Bitcoin Transaction Basics: How Bitcoin Works

Wilfried Chung
Aug 28, 2017 · 2 min read

With the value of Bitcoin skyrocketing, it is becoming a topic of interest for investors and everyday consumers. While on the surface Bitcoin seems like a complicated tool, with the category of cryptocurrency summoning images of spies and secret societies, the actual Bitcoin infrastructure is surprisingly simple. In addition to using extremely complex cryptographic techniques to prevent hacking and issues with financial manipulation, Bitcoin relies on a familiar model applied in a completely unique way.

Bitcoin and Blockchain

The success of Bitcoin lies almost wholly on the underlying technology of blockchains. A blockchain is a distributed network of computers that share access to a public database or ledger that records all of the transactions related to the cryptocurrency. While blockchain originated in support of Bitcoin, the technology is being developed and applied in other industries, leading to some surprising advances.

Bitcoin From Start to Finish

All Bitcoin transactions start with a wallet. These wallets create a unique address for each transaction. When a sending wallet has the address or cryptokey of the receiving wallet, it sends the transaction through Bitcoin. This pair of keys is then sent to the blockchain, where verification happens.

Verification is done by end users with specialized software and hardware who are known as Bitcoin miners. These miners verify the transaction using a series of cryptographic techniques and then write the transaction to the public blockchain. This happens every 10 minutes, and the miners are rewarded with Bitcoin for solving these complex mathematical equations.

Once the verification is completed, the transaction is sent to the end user wallet in Bitcoin. The end user can then trade the Bitcoin like any other currency in exchange for goods and services. These transactions take the form of smart contracts and are remarkably efficient.

The core principle behind Bitcoin is to have a decentralized, deregulated currency that is free and fair. It is fundamentally changing the way currency is viewed and valued, but even as it makes headway into the financial system, new cryptocurrencies are being developed, like Ether, Litecoin and Dogecoin. Using the fundamental platform of blockchain, these currencies may overshadow Bitcoin once they gain maturity.

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Wilfried Chung

Written by

CEO@vizmatch • San Francisco, Bay Area, Paris • www.linkedin.com/in/wilfriedchung www.vizmatch.com

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