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Perspective: Bitcoin Primer, Part 5 — Understanding Bitcoin Technology

Perspective: Bitcoin Primer, Part 5 — Understanding Bitcoin Technology

This IDC Financial Insights Perspective is Part 5 in a six-part series on bitcoins and the use of digital currencies. Part 5 looks at the technology behind a network-based electronic process that records and transfers value using technology that is usually referred to as a blockchain. The technology involves distributed legers, cryptology, and unique algorithms. The result is a secure core process that functions without central control. A common use of this technology is the support of digital currencies like bitcoin, which is currently the dominant digital currency. Digital currencies and the associated technology are described in detail in this document.

Blockchain has taken everything known about the Internet, security, and cryptography to build a payments system designed for the Internet. No party owns or controls the network, and access is available to everyone. This is a powerful concept, and one that can be applied to many other situations involving electronic transactions and record keeping. The end result is that blockchain technology will change everything that we know about managing value and not just financial service processes.

In this document, the terms virtual currency, digital currency, and cryptocurrency will be used interchangeably with the name of the leading virtual currency bitcoin. All dollar amounts are U.S. dollars unless otherwise noted.

In This Perspective
Situation Overview
Summary of Technology Underpinnings
How Bitcoin and the Blockchain Work
Network Structure
Blockchain System Components
Distributed Timestamp Server
Proof of Work
Mesh Network
Miner Incentives
Main Participants in Bitcoin Creation and Distribution
Bitcoin Core Software Developers
ATM Providers
Hardware Used by Blockchain Miners
Datacentre Facilities Providers
Beyond Blockchain Technology
Ripple Labs
Bitcoin Users
User Wallets
Bitcoin Traders
Bitcoin User Transactions
Final Thoughts
Learn More
Related Research
Figure: Bitcoin Mining
Figure: Bitcoin Miners
Figure: Bitcoin Mining Software
Figure: How Sidechains Work
Figure: Bitcoin User Transaction

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