MoleEducation Read-Up 3: Bitcoin Essentials

Moledao
3 min readAug 18, 2022

The following are important information to help you understand the ins and outs of Bitcoin specifically (also applicable to other cryptocurrencies). You will learn about how new Bitcoin is mined, how nodes work together to securely validate transactions, and how Bitcoin is addressing its scalability issues and smart contract capabilities.

✨What Is Hashing in Blockchain?

Hashing refers to the transformation and generation of input data of any length into a string of a fixed size, which is performed by a specific algorithm. In particular, the Bitcoin hash algorithm is SHA-256 or Secure Hashing Algorithm. The implementation of a cryptographic hash function is beneficial to prevent fraudulent transactions, double spending in blockchain, and store passwords.

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What Are Nodes in Blockchain?

A node is a point in a network that either distributes data to other nodes in the network or is an endpoint of a network. A typical blockchain node may be interconnected to several other nodes in a network.

In a blockchain, the node is usually a device such as a computer, laptop or server. Blockchain nodes can perform a lot of different functions, such as validating or rejecting a block of transactions. A node can also save and store the transaction history inside a block. Similarly, it can distribute the transaction history to other nodes for safekeeping and future reference.

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✨What Is Taproot and How Will the Upgrade Impact Bitcoin?

Taproot is a major upgrade to Bitcoin that will fundamentally change how it processes transactions. To accomplish the proposed upgrade, a “soft fork” is performed that changes the validity rules for any newly completed blocks. The Taproot upgrade — known as Bitcoin Improvement Proposal 0341, or BIP 0341 — adds several new features to Bitcoin’s blockchain that help enhance smart contract functionality.

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✨Lightning Network: Is It a Scalable Solution for Bitcoin?

The Lightning Network is a secondary layer protocol that runs on top of the Bitcoin blockchain to scale transaction verification. It reduces costs and traffic congestion on the Bitcoin network’s base layer.

As the name suggests, the Lightning Network is designed for processing transactions in a nearly free and instant manner by taking them off-chain. It exists separately from Bitcoin’s primary network, using its software and nodes to communicate with the network and exchanges as it finalizes transactions.

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