Bitcoin Basics Lesson: Transactions and the Blockchain
In this lesson you will learn:
- A Bitcoin transaction is a transfer of value via the Bitcoin public ledger network
- Records are not encrypted
- Using "Blockchain Explorer" https://blockchain.info/ anyone can view bitcoin transactions
- Bitcoin transactions must be verified by the bitcoin miners on the blockchain network
- Miners are rewarded with decreasing number of bitcoins for doing the verification work
Let's start
Bitcoin Transactions on the Blockchain
The Bitcoin blockchain is where every Bitcoin transaction is recorded. The blockchain is a public ledger maintained by a network of Bitcoin nodes of communicating computers. There is not central authority. Users send transactions to the blockchain network using Wallet applications. Computer users running mining nodes validate the Bitcoin transactions. Validated transactions are added to the public ledger. Each node computer broadcasts their ledger additions to the other nodes in the network. The blockchain is a distributed database. Each node computer stores it's own copy of the blockchain and all of it's transactions. The correct ownership of each and every bitcoin amount is achieved by independent verification of the chain of transactions. Each new transaction references all previous transaction outputs. They are essentially a chain of transactions. It is possible to trace each particular bitcoin back to each addresses which the bitcoin was transferred. Bitcoins do not "exitst". There is not file with bitcoins stored in it. There are instead records of transactions between different Bitcoin addresses with balances that can increase or decrease. Each Bitcoin transaction is secured via encryption. However, the record of each transaction ever created is not encrypted. It is possible to browse and view every transaction on the blockchain.
An example of a Bitcoin transaction
Step 1: Bitcoin transaction submission to the network via Bitcoin Wallet
Bob want's to transfer 1.5 Bitcoin to Alie. Both Alice and Bob have Bitcoin Wallet apps on their smartphones. Alice opens her Wallet app. Creates a new unique bitcoin address and sends the address to Bob. Bon copies Alice's bitcoin wallet address to his Wallet "Send To" field and enters the amount 1.5 of BTC and hit's send. Bob's Waller app (client) signs his request with his private key corresponding to his public address.Step 2: verifications
The Bitcoin mining network of nodes starts to work. Nodes of connected computers all over the world simultaneously verify all the transactions and compete with each other to earn newly minted bitcoin as reward for their contribution. Alice and Bobs transaction once it get's verified is added to the next transaction block every 10 minutes. Once new block is found but a miner, their transaction is confirmed and can no longer be reversed. When transactions are verified Alice and bobs wallers will get updated with the transaction status. The verification process ensures that the same bitcoins can not be used for more than one transaction simultaneously.
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