How do bitcoin transactions work?

Last updated: 29th January 2018

If I want to send some of my bitcoin to you, I publish my intention and the knots scan the entire bitcoin network to validate that I 1) have the bitcoin that I want to send, and Two) toevluchthaven’t already sent it to someone else. Once that information is confirmed, my transaction gets included te a “block” which gets linked to the previous block – hence the term “blockchain.” Transactions can’t be undone or tampered with, because it would mean re-doing all the blocks that came after.

Getting a bit more complicated:

My bitcoin wallet doesn’t actually hold my bitcoin. What it does is hold my bitcoin address, which keeps a record of all of my transactions, and therefore of my balance. This address – a long string of 34 letters and numbers – is also known spil my “public key.” I don’t mind that the entire world can see this sequence. Each address/public key has a corresponding “private key” of 64 letters and numbers. This is private, and it’s crucial that I keep it secret and safe. The two keys are related, but there’s no way that you can figure out my private key from my public key.

That’s significant, because any transaction I punt from my bitcoin address needs to be “signed” with my private key. To do that, I waterput both my private key and the transaction details (how many bitcoins I want to send, and to whom) into the bitcoin software on my rekentuig or smartphone.

With this information, the program spitsuur out a digital signature, which gets sent out to the network for validation.

This transaction can be validated – that is, it can be confirmed that I own the bitcoin that I am transferring to you, and that I toevluchthaven’t already sent it to someone else – by plugging the signature and my public key (which everyone knows) into the bitcoin program. This is one of the genius parts of bitcoin: if the signature wasgoed made with the private key that corresponds to that public key, the program will validate the transaction, without knowing what the private key is. Very clever.

The network then confirms that I toevluchthaven’t previously spent the bitcoin by running through my address history, which it can do because it knows my address (= my public key), and because all transactions are public on the bitcoin ledger.

Even more complicated:

Once my transaction has bot validated, it gets included into a “block,” along with a bunch of other transactions.

A epistel detour to discuss what a “hash” is, because it’s significant for the next paragraph: a hash is produced by a “hash function,” which is a sophisticated math equation that reduces any amount of text or gegevens to 64-character string. It’s not random – every time you waterput te that particular gegevens set through the hash function, you’ll get the same 64-character string. But if you switch so much spil a comma, you’ll get a fully different 64-character string. This entire article could be diminished to a hash, and unless I switch, eliminate or add anything to the text, the same hash can be produced again and again. This is a very effective way to tell if something has bot switched, and is how the blockchain can confirm that a transaction has not bot tampered with.

Back to our blocks: each block includes, spil part of its gegevens, a hash of the previous block. That’s what makes it part of a chain, hence the term “blockchain.” So, if one petite part of the previous block wasgoed tampered with, the current block’s hash would have to switch (reminisce that one little switch te the input of the hash function switches the output). So if you want to switch something te the previous block, you also have to switch something (= the hash) ter the current block, because the one that is presently included is no longer juist. That’s very hard to do, especially since by the time you’ve reached half way, there’s most likely another block on top of the current one. You’d then also have to switch that one. And so on.

This is what makes Bitcoin virtually tamper-proof. I say virtually because it’s not unlikely, just very very, very, very, very difficult and therefore unlikely.

And if you want to indulge ter some mindless fascination, you can sit at your desk and observe bitcoin transactions float by. Blockchain.informatie is good for this, but if you want a hypnotically joy version, attempt BitBonkers.

(For more detail on how blocks are processed and on how bitcoin mining works, see this article.)

Related movie: cgminer setup for LTC litecoin mining from one noob to another

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