Despite the fact that “bitcoins” have been around for some time now, many people still don’t understand how they work. In essence, all bitcoin transactions happen online and, thus, transactions of this manner usually involve transfer of coins to and from electronic wallets. Given its nature, there has been lots of effort put into ensuring that the whole process is secure. For instance, every bitcoin transaction is “digitally” signed (an encryption method used to verify authenticity); and, in addition, the process has been made very transparent, meaning you can track a transaction’s history from start to finish. This article will explain how bitcoins work by focusing on a number of aspects such as what a transaction looks like.
There are no actual “coins” in bitcoin transactions; there are only “records” of the transactions made.
Before getting deeper into the bitcoin topic, it is important for one to know that bitcoins do not actually exist. Despite the fact that people will make statements about “so and so” having bitcoins, they are never physically there. In fact, bitcoin transactions involve only transaction records between two or more different addresses. There is no physical item that you can point out and claim that it is a bitcoin. The good thing about bitcoin transactions, as mentioned earlier, is that they are all kept in a very huge public ledger that is called the “block chain.” Information such as a bitcoin balance of a specific account can be obtained from the block chain.
What Does a Bitcoin Transaction Look Like?
Now that you have some knowledge about the existence of bitcoins, let’s focus on what a bitcoin transaction looks like. If an individual sends bitcoins to another individual, the transaction will have three pieces of information, as indicated below.
- Input: This is usually the address of the individual or company who sent the bitcoin transaction.
- Amount: The amount of bitcoins being sent.
- Output: This is usually the address of the individual or company who is receiving the bitcoins.
Before you are able to send bitcoins, you will need to have two things. The first thing is a “private key,” and the second thing is a “bitcoin address.” One thing to note here is that both the private key and the bitcoin address in bitcoin transactions are just a series of numbers and letters that are generated randomly. The difference between the bitcoin address and the private key is that the private key is kept secret. The bitcoin address can be viewed as a safe deposit box that has a glass front that allows everyone to see what’s inside. Despite the fact that anyone can see what’s inside, only someone with the corresponding private key has the ability to open it.
If individuals want to send bitcoins to another person, they will have to use their private keys to initiate the whole process. In addition, they will have to indicate the amount of bitcoins that are to be transferred as well as where the bitcoins are going (the receiver’s address). Once all these steps have been completed, each transaction will be thrown into the wider “bitcoin network,” where the transaction will be verified by “bitcoin miners.”
It should be noted that in some cases, you might end up waiting for some time for the transaction to clear. Bitcoin miners cannot authorize a transaction before they check to make sure that all the proper procedures have been followed.
Are There Transaction Fees?
Many question if there will be transaction fees when dealing with bitcoins. The answer to this question is “Yes” and “No.” Some transactions will require fees, and some will not require fees. In most cases, there are no transaction fees involved. In the event that there are fees, the amount of the fee is usually calculated based on a number of factors. In some instances, you are allowed to set your own transaction fees manually. In other cases as now permitted, bitcoin miners usually process the transaction fees.