Marc Serafino
Bitcoin transactions represent an integral part of the bitcoin system, and everyone on the network “knows” about every transaction along with its entire history going back to the point where the bitcoins were produced. Nevertheless, these are secure transactions, each digitally signed by the person who sends the money.
Today, we want to demystify bitcoin transactions, and provide answers to some of the most popular questions about them. Let’s start…
1. Where are bitcoins stored?
Each transaction begins with one party sending bitcoins to the other; in the “bitcoin world” — and with any other cryptocurrency for that matter — a transaction originates and ends in a bitcoin wallet. But there is one catch — there are no actual bitcoins, only records of bitcoin transactions. And inside those transactions are everyone’s bitcoins, as they take note of every increase and decrease of balances. In fact, every transaction that ever took place is stored in a vast public ledger called the blockchain.
So it is about transactions rather than accounts as you would have it in a traditional bank or even PayPal.
2. What does a transaction looks like?
Each transaction holds three pieces of information:
- Input – the party who wants to send the money or pay for stuff. It includes the information how that entity got its bitcoins in the first place (previous transactions).
- Amount – the amount of bitcoins involved in the transaction.
- Output – bitcoin address of a recipient.
With these three data points in place, the transaction can be cleared.
3. How are bitcoins sent?
In order to send someone bitcoins, you need two things — a bitcoin address and a private key — both of which are sequences of letters and numbers. The former is randomly generated, while the latter is known to the sender, with recipient also having its own private key.
When you want to sent bitcoins, you will use your own private key to “sign a message” with the Input. Also, you will put in Amount and Output, which as we’ve mentioned is the recipient’s bitcoin address.
From there, bitcoins “leave” your bitcoin wallet to the wider bitcoin network, only to wait for the “bitcoin miners” to verify the transaction. After that part is done, the transaction is placed in the transaction block and to the wider blockchain so that the recipient can see it (and access the money).
4. Why do you have to wait for a transaction to clear?
As noted, each transaction must be verified by the miners, thus sometimes you will have to wait until they have finished mining. Typically this takes around 10 minutes.
However, you may also be asked to wait a little longer, with some merchants asking you to wait until the transaction block has been confirmed. Some others, on the other hand, will take their chance on you, assuming that you won’t try and spend the same bitcoins somewhere else before the transaction is confirmed. Generally speaking, merchants don’t ask for confirmations for low value transactions.
5. What are the bitcoin transaction fees?
It all depends on the bitcoin wallet service provider you’re using. And the same goes for miners, many of which are doing this free of charge, though that will likely change in the future.
As an end user, you will be presented with the fees of a bitcoin wallet service you choose. You should remember that lower fees don’t necessarily mean a better service — your best bet is to go for the popular services we, and other sites for that matter, often write about. These are reputable companies with backing of major venture capital firms and in some cases — banks.
Speaking of which, would you put money in Joe’s Bank? I wouldn’t. And the same goes for selecting the bitcoin wallet service provider.
6. Where is the receipt?
Bitcoin wasn’t designed with receipts in mind. Some changes are in works as we speak, but for the time being, most of your transactions will end up without any receipt. A good bitcoin wallet service will provide you with record of all of your transactions, so that’s how you know where the money is.
Also, there are new companies in this space, like BitPay, which provides advanced features that you wouldn’t normally get with a “native bitcoin transaction,” including receipts and order confirmation web pages.
7. Can I send part of a bitcoin?
Bitcoin is getting more valuable with the day so it is only natural that you would want to split it up. So yes, you can send fractions of a bitcoin to other people (or pay for services).
Instead of cents, bitcoin has satoshis, with one satoshi being one hundred millionth of a bitcoin. You can send a transaction as small as 5430 satoshis on the bitcoin network.
ACT NOW: Where can I start?
For most people, myself included, it is best to select a bitcoin exchange that doubles as a bitcoin wallet. These also happen to be the most popular services so when you search for “bitcoin exchanges” you’ll get to them. Good luck! 😉
