A transaction with bitcoins is straightforward and secure. It is a transfer of bitcoins from one digital wallet to another and that is documented in the blockchain. In this system, each participant has one or more addresses in the network, each associated with a pair of public and private cryptographic keys, which are kept in a wallet.
The system uses these cryptographic keys to digitally sign and confirm transactions: the sender signs his transmission message with his secret private key. The network confirms the broadcast using the public key of the sender. While only the person with the private key can sign a transmission order, the signature is used for public verification by the network.
A Transaction Requires Only 3 Pieces of Information
A transaction is basically a message from a wallet consisting of three pieces of information: first, an “input”, secondly, the amount of bitcoins, and third, an “output”. The input specifies a transaction with sender address and an amount previously sent to the current sender address. The output then specifies the address of the receiver along with the bitcoin amount to be sent.
Sophia sends bitcoins to Fabian. The following steps are necessary for this:
- Fabian communicates his public key to Sophia, which she should send the bitcoins to.
- Sophia puts together Fabian’s public key and the bitcoin amount in a transaction. This transaction is really nothing more than a message that Sophia writes to the nodes and miners. In this message Sophia specifies input, target amount and output.
- Sophia signs the message with her private key and announces her transaction request in the Bitcoin network with her public key. Now miners can use Sophia’s public key to check if Sophia has enough bitcoins for the transaction.
- The nodes verify Sophia’s transaction, the miners group them together with other transactions in a block, encrypt them, and chain them to the blockchain.
Transactions Fees Accelerate Transactions
If there are a lot of bitcoin transactions, the time factor plays a role in their settlement. It can sometimes take longer for a transaction to be implemented. If you want to be sure that your transaction is carried out quickly, you can add a fee to your transmission. This fee goes to the miner. The miners will always process transactions based on the transaction fee.
For the transmitter of bitcoins, this process is therefore quite simple: he or she enters into his/her wallet the recipient address and target amount and sends it off with the help of the private key. The network does the rest of the work.
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Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton, New Jersey: Princeton University Press.