Blockchain

Cryptographic Background

Hash function: A deterministic function that maps data to a fixed-length digest with properties such as preimage resistance and collision resistance.
SHA-256: The 256-bit cryptographic hash function used throughout Bitcoin for hashing blocks, transactions, and keys.
Hash pointer: A reference to data that also stores the data’s hash so any modification can be detected.
Merkle tree: A binary tree of hashes that summarizes a large dataset so membership can be verified with a small proof.
Merkle root: The single hash at the top of a Merkle tree that commits to all the data beneath it.
Merkle proof: The minimal set of sibling hashes needed to prove that a given item is included under a Merkle root.
Digital signature: A cryptographic proof that the transaction was authorized by the holder of the corresponding private key.
Public key: The key used by others to verify signatures, derived from the private key.
Private key: A secret 256-bit value used to create digital signatures that authorize spending.
RIPEMD-160: A 160-bit hash function used with SHA-256 to derive short public key hashes for addresses.
Hashcash: An early proof-of-work system designed to make sending spam computationally expensive. Bitcoin adapts this concept for mining, requiring miners to find a hash below a target threshold to create a valid block.

Transaction: A record that spends earlier outputs and creates new outputs to transfer value to recipients.
Input: A reference to a specific output of a previous transaction, accompanied by data proving the right to spend it.
Output: A record specifying a destination address and amount that can later be spent as an input.
Change output: An output that returns excess value back to the sender because inputs must be spent in full.
Transaction fee: The difference between total input value and total output value that is paid to the miner who includes the transaction in a block.
UTXO (Unspent Transaction Output): A spendable output that has not yet been used as an input in another transaction.
Satoshi: The smallest Bitcoin unit, where 1 BTC equals 100,000,000 satoshis.
Address: A compact, checksummed encoding of a public key hash that identifies who can spend an output.
Transaction ID (txid): The hash of a serialized transaction that uniquely identifies it within the blockchain.

Blockchain: A chain of blocks linked by hash pointers that creates an append-only, tamper-evident history of transactions.
Block: A container of validated transactions plus a header that links it to the previous block.
Block header: The metadata of a block, including the previous block hash, Merkle root, timestamp, difficulty target, and nonce.
Previous block hash: The hash pointer that links a block to its predecessor in the chain.
Timestamp: An approximate creation time recorded in the block header.
Difficulty target: The value that the block header hash must be less than in order for the block to be valid.
Target hash: Another name for the difficulty target, the threshold a block’s hash must fall below for the block to be accepted as valid.
Nonce: A number in the block header that miners vary in order to search for a valid hash under the target.
Fork: A temporary split in the blockchain when competing blocks reference the same parent, resolved by the longest chain rule.
Mempool: The set of valid, unconfirmed transactions that nodes hold before inclusion in a block.

Proof of Work (PoW): A consensus mechanism where miners expend computation to find a block hash below a target, making blocks costly to produce but easy to verify.
Difficulty adjustment: The process that recalculates the target every 2016 blocks to keep the average block interval close to ten minutes.
Chain selection rule: The rule by which nodes follow the chain with the most accumulated proof of work, resolving temporary forks.
Miner: A node that aggregates transactions into blocks and competes to publish the next block by performing proof of work.
Full node: A node that maintains the entire blockchain and verifies every transaction and block but does not perform mining.
Mining pool: A group of miners who combine hashing power and share rewards to reduce variance in earnings.
ASIC: Application-Specific Integrated Circuit: specialized hardware designed to compute SHA-256 hashes far more efficiently than CPUs, GPUs, or FPGAs.
Coinbase transaction: The special transaction in each block that creates new bitcoins and pays the miner their reward and fees.
Block reward: Newly minted bitcoins given to the miner of a valid block, in addition to collected transaction fees.
Halving: The event that reduces the block reward by half every 210,000 blocks, roughly every four years.
51% attack: A potential attack where an entity controlling a majority of the network’s hashing power can rewrite recent history or censor transactions.