April 24th, 2018
Blockchain technology is one of the latest innovations and it is getting a response from around the world. It is the underlying technology behind digital currencies(Bitcoin) which has been making the news last year for its sudden price surge. Apart from digital payments, blockchain technology has tremendous potential which is one of the reasons it has become so popular. People from around the world are showing interest in this new concept and it’s easy to see why. Blockchain is a digital record of different transactions taking place between several Bitcoin addresses. All of these transaction records are updated by the network across every node as the balance increases and decreases.
Sending information into the blockchain, requires access to both public and private keys. When someone wants to send or receive digital currencies, that person must have:
Public keys are also called Bitcoin addresses, a public key is a sequence of numbers and letters that function similarly to an email address. This is made public so that any user can feel safe sharing it. If you want your friends or someone to send digital currencies to your account, you need to send them the Public Key or “address”.
The private key is also a sequence of number and letters. However, private keys are like passwords and thus, need to be kept secret. It’s a good idea to backup private keys safely. You can write it on a piece of paper and store it safely somewhere that only you know about.
Bitcoin’s public key is transparent and safe, everyone can see what’s inside, but the only those with private keys can only unlock it or access the funds.
For Example: Suzy wants to send some digital currencies to Billy. To carry out the transaction, Suzy uses her private key to sign on to create the transaction details. This message is sent to the blockchain and it contains:
The transaction is then broadcasted to the core network, where miners from different places verify Suzy’s key and allow her to access the input. This confirmation process is called mining and it requires intensive computation labor, but comes with big rewards. Miners are rewarded with digital currencies per block solved. This is the process for how new digital currencies are created.
All digital currency transactions are verified by miners. It is important to note here that miners don’t mine transactions, blocks are mined which is a collection of the transactions. Sometimes a transaction gets left out of a block and is put on hold until the next one is assembled. This can take up to 10 minutes to mine.
Another reason why blockchain transactions take long to confirm, is that blocks are limited to only 1MB. This limit can be increased, but for now, it limits the number of transactions which can enter the block.
Blockchain Transaction Fees
Blockchain transaction fees are calculated based on various factors. Some digital wallets allow users to set transaction fees manually. Any part of the transaction that isn’t owed to the recipient or returned, is included as a fee. These fees go to miners are used to increase speed on confirmation by giving them an incentive to prioritize transactions.
The relation between miners, transactions, and blocks is a fundamental aspect of the whole system. It is essential to understand all of these basic concepts of receiving and sending Bitcoin, so things like fees and confirmation time make sense.