How are Bitcoin transactions made?

payment systems

Unlike bank accounts and other payment systems, Bitcoin addresses are not tied to the identity of users on a protocol level!

Bitcoin is a type of cryptocurrency, or electronic cash. It was created to function as a peer-to-peer payment network where you can buy services/items in exchange of bitcoins.

There is no central authority or middlemen, the network is powered by the users and a system which is in place to check the validity of transactions. This Transactions are the result of exceptionally clever data structures, cryptography, and simple non-turing-complete scripting.

Bitcoin transactions are messages, like email, which are digitally signed using cryptography and sent to the entire Bitcoin Network for verification.

When a transaction happens, a transfer of value is made between Bitcoin wallets and gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet.

private key

Among this data are transaction inputs and outputs. Inputs refer to Bitcoin addresses used to send bitcoin from, and can only be spent using the private key associated to that address. Outputs refer to addresses used to send bitcoin to.

Transactions made in bitcoin or another cryptocurrency are recorded publicly and can be found on the digital ledger known as the blockchain, which makes using Bitcoin safe, and simple. The history of every Bitcoin transaction leads back to the point where the Bitcoins were first produced.

Bitcoin Mania

Bitcoin's value changes rapidly!

At the height of Bitcoin Mania, the price of Bitcoin almost reached $20,000. Than it crashed and hit as low as $5,883.

The value of a Bitcoin fluctuates based on supply and demand. In other words, the price is determined only by what the market is willing to pay. If more people want to buy bitcoins, then the price will increase. Bitcoin is very unpredictable when compared to more established currencies and commodities.

[See: The rise and fall of Bitcoin, the cryptocurrency King]