Episode 2 - Bitcoin, A Brief Explanation of the Bitcoin Transaction Process.

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Written by

Someone who is learning & earn Crypto.

2 years ago

Topics: Crypto, Cryptocurrency, Cryptocurrencies, Bitcoin

Introduction

Cryptocurrency is a form of digital finance that can be used to buy goods and services, but uses an online ledger with strong cryptography to secure online transactions. The most popular cryptocurrency, Bitcoin, has a very impressive price movement in 2021. Many companies have issued their own currency, often called tokens, and these can be traded specifically for goods or services the company provides. Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across multiple computers that manage and record transactions. Part of the appeal of this technology is its security.

Transaction steps

Most people ask this question. From what is known today, there are many types of crypto coins that have been circulated throughout the world. Of all the coins that exist, initially follow the process from the beginning of all coins, namely Bitcoin. So let's briefly explain how this actually processes. This time we will discuss what happens to Bitcoin transactions from sending to receiving. So basically this process will do 3 big steps along with many processes in it. The 3 Parts are Signature, Broadcasting and Confirmation.

Signature

When you want to send bitcoin funds to someone all you have to do is send them via Wallet (digital wallet), and start sending them. The wallet will respond to the request and create a transaction message containing information about the Sender, Receiver and Amount sent.

The wallet will then create a unique digital signature on this message by mathematically mixing it with your Private Key. Basically a "Private Key" is a long string of letters and numbers that acts as a "Password" for your wallet account. Whoever has your "Private Key", can control your Bitcoin Wallet. A digital signature is a way of proving that you have a "Private Key".

Note : Every transaction made has a different signature.

After signing the transaction message, the Wallet will group the digital signature together with the transaction message which generates a transaction file in the form of a Hash code. In this process the first step of signing has been completed.

Note : A hash function is a mathematical algorithm that converts input values of various sizes into outputs (hashes) of a fixed size. In most cases, the output consists of hexadecimal numbers. This means the hash is often denoted as a combination of numbers (0 to 9) and letters (a to f).
Broadcasting

In this step, the transaction file that has been created will be sent by the wallet to other computers that hold a copy of the Blockchain. These computers are called Nodes.

Each Node verifies that it is legit. It's basically looking to see that you actually have funds that you want to spend. Once your file is verified it is then forwarded to another Node in the network which repeats this process. When a node receives a file, it is stored in a holding area called the Mempool.

Note : Mempool stands for "Memory Pool", which is a space dedicated to valid/legitimate but unconfirmed transactions.

Once the transaction messages find their way to the Mempool from various Online Nodes on the Network, we can say that the second step of broadcasting is officially complete.

Note : Status transaksi dapat dilihat secara online pada web yang disebut Block Explorer.

By using Block Explore we can actually see what is happening with your transactions as they travel along the Bitcoin network. It lets you search and navigate through the Blockchain. Using this you can also check Bitcoin balances from different Addresses, track transactions and get various statistics about the network.

Example of Unconfirmed Transaction. Source Blockchain Explorer

Well, at this point if you search for a transaction via Block Explorer, we will see that it is marked as "Unconfirmed Transaction", meaning that this transaction has been broadcast into the network and its digital signature has been verified but still not from the Blockchain. This means that transactions can still be undone and there is no guarantee that they will go to the Blockchain. If your business sells or delivers goods and you receive payments in Bitcoin, you may not accept transactions that have not been confirmed.

Confirmation

Now we can proceed to the final step, confirming the transaction. If you've heard of Miners, Miners group transactions together, meaning they take the files that are in the Mempool, group them together and create a block of transactions. There is a limit to how many transactions can be included in each block. Therefore miners usually choose the transaction that has the highest mining fee first.

Miners will then compete with each other to get their blocks into the Blockchain. The competition is based on mathematical calculations, and the miner with the most computing power will have the best chance of winning. Once a miner wins the competition and enters His block into the Blockchain, all transactions that are in that Block will be considered as confirmed. Basically, miners are writing Bitcoin transaction history books, and whoever wins the competition will write the next page.

Note : On average, a new block of transactions will be mined, or entered into the Blockchain every 10 minutes. Keep in mind that this is average, sometimes you will get 2 confirmed blocks in 1 minute, and sometimes it can take more than 1 Hour.

If a block is mined with your transaction in it, you will see it now and display in the block explorer as having 1 confirmation (1 confirmation). As more blocks will be mined, the number of confirmations will increase. Each additional Block is installed on top of our own block and that makes it harder to remove. That's why it's usually recommended to wait at least 6 blocks, before considering without the possibility of cancellation. That's the end, your transaction is now fully confirmed and accepted.

In the reading above, it is understandable how this can be called the safest system technology today, this is what makes crypto coins get a lot of fans to enter into it. In the future we still don't know what the continuation of Crypto Currency will look like. No one knows except the Developers.