How Do Bitcoin Transactions Work?

Bitcoin was created with a focus to function on peer-to-peer electronic cash and no matter if you are spending bitcoin or accepting it as a payment method, you ideally need to understand how the transaction works. 

Bitcoin transactions are, essentially, messages and they act in a similar way to emails. The transactions are signed using cryptography and are sent to the entire bitcoin network for verification. Now that you have set up your bitcoin wallet and are feeling ready to make your first transaction, let’s take a closer look at how bitcoin transactions work.

What Is The Bitcoin Blockchain?

The bitcoin blockchain is a huge database, made up of information from transactions which is secured by encryption. The bitcoin blockchain is not in one single place, instead, it is distributed across numerous computers and systems within one network. These systems are known as nodes and each node has a copy of the blockchain within its system, with each copy being updated when a validated change is made to the blockchain. 

Blockchains store data about transactions, addresses and code which executes the transactions and runs the blockchain on the whole. Whenever a transaction is made, the blockchain knows exactly where it has come from and its destination, plus displays it for all users to see. 

Where Do Bitcoins Exist?

Bitcoins are not physical and owners aren’t able to open an account as you would expect to do when handling any other form of currency. Instead, with bitcoin there is the blockchain which acts as a record of all transactions that have ever taken place between bitcoin addresses. These records are updated by the network participants and shared as balances increase or decrease. Bitcoin is a digital currency and operates free from central control, without the oversight of governments or banks and instead relies on peer-to-peer software and cryptography. 

How Do I Send Bitcoin?

To send bitcoin, you first need to have access to the public and private keys that are associated with the amount of bitcoin that you wish to send. When people “own” bitcoin, it actually means that they have access to a “key pair” which is comprised of:

• A public key: an address where bitcoin has previously been sent.

• A private key: this corresponds with the public key to create a unique password that authorises bitcoin that has previously been sent to a public key to be sent to another destination.

Public keys, also known as bitcoin addresses, are generated randomly using a sequence of numbers and letters which function similarly to an email address. As it says in the name, they are public so you are safe to share with others. You need to share your bitcoin address with others if you want them to transfer you bitcoin.