How does a Bitcoin transaction work 2018

How does a Bitcoin transaction work 2018

Bitcoin is a cryptocurrency that uses cryptography to secure its transactions. It is a peer-to-peer medium of exchange that doesn’t involve physical cash but involves the bitcoin. The use of bitcoin as a means of payment is on the rise. Some countries such as Japan, for example, have even recognized it as a legal tender. Hence, the need to know how a bitcoin transaction works. Some countries, on the other hand, have refused to recognize it as a legal tender because of its drawbacks.

Bitcoin is not physical cash, neither is it an accounting record on a ledger of cash, or even coins, or any amount you hold. Every ordinary transaction basically involves sending or receiving payment in the form of physical cash or e-currency. A bitcoin transaction involves sending or receiving bitcoin; it is basically a transfer of value between two or more bitcoin wallets. A bitcoin transaction has three pieces of information, which are:

  • Input – this is a record of the source address from which a person first obtained bitcoins.
  • An amount – this is the amount of bitcoin to be sent
  • Output – which is the receiver’s bitcoin address.

For example, if Maya is sending some bitcoin to Joe, the address from which Maya obtained bitcoin at first is the transaction input recorded on the bitcoin network, the amount of bitcoin Maya wants to send is the transaction amount, and Joe’s bitcoin address is the transaction.

The bitcoin transaction process

To send bitcoin, one must have a bitcoin address and a private key. Bitcoin transactions are processed in the following way :

  • A person (the payer) initiates a bitcoin transfer using his or her bitcoin wallet.
  • This transfer, as well as other pending transactions, is then broadcast on a global bitcoin network.
  • Bitcoin miners on the bitcoin network each collect some of the bitcoin transactions broadcast on the network and combine them in a block.
  • A bitcoin miner then mines the block in order to validate the bitcoin transaction by solving a difficult mathematical equation (known as a hash function).
  • The first miner to solve the further equation processes the block and broadcasts a proof of work to the bitcoin network.
  • Other miners check this proof of work and the validity of the transaction.
  • If the proof of work is approved, the winning miner gets a reward in the form of
  • The mined block is then added to the blockchain (which is a ledger on the bitcoin network that serves as a record of all transactions), and this is what the receiver (for example Joe in the above-mentioned illustration) sees in his own wallet.

This whole bitcoin transaction process is not an immediate one that’s why you sometimes notice that you have to wait for some time before your transaction clears. A fee may also be charged to the sender for each bitcoin transaction he initiates, and this is majorly the miner’s fee.


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