Now that you’ve set up your bitcoin wallet and are ready to make your first transaction, let’s take a look at how bitcoin transactions actually work. There are three key variables in any bitcoin transaction: an amount, an input and an output. An input is the address from which the money is sent, and an output is the address that receives the funds. Since a wallet can contain several input addresses, you can send money from one or more inputs to one or more outputs. There is also a data storage portion on each transaction, a sort of note, that allows you to record data to the blockchain immutably. But the unique thing about bitcoin transactions is that, if you initiate a transaction that’s worth less than the total amount in your input, you get your change back not to your original output, but through a new third address in your control. This means your wallet typically ends up containing multiple addresses, and you can pull funds from these addresses to make future transactions. You’ve learned how to buy and store your bitcoins, so you already know what public and private keys are for, and you’ll need these to issue a transaction. To do that, you put your private key, the amount of bitcoins you want to send and the output address into the bitcoin software on your computer or smartphone. Then the program generates a signature made from your private key to announce this transaction to the network for validation. The network needs to confirm that you own the bitcoin being transferred and that you haven’t spent it by checking all previous transactions which are public on the ledger. Once the bitcoin program verifies that indeed your private key corresponds to the provided public key (without knowing what your private key is), your transaction is confirmed. This transaction is now included in a “block” which gets attached to the previous block to be added to the blockchain. Every transaction in the blockchain is tied to a unique identifier called a transaction hash (txid), which looks like a 64-character string of random letters and numbers. You can track a particular transaction by typing this txid in the search bar on the blockchain explorer. Transactions can’t be undone or tampered with, because it would mean re-doing all the blocks that came after. This process is not instantaneous. Because the bitcoin blockchain is fairly large, it takes a lot of time to process a single transaction among the many on the blockchain. The amount of time it takes to confirm a transaction varies, ranging anywhere from a few minutes to a couple days, based on traffic on the blockchain and the size of your transaction. Larger transactions with higher fees tend to get validated by miners quicker than smaller ones. That said, once it is confirmed, it is immutably recorded forever. If you want to indulge in some mindless fascination, you can sit at your desk and watch bitcoin transactions float by. Blockchain.info is good for this, but try BitBonkers if you want a hypnotically fun version.
I'm writing a paper for college about bitcoin. However, I cant quite seem to wrap my head around the technical process of how it works. Can someone please explain the full transaction process from wallet to the private and public keys to mining computers and to the public ledger. I ask that you do it in 2 ways: in a concise, quick way and in an explain like im 5 way.
If I'm looking at stuff correctly, one bit coin is valued at around $775 dollars. If a vendor accepts bitcoins as payment, but something only costs $10 bucks, how does it work? Do I pay with one bitcoin and get change back in dollars? Or can you have fractions of bit coins?
To cut through some of the confusion surrounding bitcoin, we need to separate it into two components. On the one hand, you have bitcoin-the-token, a snippet of code that represents ownership of a digital concept – sort of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token. Both are referred to as “bitcoin.” The system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway. It is created and held electronically. Bitcoins aren’t printed, like dollars or euros – they’re produced by computers all around the world, using free software. It was the first example of what we today call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, with verification based on cryptography. Who created it? A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as an electronic payment system based on mathematical proof. The idea was to produce a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable way. To this day, no-one knows who Satoshi Nakamoto really is. In what ways is it different from traditional currencies? Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally. But it differs from fiat digital currencies in several important ways: 1 – Decentralization Bitcoin’s most important characteristic is that it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders, and run by an open network of dedicated computers spread around the world. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. Bitcoin solves the “double spending problem” of electronic currencies (in which digital assets can easily be copied and re-used) through an ingenious combination of cryptography and economic incentives. In electronic fiat currencies, this function is fulfilled by banks, which gives them control over the traditional system. With bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by no-one. 2 – Limited supply Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply – central banks can issue as many as they want, and can attempt to manipulate a currency’s value relative to others. Holders of the currency (and especially citizens with little alternative) bear the cost. With bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset – in theory, if demand grows and the supply remains the same, the value will increase. 3 – Pseudonymity While senders of traditional electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in theory operate in semi-anonymity. Since there is no central “validator,” users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them. The system does not need to know his or her identity. In practice, each user is identified by the address of his or her wallet. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed methods to identify users if necessary. Furthermore, most exchanges are required by law to perform identity checks on their customers before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin usage can be tracked. Since the network is transparent, the progress of a particular transaction is visible to all. This makes bitcoin not an ideal currency for criminals, terrorists or money-launderers. 4 – Immutability Bitcoin transactions cannot be reversed, unlike electronic fiat transactions. This is because there is no central “adjudicator” that can say “ok, return the money.” If a transaction is recorded on the network, and if more than an hour has passed, it is impossible to modify. While this may disquiet some, it does mean that any transaction on the bitcoin network cannot be tampered with. 5 – Divisibility The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot. — Read more to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, as well as how you can buy, sell and store your bitcoin. We also explain a few alternatives to bitcoin, as well as how its underlying technology – the blockchain – works. source: coindesk
How exactly do bitcoin transactions work offline ?
First, so that I don't get killed: I am big into bitcoins. Read in another thread that internet is not required for bitcoin transactions. That transactions can take place without making a transaction on the blockchain. This sounds like the whole second layer thing - lightning and all. So , these non-blockchain transactions take place between people and are written to the blockchain at a later date ? How late can this date be ? Say 100 people are in an area without internet, they reasonably trust each other, They make 1000 transactions off the blockchain during a period of one week. Can all of these transactions take place off the blockchain and be only written once they get internet access ? If so where will these transactions be stored ? On all the devices , like a second blockchain (second layer solution ) ? Lots of questions !
In many ways, a Bitcoin transaction works very much like a cheque. It specifies who has the Bitcoins and where the Bitcoins are going. Bitcoin is transferred peer-to-peer. There's no need for a third-party. But when one person sends a Bitcoin to another user, the transaction needs to be verified by the entire Bitcoin network. How Do Bitcoin Transactions Work? Bitcoin transactions aren’t as ... How then, are Bitcoin Transactions Instant? After getting a picture of how the Bitcoin network works, the next logical step is to wonder how bitcoin purchases or wallet transfers reflect instantly on the destination wallet. On the Bitcoin network, the answer is pretty simple. Sending bitcoins is broadcasting the request for the transaction to the entire network. Therefore, the person receiving ... Bitcoin transactions are more complex behind the scenes than you might think. You rarely send an amount of bitcoin in one go. Instead, your bitcoin wallet and the bitcoin network have to go through a set of steps to ensure that the right amount of electronic money gets to the recipient. Bitcoin Explained . To begin with, it’s important to understand what a bitcoin is. It isn’t a single ... Bitcoin (BTC) was created to function as peer-to-peer electronic cash. Whether you are spending or accepting BTC as payment it is prudent to understand how a transaction works. Bitcoin transactions are messages, like email, which are digitally signed using cryptography and sent to the entire Bitcoin Network for verification. Now I’m going to talk about how bitcoin transactions work in depth and I hope you will get a very good understanding about bitcoin transactions. If you want to learn the basics about Bitcoin you can go through what is bitcoin and How does it work article. Before go to the bitcoin transaction let’s see how normal money transaction works.
Follow the instructions Download the scripts here: https://satoshidisk.com/pay/C8TI0d 📌 VIDEO PROOF: 🏅🏅 You can check the wallet address on blockchain (1G7... The mechanics of a bitcoin transaction block chain, which is a construct that is generated by bitcoin miners and functions as a global ledger for recording a... In this quick video, we do our best to explain the mechanics of a single Bitcoin transaction in 5 minutes or less. We explain things like addresses, wallet a... How transactions are verified in Bitcoin Blockchain - Longest chain rule explained Watch our earlier Blockchain videos Blockchain Simplified: https://www.you... A somewhat technical explanation of how Bitcoin works. Want more? Check out my new in-depth course on the latest in Bitcoin, Blockchain, and a survey of the ...