Crypto 101: Bitcoin Transactions
How is Bitcoin different from sending money by using an app like Venmo?
Let’s dive into what makes Bitcoin and the blockchain different from other ways of sending money.
Centralized vs. Decentralized
When you use Venmo, all of your transactions go through Venmo’s servers, and they have the ability to block, reverse, stall, or even accidentally lose a transaction. Venmo is the single entity responsible for processing your transaction — this system is centralized.
On the other hand, the process of sending a Bitcoin transaction was specifically engineered to be trustless, immutable, and censorship resistant. It takes a smart combination of social and technical engineering to create Bitcoin’s trustless transactions, which is why it’s an important concept to grasp before moving on to more complicated concepts in crypto.
At a high level, bitcoin transactions can be broken down into three parts:
- Creating a transaction and sending it to the Bitcoin Network.
- Mining blocks of transactions (which creates the blockchain).
- Validating transactions.
Each of these parts is handled by a different party with different incentives:
- Users (creating and sending transactions)
- Miners (mining transaction blocks to build the blockchain)
- Nodes (validating the blockchain)
All of these entities that working separately make the Bitcoin network decentralized.