Living in an Era with every possibility to be virtual, we have no space in our imagination that human ingenuity would come close to a virtual currency, would we? What if reality proves it otherwise? This Infographic would showcase how Bitcoin transaction works as a Cryptocurrency.
Bitcoin Transaction starts with a new user. A new user can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, this wallet will create your first Bitcoin address.
Bitcoin addresses can also create more whenever you need one. A user can give their addresses to their friends so that they can pay them or vice versa. In fact, this is pretty almost the same as how email works, except that Bitcoin addresses, should only be used once.
A user can give their addresses to their friends so that they can pay them or vice versa.
In fact, this is pretty almost the same as how email works, except that Bitcoin addresses, should only be used once.
Balances – blockchain
The blockchain is a shared public ledger on which the whole Bitcoin network relies. All confirmed transactions are included in the blockchain. This way, Bitcoin wallets can calculate their spendable balance and new transactions. Bitcoin wallets can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the time-based order of the blockchain are enforced with cryptography.
Transactions – private keys
A transaction is a move of value between Bitcoin wallets that gets included in the blockchain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions. This is providing a mathematical proof that they have come from the owner of the wallet.
The signature also prevents the transaction from being changed by anybody once it has been issued. All transactions are broadcast between users and usually begin to be proven true by the network in the following 10 minutes, through a process called mining.
Processing – mining
Mining is a distributed agreement system that is used to confirm waiting transactions by including them in the blockchain. Mining enforces a time-based order in the blockchain. This protects the neutrality of the network and allows different computers to agree on the state of the system, to be confirmed. Transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network.
These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the blockchain. In this way, no person can control what is included in the blockchain or replace parts of the blockchain to roll back their own spends.
The infographic is a simplified explanation of how Bitcoin transaction is, and how security is built into the system, making it impenetrable to hackers.