Bitcoin Ecosystem and its various components that plays its parts

Before starting with today’s topic of Bitcoin Ecosystem, we take a look back on the last session where we had a detailed discussion on the transactions that happen for Cryptocurrency transactions for Bitcoins. In the Bitcoin Ecosystem, we take a further look in how the bookkeeping nodes function along with the Mining.

Today’s topic of the Bitcoin Ecosystem would involve,

  1. Bookkeeping Nodes
  2. Mining
  3. Mining Hardware
Bitcoin Ecosystem
Image Source Google

Bitcoin Ecosystem – Bookkeeping Nodes

While there are around 10,000 nodes that perform bookkeeping tasks and who relay transactions and blocks, they are mostly running the same software written, and therefore controlled, by a very small number of people. They are known as the ‘Bitcoin Core’ developers and the software is known as ‘Bitcoin Core’.

The various versions in the Bitcoin Ecosystem, or implementations, that are not Bitcoin Core all have slightly different rules but are not different enough to create incompatibilities. Some, for example, may have additional flags to signal that the bookkeepers would be prepared to adopt a rule change if enough participants also signal the same intention.

Bitcoin Ecosystem – Mining

Although anyone can mine, the process has become so intensive that new hardware and chips are created which are designed to be exceedingly efficient at performing the SHA-256 hashing. ASICs (Application Specific Integrated Chips) became the norm for mining in 2014 and outcompete all other forms of hardware in terms of energy efficiency for Bitcoin mining. Dave Hudson explores the effects of ASICs in his excellent blog Hashing It 105.

In the popular media, the computational power of these specially designed chips is often compared to the computational power of supercomputers, but ACICs cannot operate as general-purpose computers, so comparisons with supercomputers are meaningless. Only a few entities can mine profitably, usually using special purpose ‘mining farms’ clustered in areas of cheap electricity. The chart below shows miners and what proportion of blocks they have recently mined.

Bitcoin Ecosystem – Mining Hardware

As discussed, miners use special purpose chips called ASICS that are specifically designed and built to be efficient at SHA256 hashing. Commercial chip manufacturers have been slow to design chips that are specifically built to be efficient at SHA256 hashing, so demand has created an alternative specialized industry for supplying Bitcoin ASICs. The main provider of this is Bitmain, the same Chinese company that controls the top two mining pools. It has been estimated that Bitmain produces hardware that mines 70-80% of the total blocks in Bitcoin 108.

In the next session of the Bitcoin ecosystem, we take a look on BTC ownership and the transaction fees along with upgrades on the Bitcoin protocol.


Suggested Topic

Ledger Management and Transactions in Cryptocurrency


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