Bitcoin was initially created to operate as a form of P2P electronic cash. So whether you are accepting bitcoin as payment or spending on it, it is imperative to learn and understand how its transactions work.
Transactions on Bitcoin are more or less like email, except they are signed digitally through cryptography then sent to the network for verification. They are public and appear in a digital ledger referred to as a blockchain. With blockchain technology, the history of all bitcoin transactions can lead back to where they were originally produced.
As a matter of fact, bitcoins only exist as a record of Bitcoin transactions. It’s a chain of digital signatures where users transfer bitcoins to the next simply by signing a hash of the preceding transaction digitally with a public key on the recipient, compounding to the very end of the cryptocurrency.
Payees are able to verify the chain of Bitcoin ownership. Therefore, it is worth mentioning that Bitcoins do not exactly exist per se, at least not explicitly physical as it is with traditional cash. Technically, there are no physical Bitcoins, anywhere. Not on a bank account, spreadsheet or hard drive, nor are they kept in some sort of server stored away somewhere.
The Process of Buying Bitcoin
For starters, it is very important that a user or would-be account holder note how Bitcoin looks like.
Transfer of bitcoin is dependent on access to both the private and public keys that are associated with a specific amount of bitcoin. Having bitcoins basically implies having access to a public key as well as a corresponding and unique private key that should authorize the bitcoin sent previously to that public key.
Public keys are the bitcoin addresses while private keys are such things as emails, passwords and other accounts. Unlike what you would find on a bank statement or an accounting ledger, Bitcoin is not just a single record of a coin. It is instead registered as a transaction comprising three parts – an amount, transaction output and transaction input.
Simply put, the amount is the actual amount of bitcoin that a user sends; transaction output refers to the bitcoin address to which funds are sent while the transaction input defines the bitcoin address from which funds originate. It is highly likely that the bitcoins you opt to send to someone were sent to you by someone else.
The bitcoin in your wallet makes it the bitcoin address under your control. When funds are sent to you, it is actually the address from which they are sent that registers on the Bitcoin network as a transaction output. If these funds are transferred from your account to another, your wallet creates another unique transaction output which typically is the address of the recipient stored on the Bitcoin network.
Should this holder decide to send these bitcoins to another user, their address becomes the transaction input with the recipient’s address being the transaction output. By using this system, therefore, the trading of bitcoin can be traced back to very inception of the cryptocurrency, which pretty much makes it pretty difficult to find the first person to transfer the funds at any point in time.
However, it creates a system that is completely transparent where all transactions can be checked at all times.
Where Do You Buy Bitcoin?
One fundamental question that most people will often have on Bitcoin mainly revolves around the tokens; their history, security and value.
These all lead to one place – the source of the bitcoins.
While traditional or fiat money is minted by central banks, bitcoins are rather mined by Bitcoin miners, who are actually participants in the network tasked with extra responsibilities. They specifically order transactions chronologically by including them in a blockchain.
This is meant to prevent users from spending one bitcoin twice thus solving the double-spending issue. Bitcoin mining in itself is the process through which the transactions are verified then added to a public ledger known as a blockchain.
The term can also be used to describe the process through which new bitcoins are released. Virtually anyone can participate in bitcoin mining provided they have access to the internet and the suitable hardware. The process of bitcoin mining involves compiling all recent transactions into blocks of data then solving a computationally hard puzzle.
Whoever manages to come up with the perfect solution for the puzzle places the next block on the blockchain thus claiming the rewards it comes with. It is the rewards, comprising both the transaction compiled within the block and the newly released bitcoin as well as the transaction fees that incentivize bitcoin mining.
That said, it’s important to note that the best way to buy Bitcoin is through their official website as all the heavy lifting is done for you and all you are left to do is sign up and select the number of bitcoins you intend to purchase.