There is no doubt about the success of Bitcoin around the world. Since it started booming, a lot of people grew more curious and wanted to find out what the buzz was all about.
Bitcoin did not only penetrate the financial market and the entire web, but also disrupted them. It is now bigger than just a blockchain technology. It created a niche of its own. It continues to live and enable its users to manipulate and grow their assets.
But how do you explain Bitcoin to a finance and investment “noob” or a beginner? In this article, we will learn the ropes of Bitcoin and all the transactions that happen inside it.
On System Technicalities
Starting off with Bitcoin doesn’t have to be too hard. You will learn all the technical stuff later on. The first thing to do is to install a Bitcoin wallet on your computer or on your phone.
It is important for most of the users to have it on their phones so that they can easily check on their accounts when the price surges or plummets. Bitcoin does need due diligence to work.
Creating the wallet gives you your unique Bitcoin address. You can send this address to your friends and family when they need to pay you or when you need to send money to them.
Now let’s talk about blockchain. It is basically a public ledger that is shared by all Bitcoin users. It’s where all exchanges are done and monitored.
Your money transfers and your balances are calculated in the blockchain. This is also where the system does tracking and verification of exchanges.
So, when you receive money from someone, your address will first be verified by the blockchain. This way, they can make sure that you are indeed the real recipient. The same is true when you transfer money to another address.
Transaction confirmation in Bitcoin is done using private keys and signatures. These are data that give proof that the transfer of assets came from the right people or accounts. The signature specifically prevents alteration of exchange.
The confirmation comes from a process called mining. This is where the exchanges are included in the blockchain in chronological order.
In a nut shell, mining uses a transaction format similar to a series of packed blocks. These are arranged according to the rules of basic cryptography. And these rules are made to protect other existing transactions from being changed while others are awaiting verification.
A Basic Summary of a Bitcoin Transaction
In layman’s terms, the exchange goes this way. If you express a desire to send a Bitcoin, a message will be broadcasted across all the users. The nodes, which are the connection points of the Bitcoin network, will scan the network to verify the transaction.
The nodes will check whether you really have the necessary Bitcoins to be sent. It will also verify whether the Bitcoin has already been sent to another user.
The verification process is done by going through the Bitcoin address and its history of transactions. The private key will then help to check the uniqueness.
When all these verifications are confirmed, the system connects your transaction to a block that has been previously added.
Another transaction will then be connected to your block next time, and so on. This is why it’s called a block chain. When something disrupts one of the blocks, the entire chain will then have to be redone.
This is how the blockchain technology basically works in the entire Bitcoin process. But if you want to dig deeper into the system, it gets even more complicated.