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Is Bitcoin a dubious form of payment, a speculative hype, or the future of financial transactions? Here’s how to understand the buzz around Bitcoin.
The events behind Bitcoin transactions are more complex than you think. You can hardly send an amount of Bitcoin at once, your bitcoin wallet and Bitcoin network need to undergo series of steps to make sure that the recipient receives the right amount of e-money (electronic money).
What is Bitcoin?
Bitcoin (which is a form of cryptocurrency) is a virtual form of currency. It is like the internet version of cash. You can use Bitcoin to buy products and services. However, not all shops accept Bitcoin as a means of payment, and some countries have also banned it.
Despite these, some companies are beginning to embrace it.
For instance, in October 2020, PayPal announced that it would allow its users to start buying and selling Bitcoin.
How Bitcoin Transactions Work
The Bitcoins you sent to someone were also sent to you from someone else. When they sent the Bitcoins to you, the address they used to send them was registered on a platform known as blockchain (an encrypted and unaccessible register) as the transaction input. Your address was registered as the transaction output on the Bitcoin network.
When you send that Bitcoin to another person, your wallet will create a transaction output (i.e. the address of the person you are sending the Bitcoin to). The transaction will be registered on the Bitcoin network with your wallet address as the transaction input.
When the person you sent the Bitcoin to sends it to someone else, their address will become the transaction input while the other party’s Bitcoin address will be registered as the transaction output.
You need to understand the following terms so that you can understand how Bitcoin works:
Blockchain
Bitcoin and other cryptocurrencies are powered by open-source code referred to as the blockchain. Blockchain creates a shared public ledger. Each of the Bitcoin transactions is a ‘block’ that is ‘chained’ to the open-source code; thereby creating a permanent record of each Bitcoin transaction.
Blockchain technology powers over 6,000 cryptocurrencies that launched after Bitcoin’s success.
Private and Public Keys
A Bitcoin wallet contains a private key and a public key. These work together to enable the owner to initiate and sign transactions; thereby acting as proof of authorization.
Bitcoin Miners
Miners are members of the peer-to-peer platform. They independently confirm the Bitcoin transaction within 10 to 20 minutes (using high-speed computers). Miners get paid in Bitcoin for their efforts.
How To Send Bitcoin
You need to have a Bitcoin wallet before you can send and receive Bitcoins. The actual process of sending and receiving Bitcoin may differ based on the type of wallet you’re using, however, they generally work the same way.
You will choose the type of currency you want (which is Bitcoin in this case), type in the recipient’s address, enter the amount you want to send, pay the transaction fees, and then click ‘Send Bitcoin.’
Should You Buy Bitcoin?
Bitcoin is a very speculative currency that is highly volatile to buy. Stock trading can also give a similar thrill. However, trading stocks of established companies is not as risky as trading Bitcoin.
Sell Bitcoins Africa recommends that you should not invest more than 10 percent of your overall portfolio in Bitcoin.
Increase your knowledge about Bitcoin by learning more about the things you need to know before investing in Bitcoin. You can also check out our guide on reliable Bitcoin investment sites. You will love it.
