When a friend sends you $100 through PayPal, your account, records the transaction and you have to first accept payment for the value of the transaction to be reflected in your account balance. This same process works with bitcoin. Bitcoin blocks are the records of transactions while bitcoin confirmations are the acceptance of the transaction.
If you’ve ever kept personal finance records, then you will better understand bitcoin blocks. As you enter your details into your records, each line of a page contains transactions. Once a page is ‘full’, you move on to the next page, of course transactions on the new page references the old page. The pages here are similar to bitcoin blocks, while the lines are transactions and the book/ledger, a blockchain.
A bitcoin block is a record of current transactions including reference to the immediate past transaction. As new transactions are made, new blocks are added, forming well…a blockchain. The new block is built upon the old block, meaning miners in the network must accept it, and once accepted it can no longer be altered by anyone.
To create a new block, miners must compete to solve a mathematical equation whose difficulty increases every 2016 blocks, which is about every two weeks. The first miner to get a correct answer to the mathematical equation is said to have ‘mined’ some bitcoins and is also rewarded with some bitcoins. Although the process of getting the correct answer is very difficult, things get easier once the correct answer is found, and then everyone proceeds to confirm the answer. There are more than one correct answer, what’s important is the first miner to get one correct answer.
What then happens if two miners get valid answers at the same time? This causes a temporary split which gets resolved by orphaning one branch. The blockchain peer-to-peer network decides which branch to orphan by choosing the branch with the ‘longest’ chain of blocks. It means the block with the most difficult question and not necessarily the one with the most blocks. A new block is added every 10 minutes and new blocks will continue to be added even after the fixed 21 million bitcoins have been generated. This is because blocks are created for the purpose of recording transactions.
Usually while attempting to solve the mathematical equation, a bitcoin address is included to receive the reward after a successful block is created. The reward being sent to this address forms the first transaction for the block (and every block) and is always referred to as the coinbase transaction. After this first transaction, miners can then add other transactions to the block. As an economic incentive for miners to add transactions to a block, they receive some form of payment called transaction fees. The higher the value of the transaction, the higher the transaction fees.
As stated earlier, bitcoins are mined on each block, the amount mined halves every 210,000 blocks, which is about every four years. Currently, the reward/ bitcoin mined per block is 12.5, it was 25 some years ago and started at 50.
Flowing from our earlier discussion, we have seen how the blocks in the bitcoin blockchain come into existence. Remember, we put lots of emphasis on transactions. Before a transaction is declared successful, it has to be confirmed. Let’s go back to our personal finance record analogy. Before entering a record of money received, of course, you would have first received an alert from your bank that your account has been credited. Or like the PayPal story, until you accept your friend’s $100, the transaction would not be confirmed. So, what then is bitcoin confirmations?
When a bitcoin transaction is made, it is broadcasted to the bitcoin network and included in a block after confirming that the transaction is valid. The next block built on this transaction’s block, gives the transaction 1 confirmation. As more blocks get added to this transaction’s block, its block depth is said to increase. Likewise, the number of confirmations also increases. The number of blocks deep required for a transaction to be deemed ‘confirmed’ depends on the value. Also, some exchanges set their own threshold to guide against double spending. Generally, transactions worth less than $1000 can be considered ‘confirmed’ after three blocks deep. However, newly minted bitcoins require 100-120 blocks depth before they can be spent.
What happens to an unconfirmed transaction? It can be reversed through a Finney or race attack. Nevertheless, it does not render the transaction unacceptable.
How long then does it take for a bitcoin transaction to be deemed confirmed? This depends on the number of block depth required. Remember, one block is created approximately every 10 minutes. You can track the number of confirmations on your wallet or through a blockchain explorer using the transaction ID.