Understanding the Transactional Properties of Bitcoin


Miriam Jensen | Updated: 04-10-2021 10:17 IST | Created: 04-10-2021 10:17 IST
Understanding the Transactional Properties of Bitcoin
Image Credit: Pixabay
  • Country:
  • United Kingdom

If you are using Bitcoin, either for business or other transactions, it is important that you understand its mechanism. Bitcoin is a cryptocurrency that operates on a peer to peer basis, meaning that it doesn’t rely on any administrator or central banks.

The coin became an alternative currency where it was used in transactions in 2009 for solving financial payments. It is a decentralized, digital, autonomous, and digital currency.

Users also have full access and control of their money, and setbacks- such as unfair regulations and frozen funds- are removed.

Today we will not just be sharing the various working principles of bitcoin, the process of payments, verification, and other transaction properties to make your Bitcoin usage easy.

Buying Bitcoin

The first step of transacting with bitcoin is by buying or mining. The process of buying bitcoin involves the following step:

  • Step 1- You need to download a digital wallet on your smartphone or computer. This will act as a backup centre when you will carry out your transactions and check your balance
  • Step 2- After downloading the wallet, it's time to buy bitcoin. You can purchase bitcoin through an online payment company or directly from crypto exchange platforms. Most of those platforms connect both buyers and sellers together.
  • Step 3- After placing the order and the seller receives your money in their account, the equivalent amount of money you send will be transferred as bitcoin to your wallet.

When the bitcoin enters your wallet, you can then send and receive coins directly into your wallet. Read more here.

Bitcoin Withdrawal

Withdrawal is another transactional property of Bitcoin. The entire process of withdrawal is to transfer money from one wallet to another. The wallet is what has the details of your personal address and that of the user. It contains 34 letters known as public keys.

The public keys can be sent to anyone as it does not reveal any personal details of the owner.

There is also a private key. This key is private, as the name implies is personal. It is made up of various symbols and characters that are needed to sign and send bitcoin.

The private key comes directly from the owner's account and it has a mathematical key. This 64 symbol is important. So, it is mandatory to keep it safe so that an unauthorized person won't have access to it.

When sending a transaction, you will need to provide this private key, alongside the quantity of bitcoin and the receiver's details into the system. The system will then send you a digital signature which you will input into the system to validate your identity.

After the transaction is validated, you are then asked to confirm your transaction. This brings us to the next transaction property.

Confirmation of Transaction

Confirmation of the transaction is the last authentication stage before the crypto is sent to the desired recipient. This requirement is what stops any further forgery or tempering of the account.

When a transaction is confirmed, it cannot be revoked or reversed. So, it is crucial that you are aware of where you are sending your funds to.

It is also worth noting that confirmation of bitcoin transactions is different when it comes to mining. This is because it has to go through various approval by network nodes.

The transfer goes through 6 stages before it is complete. The confirmation time is influenced by the transaction fee and the activity of the network. When transactions are pending, miners take longer to process them.

It usually takes about 10 minutes to process a block of Bitcoin. So, going through the entire six stages will then take about one hour before the transaction is successful. Read more here.

If we also have to consider the entire volume of transactions and the network activity, then the transaction process can even take several hours to be completed.

Transaction Fee

The transaction fee for every Bitcoin trade is dependent on its size. The lowest fee is calculated as 60 Satoshis per byte.

So if you are transacting about 300 bytes, the 300 bytes is multiplied by 60. The total transaction fee is then equal to 18,000 Satoshis, and you must pay it before the transaction is confirmed.

Fortunately, you don't have to worry about the transaction fee as your wallet will calculate it for you.

Conclusion

The knowledge of Bitcoin and its function in the economy is now becoming more and more. This is because it is becoming more stable and volatile.

Although Bitcoin transactions are public it is important that one pays attention to safety when engaging on any Bitcoin transaction.

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)

Give Feedback