I have mentioned a few times previously the term “Network” while writing about Cryptocurrencies. All Cryptocurrencies require some sort of communication between many different participants/users/ the official term is “Nodes”, which process and verify transactions. The health of a Cryptocurrency depends on there being many Nodes connected Globally. Having more Nodes increases the the speed at which a transaction is accepted, and decreases the likelihood of bad transactions propagating either through an error or malicious act.
Participating in the Network
Participating in the network is easy! Just setup a Wallet. If you go with a local wallet they come with the Node software, leave it up and running on your computer with access to the internet! The Node clients let you create multiple Wallets. So you can have a Wallet for send/receive to a dedicated Exchange, or one Wallet for collecting your Mining rewards.
Simple,well sort of, in the case for Bitcoin specifically, because of the age and popular adoption, the size of the Blockchain is over 110 GB. The standard Bitcoin wallet needs a copy the Blockchain so you need to have enough hard disk space to handle that and future growth. Each Cryptocurrency has a unique network and therefore Wallet client software. There are several created for Bitcoin and Ethereum, for other currencies links to their Wallet software will be found on their webpages. It’s time for a little explanation of the Blockchain.
The Blockchain is a detailed ledger book of every transaction that’s happened on the network. So every movement (Mining reward, trade, etc.) of every fraction of a Cryptocurrency from one address to another is recorded on the Blockchain. A Wallet appears as an address, and so the balance of a wallet is the total of all transactions of sent or received fractions of Cryptocurrency. A wallet’s balance CANNOT be negative. When Cryptocurrency is sent from one address to another through the wallet software, the wallet adds that transaction to the chain. Network Nodes verify the transaction by hashing it. It usually takes one Block (for Bitcoin 10 minutes) for the transaction be be accepted by the network and the transaction to show in the recipient’s Wallet. The balance will show as unconfirmed until a certain number (for Bitcoin 6 is recommended) have hashed and verified the transaction. The number of verifications is configurable. Some institutions or Wallets require more than others.
To hash a transaction means to encrypt or de-crypt (do some complicated math on) the transaction using a network password and the wallet’s password. These two passwords usually called “keys” ensure that the transaction is valid for the network and the came from the address specified in the transaction. Wallet’s have a unique password assigned to their network addresses to sign transaction in the network.
There is lots of great advice on backing up your wallets and creating cold backups etc. The Wallet itself is an encrypted file on your hard drive (in the case of a local desktop Wallet). This file is not large and can be zipped up and saved to your favorite backup location. If your computer dies, you can install the wallet software to new hardware and copy over the old Wallet file. The Wallet client will rebuild your balance by scanning the entire 110 GB Blockchain for transactions to and from your Wallet address.
Quick admin note, my blog will continue to discuss Cryptocurrencies in a general sense and pointing out what items are specific to Bitcoin vs. an Altocoin. But for the sake of the search engines I must litter my articles with “Bitcoin” more.
Up next Altcoins.
Wikipedia – Bitcoin
Bitcoin Forum – The most popular place to discuss all Cryptocurrencies
Cryptocurrency Trading Charts
Most Profitable Mining Calculations