This article covers the following:
- What is Bitcoin?
- Bitcoin Transactions
It's the dawn of the new age. Let's not get too far ahead of ourselves. One thing that is for sure though, it is an exciting alternative currency which emerged in 2009.
Created by the anonymous Satoshi Nakamoto, the whitepaper for bitcoin was released in 2009, introducing a peer-to-peer, electronic cash system built on a decentralised network.
Bitcoin's key difference from traditional currencies (fiat money) is the technology which the currency runs on.
This is known as the Blockchain which allows for Bitcoin to have a ledger governed by P2P networks as opposed to the conventional banking system of centralized checks. As bitcoin runs on the blockchain, the need for Third-Party intermediaries is eliminated.
This also decentralizes the transaction verification process as it is now distributed across a P2P network - which means it is not controlled by a single individual or organisation.
Consider this example:
When you send money to a person (John), everyone would know about it and be able to see the amount of Bitcoin that is being sent to John.
For the transaction to be processed, it has to be accepted and acknowledged by everyone else - servers that run on the network called 'nodes' - before any changes in the value of Bitcoin is reflected in your account.
Under perfect circumstances, Bitcoin transactions would take only 10 minutes.
The network is, however, not devoid of faults and transaction times may vary depending on the situation it is faced with.
Bitcoin transactions undergo 2 phases before they are recorded and made official on the Blockchain.
After a transaction request is sent, it gets verified by all Nodes that are available on the Bitcoin network.
These requests are then sent to a pool of data, where they await further processing by Miners.
This is known as the Mempool (Short of memory pool).
If you wish to find out more about what Nodes are, kindly refer to this page.
To find out more about who Miners are and what Miners do, kindly refer to this page.
Phase 2: Mining into Blocks
Transactions that have been sent to the Mempool will get picked up by miners to be organized into a block. This is known as 'Mining' in the Bitcoin world.
These blocks - that are arranged by the Miners - are like your bank ledgers, which is a list of transactional records. This is achieved by Miners running software on their computers to solve maths problems to publish the block. These computers are tasked to solve these maths problems.
The transaction then becomes official and will be recorded on the Blockchain. The recipient address should have the sent amount reflected in their wallet.
To find out more about why such a process is known as mining, you can refer to this page.
Some merchants allow for instant confirmation if you are transacting in small amounts.
If you wish to find out more about Bitcoin, you can read its Whitepaper here.
Alternatively, there are many helpful videos on YouTube that can give you a clearer understanding such as this.
It is a truly exciting development in the world of Finance and Technological innovation and one to keep a watch on going forward.
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