Simple and Thorough Explanations of Cryptocurrency Transactions
Similar to nearly every other cryptocurrency in the market, Bitcoin relies on a universal ledger system called the “blockchain” to facilitate transactions. Every transaction executed creates a set of data, which is stored on the blockchain as part of a “block” of code. This block not only contains the information for your transaction, but also for the block that comes before yours and the block that comes after yours.
So, each block links together to form a chain of validated, verifiable information within which no single block can be tampered with or changed without, effectively, altering the entire chain — which is currently deemed as impossible. It is this infrastructure that serves as blockchain’s primary claim to fame.
Here’s a deeper look at the steps involved in a Bitcoin transaction, as well as some of its more abstract elements.
A Simple Transaction
Let’s sketch up a picture of how every transaction on the blockchain is executed (for example, from your digital wallet to someone else’s).
- You open up your digital wallet, plug in an amount of Bitcoin, and input the receiving party’s public key (that long combination of letters, numbers, and characters); transaction initiated.
- The blockchain verifies your public key so it can store the transaction information on the blockchain.
- The blockchain network takes your public key and verifies that you do, in fact, own the amount of cryptocurrency you’re trying to send.
- The network checks itself to determine if it has previously promised this attempted transaction to someone else. After the details are verified, the blockchain network then stores the transaction information.
- Within a couple of hours, the recipient will see the new balance on his account, and the balance will be deducted from your account; transaction completed.
The Intricacies of the Network
From a bird’s eye view, the transaction is a simple, and hopefully logical, process. But, as Apple, Inc.’s iconic co-founder, Steve Jobs, said, “Simplicity is the ultimate sophistication.” Blockchain is no exception. An impressive amount of calculations is handled below the surface so that blockchain’s “simplicity” can shine.
This is where we introduce public and private keys. Investigating this system lets us understand the blockchain network’s verification process, as well as its security features.