Bitcoin Transactions: How Do They Work

Fundamentals of a Bitcoin transaction, its purpose and outcome. The difference between private and public keys, a detailed explanation of a digital signature and 51% attack

You have already got familiar with the definition of Bitcoin and its legal status, but the best way to understand how its works is to start with transactions.

Sending and receiving Bitcoins only requires a computer (or a smartphone) and a connection to the Internet. Making a transaction, in its simplest form, is broadcasting a message into the Bitcoin network. This message contains the amount of Bitcoins and the address you want to send Bitcoins to. If the transaction is valid, it gets added to the blockchain, and the transfer is complete.

Private Keys and Public Keys

A Bitcoin account is an address. This address holds the history of all the transactions associated with it. This address is called a public key. It looks like a set of 34 random letters and numbers. If someone wants to send you bitcoins, they only need to know your public key.

Sending bitcoins, however, requires you to use your private key to ‘sign’ the transactions, so that other users know that it was actually you who sent bitcoins. Each user has their own private key. A private key is a set of 64 random letters and numbers, and it is used to create the public key. Nobody can use your public key to figure out your private key. Under no circumstance should you tell anyone your private key.

Digital Signatures

To make a transaction, you enter the amount of Bitcoins and the public key of the receiving user. After that, Bitcoin software uses your private key and the transaction details to produce a unique digital signature, which is then attached to the transaction.

The transaction goes out and waits for validation. The Bitcoin system validates the transaction by checking your public key against your digital signature. It does so without even knowing your private key. If it checks out and you have enough Bitcoins, the transactions is validated.

Blockchain

Your validated transaction, along with others, gets added into a block. When the block is successfully mined (after about 10 minutes), it gets added to a chain of other previously mined blocks, a blockchain.

Each block contains the hash of the previous block. This hash is a set of random letters and symbols, which is produced by running all the data in the block through a special mathematical equation called a hash function. This means if someone changes something in a block, they have to change all the blocks after that as well. What makes it even harder is the fact that they have to do it in 10 minutes, before the next block is mined. This ensures the immutability of the blockchain, meaining transactions cannot be changed or reversed.

51% Attack

Mining a block means finding the hash of a block. Each miner uses their computer to find the hash. The total computing power of all miners in the network is called the hashrate. If a malicious person or group possesses more than 50% of the network’s hashrate, they overpower the rest of the miners. They can decide what gets added to the blockchain, thus monopolizing the network. This is called a 51% attack. Now new blocks are mined only by the attackers and only they get the reward. The control over the network gives them the power to reject valid transactions and spend same coins twice.

The success of a 51% attack depends on the total hashrate of the network. The more computing power the network has, the harder it is for attackers to overpower the rest of nodes.

Bitcoin

BTC
Price
3,674 USD 0.93%
Volume, 24h
1,189,297,298 USD
-0.34%
Marketcap
64,191,612,669 USD
52%
Emission
83%

Related news

What Death Spiral? Bitcoin’s Hashrate is Still Climbing

Following a period of sustained bearish sentiment in the Bitcoin mining market accompanied by three notable hashrate reductions in the final third of 2018, the flagship cryptocurrency’s network appears to be back on its way to optimum health. Bitcoin Reverses Hashrate Decline In December, CCN reported that the flagship Bitcoin blockchain’s hashrate dropped by 7 The post What Death Spiral? Bitcoin’s Hashrate is Still Climbing appeared first on CCN
CCN

Coinstar Kiosks Across the United States Will Now Sell Bitcoin, at a Hefty Fee

The same bulk coin-counting machines that turn spare change into bills at the grocery store can now turn bills into bitcoin. Coinme, a Seattle-based Bitcoin ATM company, has partnered with Coinstar to enable Bitcoin purchases at grocery stores in California, Texas, and Washington. Example of a kiosk. Image courtesy of Coinstar Coinstar machines are large coin-cashing kiosks located at grocery stores, drug stores, and other retail locations in the UK, US, Canada, and Ireland. Shoppers frequently use the machines to convert loose change into bills or gift cards. Today, Coinstar operates over 20,000 of these machines across the world. On Jan. 17th, Coinme, the first state-licensed Bitcoin ATM company in the U.S., announced a partnership with Coinstar to offer bitcoin on the coin-counting kiosks. Users are now able to purchase up to $2,500 worth of bitcoin at these machines at select Safeway and Albertson stores in California, Texas, and Washington. Those who purchase bitcoin at one of these kiosks would receive a voucher that is redeemable for bitcoin on the Coinme website. The company advertises the plan as the “easiest and most convenient way to buy cryptocurrency with cash,” but opinions may differ. Steeps Fees and Glaring Exceptions Unfortunately, these Bitcoin ATMs are notorious for their high fees. Each Coinme transaction comes with a 4 percent service fee, not including the trading spread (the difference between the buy and sell price of bitcoin on an exchange), which could make the real cost of buying even higher. For comparison, Coinbase charges a fee of 1.49 percent. When dealing with several thousand dollar purchases, these fees add up. Meanwhile, Coinstar has even steeper fees. Customers that want to count their coins are charged a hefty 11.9 percent fee, for a service that many banks provide for free. The most perplexing part of the announcement is that “coins cannot be used for Bitcoin transactions,” a major selling point for customers who would rather turn their spare coins into BTC. Plans for Expansion If successful, the company plans to expand to other retailers and locations in the United States. Thousands of these machines could be enabled to facilitate bitcoin transactions. Neil Bergquist, Coinme’s co-founder had this to say about the move: “We’re excited to team up with Coinstar to give consumers a convenient and easy way to buy Bitcoin during the course of their daily routines. Bitcoin is no accessible at your local grocery store via Coinstar kiosks, and this offering will make it even easier for consumers to participate in this dynamic new economy.” Meanwhile, according to Coinstar’s CEO Jim Gaherity: “Coinstar is always looking for new ways to offer value to our consumers when they visit our kiosks, and Coinme’s innovative delivery mechanism along with Coinstar’s flexible platform makes it possible for consumers to easily purchase Bitcoin with cash.” Maybe with the novelty and hype around bitcoin, people will overlook the fact that they can buy bitcoin much more cheaply elsewhere. But, for people looking to sample the nascent cryptocurrency, this is a great way to get started. The post Coinstar Kiosks Across the United States Will Now Sell Bitcoin, at a Hefty Fee appeared first on CryptoSlate.
Cryptoslate

Coinstar Machines in Select US States Now Sell BTC Vouchers

On Jan. 17, financial services company Coinme announced that people visiting select Safeway and Albertsons stores in California, Texas, and Washington can now purchase bitcoin core (BTC) through Coinstar kiosks. Coinstar devices are fully automated self-service coin-counting machines and now thousands located in the U.S. market could be equipped to handle cryptocurrency transactions. Also Read: Markets Update: Crypto Prices Drift Sideways While Traders Remain Uncertain Loose Change and Cryptocurrency On Thursday, Coinme revealed that people can now purchase BTC through the coin-counting Coinstar kiosks located in three states. Coinstar machines housed in Albertsons stores and Safeway marts in Texas, California, and Washington can be used to buy up to $2,500 worth of BTC. After inserting fiat into the machine, users receive a voucher with a BTC redemption code that can be redeemed at Coinme’s website. Buyers are obliged to review and accept the Coinstar kiosk’s transaction terms and enter a phone number as well. Coinstar has 20,000 machines located around the world and if the initial launch is successful, the two companies plan to extend the service to additional U.S. markets and retailers. “Coinstar is always looking for new ways to offer value to our consumers when they visit our kiosks, and Coinme’s innovative delivery mechanism along with Coinstar’s flexible platform makes it possible for consumers to easily purchase Bitcoin with cash,” said Coinstar CEO Jim Gaherity on Thursday. Reddit user u/dacoinminster bought some BTC on Thursday morning and uploaded this photo to r/btc, and r/bitcoin.  Coinme Continues to Expand Its Crypto Kiosk and ATM Network Coinme has been in the cryptocurrency automated teller machine (ATM) and kiosk business since 2014 and was the first state-licensed Bitcoin ATM company in the country. Last May the company deployed a slew of ATMs in California, bringing its total locations in the state to 23. Coinme also provides a vertically-integrated digital wallet, digital exchange, and crypto investment services, including IRA and 401K plans. The company says it plans to continue to expand in the U.S. and worldwide and the partnership with Coinstar is part of this major expansion progress. “We’re excited to team up with Coinstar to give consumers a convenient and easy way to buy bitcoin during the course of their daily routines,” said Neil Bergquist, Coinme’s cofounder and CEO. Bergquist added: Bitcoin is now accessible at your local grocery store via Coinstar kiosks, and this offering will make it even easier for consumers to participate in this dynamic new economy. U.S.-based cryptocurrency fans seem to like the idea of Coinstar machines selling bitcoins, as the machines are already very popular for people turning in loose change. Bitcoin users have been testing out the Coinstar kiosks, as a picture of someone purchasing BTC was posted to the subreddit forums r/bitcoin and r/btc earlier today. The machines may do well, given that people dumping large buckets of pennies and nickels now have the opportunity convert that change into digital currency after cashing out their coins. What do you think about Coinstar machines in the U.S. selling bitcoin? Let us know what you think about this subject in the comments section below. Images via Coinstar, Pixabay, and the Reddit user u/dacoinminster. Verify and track bitcoin cash transactions on our BCH Block Explorer, the best of its kind anywhere in the world. Also, keep up with your holdings, BCH, and other coins, on our market charts at Satoshi’s Pulse, another original and free service from Bitcoin.com. The post Coinstar Machines in Select US States Now Sell BTC Vouchers appeared first on Bitcoin News.
Bitcoin News

Hot news

By continuing to browse, you agree to the use of cookies. Read Privacy Policy to know more or withdraw your consent.