Home Technology How Bitcoin Executes Financial Transactions!!


How Bitcoin Executes Financial Transactions!!

What is Bitcoin?

Bitcoin is the First Decentralized digital currency popularly known as cryptocurrency. Several currency exchanges exist where you can buy or sell Bitcoins for dollars, Euros and various other currencies of the world. Wallets can be used from computers or mobile devices. Sending Bitcoin is like sending an email. Bitcoin is basically controlled by all Bitcoin users around the world. But how do Bitcoin transactions actually work? Let’s simply preview it from a user perspective and later on as what happens in the backend.

How Bitcoin operates transactions?

If you view from the user’s perspective, Bitcoin is nothing more than an application that provides a personal Bitcoin wallet. Wallets enable a user to send and receive Bitcoins with them. This can be achieved by entering receivers Bitcoin address (output address), the address from which the sender got Bitcoin(input address) amount that needs to be transferred and 64 digit alphanumeric code (private key). Once validated the Bitcoins are transferred from the sender’s account to the receiver’s account.

Behind the scenes, there is a public Ledger which is an open record of Bitcoin addresses (34 digits alphanumeric code)of all entities holding Bitcoins. When a sender intends to transfer the Bitcoin to the receiver, then all information like output address, input address and amount are confirmed by a secured private key which is known to the sender only. Bitcoin address and private key are interlinked in such a way that you cannot establish any relation. So even with the public Bitcoin address, you cannot judge the private key. 

Once that information is confirmed, the transaction goes in a “block” which gets attached to the previous block making it a “blockchain. With this information, the program generates a digital signature, which gets sent out to the network for validation.   

How Bitcoin Security Works

The Bitcoin is secured by an individual called miners. Miners validate the transaction by punching digital signature and public key into the Bitcoin program. The transaction further gets validated by Bitcoin only if the signature made with the private key corresponds to that public key, without the private key. The network then confirms that the sender holds the Bitcoin that it has not been spent previously. This is possible as all transactions are public on the Bitcoin ledger. Miners are rewarded with newly generated Bitcoins for verified transactions. After transactions are verified, they are recorded and updated in the transparent public ledger.

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