How do Bitcoin transactions work?

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How do Bitcoin transactions work?

Bitcoin transactions are messages, like email, which are digitally signed using cryptography. Bitcoin transactions enable you to send currency from one wallet to another through the Bitcoin network. All transactions are validated by the network through the combination of Proof-of-work and Consensus mechanisms. Transactions are grouped into blocks of public information and can be found on the digital ledger known as the 'blockchain’ In the case of the Bitcoin network, a new block is added on average every 10 minutes making this the time that it takes to confirm a transaction, although, in some cases, depending on the network congestion this confirmation may take longer.

There are three key variables in any bitcoin transaction: an amount, an input and an output. The amount is the amount of currency that is being transacted, the input is the address from which the money is sent, and the output is the address that receives the funds. There is also a data storage portion on each transaction, a sort of note, that allows you to record data to the blockchain immutably.

To send Bitcoin, you must have access to the public and private keys associated with the wallet with the amount of bitcoin you want to send. To "own" bitcoins, a person must have access to a 'key pair' of a wallet comprised of:

  • a public key (an address, like a bank account number) to which some amount of bitcoin was previously sent
  • a private key (a password, like a pin code) which authorizes bitcoin transactions from the associated public key (address) to any other bitcoin address.

Public keys, also called bitcoin addresses, are randomly generated sequences of letters and numbers that function similarly to an email address or a social-media site username. As the name implies, they are public, so you are safe sharing them with others. In fact, you must give your Bitcoin address to others when you want them to send you bitcoin. The private key is another sequence of letters and numbers, also generated randomly. However, private keys, like passwords to email or other accounts, are to be kept secret. NEVER share your private key with anyone that you do not 100% trust to not steal from you.

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