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Many people, media outlets, and companies have jumped into the crypto industry, embracing its uses and benefits. What was once thought to be a passing trend has become embedded in today's global finance and does not appear to be going away anytime soon. This is extremely astounding for something that has just been around for a decade compared to fiat money's enduring history.
The crypto industry is growing fast and easy, but don’t worry because it is never too late to join its vast market and blockchain technology. However, before doing so, it is highly crucial that you understand how these innovations work. While we won’t deal with any heavy cryptography, allow us to walk you through in the simplest terms how transactions work with Bitcoin (BTC), since it is known as the world’s first digital currency.
Bitcoin on the blockchain
Pseudonymous inventor of BTC, Satoshi Nakamoto, wrote on the coin’s white paper that the reason behind its creation was to provide a ‘trust-less’ cash system. It aims to solve the challenges posed by or linked with fiat currencies. These include removing third party middlemen that/who conduct digital money transactions, and, in such a way, obtain significant costs for doing said services.
Getting started with Bitcoin is totally modernly groundbreaking. Its overall objective is entirely different because it is a decentralised system. Meaning, you can do transactions (e.g. transferring, paying and receiving funds) to/from anyone within seconds with minimal to no transaction fees. This is because all of these financial records occur on a public, anonymous, distributed, and immutable ledger called the blockchain.
Blockchain is called as such because every single record input to the system is referred to as a ‘block’. All together, they are linked and form a long, sole list structure we call a ‘chain’. Here is a step-by-step guide on how each transaction is quickly and seamlessly done.
- The sender will send a digital signature to the receiver, along with an amount of BTC.
- This message will be sent to the nearest public node in the Bitcoin network.
- The access control will verify it, then they will transmit it to the memory pool or ‘mempool’. It is an area that briefly stores all of the requests before they will be picked up by a miner.
- Miners are those who gather messages and then execute proof-of-work to confirm and add them to the blockchain. To complete a single transaction, they must solve rigorous maths problems. According to the Bitcoin protocol, this entire procedure should take no more than 10 minutes.
- The computers that lend their processing power to the Bitcoin network’s mining called nodes will verify the block before they can add it to the blockchain.
- Miners once again consolidate their efforts into a single block and deliver it back to the network.
- Person B, the recipient, will be notified of the transaction and can now decrypt the Bitcoin through their private key.
An ever-changing market
Digital currencies are familiar and accessible to anyone who uses the digital space. The biggest issue is that only a small percentage of that population believes in their potential since few understand what they are, how they work, and why they are significant. Surely from what you have learned in getting started with Bitcoin on the blockchain, you know the answers to these questions. All of which is imperative, but keep in mind that this industry is ever-changing and growing. The transaction steps might change, so always be in the know to stay updated.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.