Cryptocurrencies have proven to be a game changer whether it’s online shopping stores or restaurants, it’s being used by business to send or receive payments. A cryptocurrency known as Bitcoin was introduced by Satoshi Nakamoto as a new electronic cash system with no trusted third-party. Bitcoin transactions are carried by a shared public ledger called Blockchain.
we will be discussing how a bitcoin transaction takes place, comparatively a bitcoin transaction is much more complex than a regular banking transaction. Furthermore, Bitcoin runs on a Blockchain system which is completely decentralized – means you will not be charged to transfer bitcoins.
Let’s suppose we have Bruce – he runs an online shopping website and started to accept Bitcoin as payment. Angela – she is a buyer and wants to purchase from Bruce.
Now, both have their own Bitcoin wallets on their computers these wallets are basically files that provide access to multiple Bitcoin addresses. An address is a combination of letters and number such as: 1HULMtyuGHJ46T71SUI, each address has its own balance.
Creating a new address – Bruce has to create a new address to receive bitcoins from Angela so that she can send her the payment for the things she bought from his website. Therefore, Bruce will create a new bitcoin address.
For Submitting a Payment Angela will tell her Bitcoin client that she would like to transfer some amount to Bruce’s address. Alice wallet holds a private key for each of her addresses. The Bitcoin client will sign her transaction request with the private key of the address she is transferring bitcoins from. Anyone on the network can now use the public key to verify that the transaction request is actually coming from the legitimate account owner.
Verifying the transaction, now here comes the miners – they play an important role in any Bitcoin transaction. Their computer process the transaction of a few minutes ago into a new transaction block. The hashing process is started and different nonces are created, nonces are random numbers which are added to data which is received before hashing process takes place, many hashes are generated with different nonces until they match with the one that works. As soon as the hashing process is completed a certain amount of bitcoin is rewarded to the miners.
The transaction gets verified and Bruce will receive his payment from Angela. The same process is repeated for every transaction of Bitcoin.
Recently many countries have banned mining which has caused problems for Bitcoin and its sudden hike and fall from time to time has put everyone in doubt, some take Bitcoin as a Ponzi scheme because there are no authentic authorities to look after it while others believe it to be the future currency for the whole world. Whereas, the Blockchain system used for Bitcoin seems to have significance and experts believes that it could be used for various other purposes like improving government efficiency by keeping their records safe, preventing voter fraud by registering voters on Blockchain which will help In overcoming tampering or keeping all the information of citizens on the Blockchain like their social security, asset records, bank account details etc.