Inside Bitcoin Transactions: How It All Works

bitcoin transactions

April 12, 2019

FrederikNielsen
23

If our readers are planning to start trading cryptocurrencies it is useful to understand that, in fact, there is no Bitcoin as such. They do not lie somewhere in a flat pile and are not even on the hard disk. The owner of the virtual coin can’t pick up a bill or point to a digital file and say: “Here they are, my bitcoins!” Instead, he can see or show the balance of the wallet and his transaction history.

All bitcoin transactions, in turn, are carried out in e-wallets and require a digital signature. It is necessary for safety. Each money transfer becomes known to all users of the network, as Bitcoin has an open history of operations. Each transaction is stored in a public book.

bitcoin transactions

The process

BTC transactions are essentially a regular money transfer. It is only carried out much faster. To transfer money, you only need the address of the recipient’s bitcoin wallet. No first and last names. On the part of the user, the operation looks like this: a wallet is opened, the recipient’s address and the amount of the sending are entered, the signature is executed using the private key. Everything, 10-30 minutes – and the money from the recipient. Behind this simple at first glance, the process hides a huge world.

For example, if Alex sends Bob two and a half bitcoins, the transaction will have three pieces of information:

  • Entrance. Record with information about where Alex got his bitcoins.
  • Amount. The number of transferred coins. In this case, 2.5.
  • Output. Bitcoin wallet address of Bob.

If you think that the commission in the implementation of operations with Bitcoin – something beyond the limit and out of the ordinary, take it easy. Banks, payment services, exchanges, you also pay a commission for the implementation of the transaction, even though it is sometimes invisible. Deductions, in this case, make up the profit of the service or go to maintain its livelihoods. In the case of Bitcoin, commissions go to miners who assist you in conducting the operation. Please note that deductions for fees are not required. If you do not pay, your transfer will come true, although it will take a long time to wait.

Transactions take some time

Since the transaction must be checked by miners, sometimes you have to wait until they finish mining the block. Bitcoin protocol regulates mining so that each block takes about 10 minutes.

This can cause difficulties with instant payment for services in stores that accept bitcoins. In most cases, devices are used that deferred conduct transactions. This is normal for low-cost transactions where the risk of fraud is not so great.

bitcoin transactions

Public and private keys

During the creation of a Bitcoin wallet, the user is given a private and public key. The public key is public and serves as an address for transactions. It can be seen by all users who commit transactions to it or track them in the blockchain. The private key is private. He knows only the owner of the wallet and it is on this key is based on the safety of your funds.

There is also a public key unique individual address, which is visible in the blockchain. A public key is a cryptographic code that consists of an encryption algorithm with an asymmetric key, which is used to convert messages into a non-readable format. The Bitcoin public key itself is very long because it is compressed and reduced to the form of a public address. If a user loses his public key, it is possible to recover it using a private key.

Frederik Nielsen
Frederik Nielsen

I’m a freelance writer and full-time curious person. My main interests are philosophy, politics, art, culture, science, and how they’re all interlinked. When I’m not writing, I’m fronting a band, producing records, and making videos. I’m also currently working on launching a YouTube channel that will focus on culture and politics. I think blockchain technology is fascinating because of the huge potential it has to revolutionise not only the financial sector, but society as a whole.

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