Bitcoin transactions are digitally signed and are sent to and from electronic Bitcoin wallets. The history of a transaction on a Bitcoin can easily be traced back to the production point. The idea of having a Bitcoin is to spend it even though some people like holding it waiting for prices to shoot.
Agam Berry notes that one funny thing about Bitcoins is that they are neither here nor there. You can have Bitcoins, but when you look at your Bitcoin address, you may not see any Bitcoins registered on it. It’s just not a physical object you can point at.
The key thing to watch is transactions, and that’s what you see between different Bitcoin addresses. The Blockchain is a vast general ledger that stores every transaction that takes place in Bitcoins. If you want to establish the balance of a given Bitcoin address, you must view the block chain.
Agam Berry: What’s the Nature of Bitcoin Transactions?
Agam Berry explains this concept by using an example. If John sends some Bitcoins to Mary, three pieces of information including input, amount and output will be generated from this transaction. Input indicates which Bitcoin address was used to send the Bitcoins to John in the first instance (say from Ken), amount represents the amount of Bitcoins John is sending to Mary and an output is Mary’s Bitcoin address.
You need two things to send Bitcoins; a private key and a Bitcoin address. Agam Berry posits that, unlike a bank account, you don’t need an ID and loads of paperwork to set up a Bitcoin address. These addresses are simply sequences of numbers and letters generated randomly. The private key is another set of random letters and numbers, which the user must keep secret. Everyone knows what’s in your Bitcoin account put only your private keys can access it, and that’s why it must be kept secret.
If you want to send Bitcoins, you need your private key to sign a message with the input, amount and the output. You then send them from your Bitcoin wallet to the Bitcoin network. Bitcoin miners will then verify the transaction, putting it into a transaction block to be solved.
Agam Berry says that you have to wait until the miners have finished mining for your transactions to clear, because it must be certified. The standard time for mining a Bitcoin is usually 10 minutes although some merchants may keep you waiting longer to get your digital goods, because they may prefer to wait for the block to be confirmed.
However, Agam Berry adds that some merchants don’t wait for the transaction to be confirmed. They put their confidence in you hoping that you won’t spend the Bitcoins somewhere else before the transaction is confirmed. This is usually the case with low value transactions, where chances of fraud are minimal.
According to Agam Berry, it is possible to send a transaction as small as 5430 Satoshis on the Bitcoin platform. A Satoshi is 1 millionth of a Bitcoin. Many miners are able to process transactions free of charge, but this is likely to change when block rewards for Bitcoin decreases. At the moment, you cannot get receipts for your Bitcoin transaction, but changes have been proposed to make the system more efficient.