Bitcoin is the first-ever digital currency, created by an unknown person or group under the pseudonym Satoshi Nakamoto. Its popularity has inspired the establishment of many other digital currencies. Bitcoin relies on peer-to-peer software and cryptography rather than a central authority to manage or oversee transactions. Transactions associated with Bitcoin take place in a blockchain network, where all transactions will be recorded on a public ledger. The main advantage of Bitcoin transactions is that they can be sent from peer to peer without geographical restrictions due to their widespread adoption. It completely operates in a decentralized way, where no one can interfere with the transaction.
In this article, we will delve into the working principles of Bitcoin transactions.
How does Bitcoin Transaction work?
The transfer of Bitcoin between two individuals via a secure blockchain network is referred to as a Bitcoin transaction. In other words, these are messages that will be digitally signed using cryptography techniques and validated by the miners available in the blockchain network. In order to validate the transactions, miners solve challenging mathematical puzzles and add new blocks to the network.
Mining can be performed by anyone who has mining hardware and high processing power. Many miners in the network work simultaneously to resolve the complicated mathematical puzzle. The one who resolves the puzzle first wins. As a reward for their effort, they will be rewarded with a certain amount of newly minted Bitcoin.
The transaction input indicates the Bitcoin address from which the funds were moved. The Bitcoin address to which the money was transferred is known as the transaction output. Usually, a Bitcoin transaction can take up to 20 minutes to confirm any transaction. If any network congestion occurs, it might take even longer to confirm the transaction.
Transaction Fees
The speed of the transaction relies on the amount the user pays for it. If the user pays a large amount, the transaction rate will be high, and it will be confirmed as quickly as possible, vice versa is applicable here. Since the space is limited, only a certain amount of transactions are possible to occur at a time.
For example, if there is heavy network congestion, then the miners give priority to transactions that have the highest fees. So, even during a hectic situation, the highest-paid transactions get executed.
Many Bitcoin wallets are there, which allow users to set their transaction fees manually. These fees will be directly sent to the miners.
Why Do Some Bitcoin Transactions Take So Long to Confirm?
Not every Bitcoin transaction will be completed quickly. The time taken to complete a Bitcoin transaction primarily depends on two factors:
Transaction fees: As we discussed above, transaction fees play an important role in confirming transactions. Miners always consider transactions that have the highest fees. Because the fees are high, the chance of getting more rewards is also high.
Network load: Every Bitcoin transaction will be stored for some time in the memory pool until the miners confirm it. There are possibilities the memory pool can be congested when a large amount of transactions happens. This time, the transaction can take more time to be confirmed.
Public Key and Private Key
Transferring Bitcoin undergoes several procedures underneath. The currency should be delivered to the right receiver, right? To do that, the Bitcoin wallet and the network do many things. Let’s look in detail.
Public key: A public key is a Bitcoin address, similar to your social media username that is known to everyone. To receive Bitcoins, users have to share this public key with the sender.
Private keys: These are not like public keys. The private key must be kept private and won’t be shared with anyone. This is one of the most important things in the cryptocurrency idea. The private key allows you to access your bitcoins. If you forget your private key, there is no way to recover it. You will lose your Bitcoin too.
How to Send and Receive Bitcoin?
To send and receive Bitcoin, one must possess a Bitcoin wallet application. To send Bitcoin, follow the below steps:
- Install a Bitcoin application and choose the type of currency that you want to send. In this case, it’s Bitcoin.
- Enter the receiver’s address.
- Enter the amount of Bitcoin you want to send.
- Once you enter the amount, you have to pay the necessary transaction fee.
- Click on the ‘Send Bitcoin’ button to confirm your transaction. Your bitcoin will be sent to the person.
If you want to receive a certain amount of Bitcoin, then do the following steps:
- Click “receive” after your Bitcoin wallet is open.
- Provide the public key address. It can be either a QR code or a sequence of numbers and letters.
- Anyone with your public key can send you the required amount of Bitcoin.
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Conclusion
A Bitcoin transaction involves three steps: transaction, broadcasting, and settlement. In the transaction stage, the sender will provide the required information to send Bitcoin. In the broadcasting stage, the transaction information will be sent to the Bitcoin network to validate the transaction. In the final step, settlement, miners will add the transaction to a block and the blockchain. Depending on network congestion and transaction fees, the transaction will be finished.