What are Bitcoin Blocks?
Bitcoin creates a public ledger that records transactions stored in batches called blocks. But what are Bitcoin blocks, and how do they work? In this guide, we’ll explain how Bitcoin records transactions in blocks and how these blocks link together to form the Bitcoin blockchain.
While Bitcoin wasn’t the first digital currency, it was the first to use blockchain technology. It paved the way for countless other blockchain projects, including Ethereum, Solana, and a host of decentralized blockchain applications. If you’ve ever wondered, “What are blocks in Bitcoin?” read on to learn how it all works.
What Is a Block in the Crypto Blockchain?
The easiest way to understand blocks in Bitcoin or other chains is to think of them as virtual containers. Each container can hold a certain amount of data. That data is generally transactions in Bitcoin, but other blockchains may include other data types. For example, in a supply-chain blockchain, blocks might contain data regarding when grain left the farm and any relevant data that aids others in the supply chain.
In short, blocks hold data and provide a time stamp, i.e., X happened before Y and Z. In financial transactions, this timestamp becomes essential to prevent double-spending. For example, Alice has 1.5 bitcoins and sends one bitcoin to Bob. The Bitcoin blockchain records the transaction in a block. Alice can’t send another bitcoin to Bob until she receives more Bitcoin after sending the first one. The blockchain knows she has 0.5 bitcoins now.
The Bitcoin block below holds 5,854 transactions and links to the previous block as part of the Bitcoin mining algorithm. In total, 863,093 blocks have been mined (plus the Genesis Block – Block 0), all forming a chain.
How Does a Blockchain Block Work?
A blockchain is a ledger, a record of transactions. Rather than using a long list or database to record transactions, a blockchain puts these transactions into blocks and links them together to form a chain.
While all blockchains use this structure, some use differing methods to agree on which transactions are valid. For this section, we’ll focus specifically on blockchain technologies, specifically on Bitcoin blocks, which use proof-of-work as a consensus method to decide which blocks are valid.
The Bitcoin blockchain uses hashing to store and validate data in blocks. Hashing refers to using an encryption algorithm to encrypt each element. Encryption is used throughout cryptocurrency blockchains, hence the moniker “crypto.”
Bitcoin uses SHA-256 encryption, producing a hexadecimal (letters and numbers) string from a specific input. Changing the input changes the output.
SHA-256 Example
- Input: Alice sends Bob 1 bitcoin.
- Output: c248337fa9b6d96c76ec3b7c5584e4190f614dca39d8441e351a7e0a1142a47b
- Input: Alice sends Bob .1 bitcoin.
- Output: 51ce05326bd1da23bd73ccc17bd1f5ca04d377178ee6496e1d2e5ca67fc9e010
In the example above, we only changed one character, adding a decimal point to the transaction. The resulting hash changed completely. On the Bitcoin blockchain, Alice and Bob both use wallet addresses as their identity to validate transactions. This allows some privacy. When mining Bitcoin, each of these transactions becomes a hash. These transaction hashes are then paired and hashed again until they produce one hash of all the transactions called a Merkle Root or Tx_Root.
Let’s look at a simple illustration of the Bitcoin blockchain protocol and the key elements of a Bitcoin block.
Bitcoin Blockchain Example
Bitcoin uses hashing throughout the process. Using a simplified diagram, let’s explore Block 11 and how it relates to Blocks 10 and 12.
At the bottom of the diagram, you can see the individual transactions. These are hashed individually, paired, and then hashed as a pair. In the end, all the hashed pairs are hashed again to create one hash called a Merkle Root.
The Merkle Root holds the hashed value of all the transactions in the block. Imagine thousands of transactions compressed, represented as one string.
Here’s the Merkle Root from Bitcoin Block 863,507, which holds more than 5,000 transactions:
3e8a2e9955fc098da95338502111906a28c94ddef6183ac6e13939f1b3e79d46
Let’s look at the basic elements within the block shown above.
- Previous Hash: Each block links to the previous block by using a hash of the previous block in the new block.
- Timestamp: Each Bitcoin block contains a Unix time Timestamp, which makes it more difficult to attack the Bitcoin blockchain. This timestamp makes the blockchain more difficult to attack.
- Tx_Root (Merkle Root): The Merkle Root is the encrypted value of all the transactions in the block.
- Nonce: The nonce (number used only once) is a crucial part of the mining process. Bitcoin’s proof-of-work consensus method solves for a hash based on all the block elements as well as a nonce.
The previous block hash connects the blocks to form a chain. If any element from any block changes, the following blocks will be invalid. To attack the Bitcoin blockchain would require mining any block you wanted to change as well as all subsequent blocks – and doing it faster than the rest of the network can produce valid blocks. This structure and distributed ledger, combined with a worldwide network of miners, makes the Bitcoin network extremely secure.
What is the Role of Blocks in Transactions?
Blocks serve as containers for transactions. However, they also act as links within the whole blockchain network. The hash of a block becomes part of the next block.
The list below shows the first five transactions from Bitcoin Block 863,508, which holds 3,857 transactions in total. The miner earned 3.265 bitcoins for mining this block.
Bitcoin block explorers like Blockchain.com allow anyone to search and verify transactions within any block of any public blockchains.
However, third-party tools still require trust. While these tools are likely accurate, the only way to verify without the possibility of spoofed data is to run a Bitcoin node. Many people within the Bitcoin community run their own node, which stores a copy of the blockchain. Even simple devices like a Raspberry Pi can run a node, allowing anyone to query the blockchain and verify transactions in any block.
Bitcoin’s block structure allows searching by wallet address or transaction ID.
How Does the Size of a Block Affect Transaction Speed?
Bitcoin limits the block size to 1 MB. This limit, in place since Bitcoin’s inception, caps the number of transactions that can be held within a block. However, rather than affecting the transaction speed, the 1 MB limit more often affects the cost of transactions. Let’s explore how that works.
Bitcoin mining difficulty adjusts based on the network hash rate. The goal is to mine one new block every ten minutes, on average. The block size doesn’t change the network’s speed, which mines a new block every ten minutes like clockwork. However, the block size limitation does increase competition to be included in a block, which in turn leads to higher fees.
Transactions with lower fees may have to wait in the mempool until competition subsides, at which time a miner may pick them up. However, most Bitcoin wallets quote a fee based on current network demand. Given a quote, users can either pay the current fee or wait.
Between 2015 and 2017, the Bitcoin community debated proposals to increase Bitcoin’s block size. In the end, the small-block proponents prevailed, and Bitcoin’s block size remained unchanged. However, in 2017, Bitcoin activated SegWit (Segregated Witness), a protocol that allowed more transactions per block by segregating signatures and scripts.
Where are Bitcoin Blocks Stored?
Bitcoin blocks are stored on computers worldwide called nodes. As of this writing, more than 19,000 Bitcoin nodes are reachable, with an estimated 56,000 nodes in total. Each full node stores a complete copy of the blockchain. Pruned full nodes “prune” older blocks to save drive space. However, these pruned nodes still carry all current transaction data. Mining nodes can be either full nodes or light nodes, with the latter just archiving block headers to save space.
One of Bitcoin’s most attractive features for blockchain users is the worldwide distribution of blockchain data, which makes it decentralized. No single entity controls the data. Instead, nodes automatically select the blockchain fork that has the most “work” in the event that multiple blocks are mined simultaneously.
Bitcoin Blocks and Mining
The way the Bitcoin network adds new blocks is called Bitcoin mining. Due to the work involved, Bitcoin mining is analogous to mining to find gold. In this case, the work is running computations to find a qualifying hash to mine a new block.
Miners pull transactions from the mempool, which is a waiting area for transactions broadcast to the network but not yet included in the block. These pending transactions are hashed, paired, and hashed again to reach a final cryptographic hash value called a Merkle Root. Miners also hash additional items, such as the previous block’s hash. Lastly, miners use a nonce to find a hash value that qualifies to create a block at the current difficulty level.
Block 865,524
- Nonce: 3,019,093,434
- Hash: 0000000000000000000082b23dedcfed7ceeec4bbc87b9fa664c5fda5efc4381
Block 863,525
- Nonce: 1,819,843,672
- Hash: 0000000000000000000082b23dedcfed7ceeec4bbc87b9fa664c5fda5efc4381
Both of these blocks were mined at the same difficulty level, which required miners to find a hash with a minimum number of leading zeros. Bitcoin mining difficulty increases or decreases in response to network hash rates. Difficulty adjusts automatically every 2,016 blocks, or about two weeks.
How are Bitcoin Block Rewards Created?
The Bitcoin protocol rewards miners with new bitcoins for mining a new block. Currently, the network generates 3.125 bitcoins for each new block. This amount, sometimes called a block subsidy, started at 50 bitcoins in 2009. The protocol halves the mining reward every 210,000 blocks in a highly watched event called the Bitcoin halving.
Bitcoin will continue to create new bitcoins until the total supply reaches 21 million, which is expected to happen in the year 2140. The block subsidy and total supply are governed by software and can’t be changed unless the worldwide network of node operators chooses to install a different version of the Bitcoin Core software that uses different limits. Changing Bitcoin in such a dramatic way works against the economic best interest of miners and node operators, so this aspect of the protocol is unlikely to change.
What Will Happen When The Bitcoin Block Reward Is Gone?
In addition to block subsidy rewards, Bitcoin miners also earn fees paid to the network. For example, if Alice wants to send a Bitcoin to Bob, Alice pays a network fee for using the Bitcoin network. This fee acts as an incentive for miners. Even after the last bitcoin is mined, fees provide income opportunities for miners.
For example, sending Bitcoin currently costs $0.72, although this amount varies based on network demand and the price of Bitcoin itself. In April 2024, some Bitcoin transaction fees briefly spiked to more than $100.
Fees do not change based on the amount of the transaction, so sending one satoshi, Bitcoin’s smallest denomination, costs the same as sending 100 bitcoins. Many expect Bitcoin’s price to continue north, making mining viable even as mining block subsidy rewards decrease over time.
Fees typically represent about 4% of the block subsidy. However, because transaction fees vary based on network demand, this percentage fluctuates. In April 2024, when fees spiked, Bitcoin fees skyrocketed to more than 300% of the block subsidy.
Additionally, the Bitcoin network adjusts its mining difficulty based on the hash rate. If the mining hash rate falls due to lower profitability, the difficulty level also decreases, incentivizing miners to return. The cost of mining drops with lower difficulty.
Conclusion
So, what are Bitcoin blocks, and what role do they play in the Bitcoin blockchain networks? Bitcoin blocks act as containers for transactions on the Bitcoin network, with each of these blocks linking to the previous block to form a chain.
Miners produce new blocks by solving an algorithmic puzzle requiring massive computational power. This process is called proof of work. The Bitcoin network then accepts the chain with the most “work” as the valid chain. Blocks added to the chain act as an immutable ledger of transactions.
FAQs
What are Bitcoin blocks?
Bitcoin blocks act as containers for transactions on the Bitcoin network. These blocks link to the previous and next block to form an unbreakable chain.
How long does a Bitcoin block last?
A Bitcoin block lasts forever. You can still examine the first Bitcoin blocks mined in 2009. The Bitcoin network will be alive as long as there are node operators to store a copy of the chain and miners to add new blocks.
What happens when you mine a Bitcoin block?
Mining a Bitcoin block adds a new block to the Bitcoin blockchain. This acts as the first confirmation of a transaction. Each new block added to the chain adds another confirmation to the previous blocks.
How do you solve a Bitcoin block?
Solving or mining a Bitcoin block requires several bits of information, all of which are hashed using the SHA-256 algorithm. A variable called a nonce makes this a guessing game, requiring miners to create massive amounts of hashes to find a qualifying hash to mine a new block.
What is the current Bitcoin block reward?
The current Bitcoin block reward, also called a block subsidy, is 3.125 bitcoins. Miners who mine a new block also receive fees paid to the network for transactions within the block.
How many Bitcoin blocks are left?
Bitcoin blocks can continue indefinitely. As long as there are miners and nodes, Bitcoin continues. As of this writing, 19,761,015 bitcoins have been mined. Bitcoin’s maximum supply is 21 million, leaving 1,238,985 bitcoins yet to be mined. Once all the bitcoins are in circulation, network fees continue to incentivize miners to mine more blocks.
What are blocks in Bitcoin mining?
Blocks are the product of Bitcoin mining. Miners gather transactions from the mempool and include these transactions in their hashes, which are guesses that use an algorithm to find a qualifying value. Blocks hold Bitcoin transactions, with each block linked to the prior and subsequent blocks, forming an unbreakable chain.
References
- Bitcoin Block 863,507 (blockchain.com)
- Bitcoin Is Having a Civil War Right as It Enters a Critical Month (bloomberg.com)
- What is segregated witness (Segwit) (coinbase.com)
- Global Bitcoin nodes (bitnodes.io)
- Bitcoin Average Transaction Fee (I:BATF) (ycharts.com)
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