Category Archives: Bitcoin 101

Bitcoin 101: Mining Bitcoin – Part 10

For part 10 in my Bitcoin 101 Series, I want to go deeper into explaining what it means to mine Bitcoin.

To start, I think it would be good if you watched a short video. It is less than 2 minutes and really worth the time.

 

Credit for the video goes completely to the site https://www.bitcoinmining.com/

The site isn’t just great because it made a cool video that explains mining really well, but there is a lot more information on that site – including how to get started mining bitcoin for yourself.

I used to mine bitcoin.  I installed the software and followed a youtube video.  It was fun.  The problem was that it wasn’t very profitable. I would encourage anyone who is thinking about doing mining to understand what is all involved with taking this on.

  1. Understand what is all needed for a good mining rig. It might seem silly that you would need to spend a lot of time on this, but there are a lot of options out there that you can use for hardware. The bigger the better and if you don’t have the latest technology and hardware, then you will not be the one collecting the bitcoin reward.
  2. Use a calculator. No I don’t mean a standard math calculator. I’m talking about an online mining calculator. There are a lot of sites out there that do it, but you want one that takes as many factors into consideration as possible. It is important to factor in what your hardware will cost (including the GPU or graphics card that you need) and also how much your electricity will cost.  You will be using a LOT of electricity.
  3. Talk to other people who have done mining.  Yeah they might have not had a good experience, so take what they say lightly. They may tell you to stay away from mining – but ultimately it is your choice. There is a risk in everything you do.
  4. Consider joining a Mining Pool.  There are groups of people that have joined up to form pools. The reason is because it isn’t really that profitable to start mining bitcoin if you are only going to use your own computer at home.  There are huge data centers that organizations now use to mine bitcoin.  (Including John McAfee who – at the time of this writing – was making $55,000 / mo)  If you are going to compete, you may as well join a good team.
  5. To stress how far people have gone to set up a bitcoin mining system, take a look at this video that Motherboard did when they visited a Chinese Bitcoin Mine. The mine generates about $1.5 million per month. At one point they were making over $365,000 per day at the six mines they have.
  6. Do your research. A simple Google search can go a long way.

I will keep this post short.  I just wanted to give you a little bit of information about Bitcoin Mining. I will save the deeper explanation about how it all works for a later post.

Thanks for stopping by. I hope that this helps you further understand bitcoin mining in the new bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

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Bitcoin 101: The Protocol – Part 9

For part 9 in the Bitcoin 101 series, I want to take a dive into the bitcoin protocol.  It is quite a large topic so I probably will not talk about the entire thing, but it is important to step into what the protocol is and what the purpose of it is.

In all phases of life, there are rules.  When you drive your car, you have to obey the speed limit.  However, you are able to go over the speed limit, but if you get caught, there is a consequence. So it seems there is some cushion there so that sometimes you can break the rules. You are OK as long as you don’t get caught. But what about if you tried to go over the speed limit, your car would stop accelerating once you were driving at 55 MPH. Would that be weird?   Yeah maybe a little. But you would also never get speeding tickets.

I see the bitcoin protocol as a collection of rules.  These rules are very well thought out and then written into the source code. The bitcoin software that runs on Nodes and Miner’s computers is called “bitcoind.”  Inside of that software, there are rules that are programmed in so that they are followed all the time by everyone. This keeps things fair for every user of bitcoin.

Shown in the following list are some of the rules that I have learned are part of bitcoin:

  1. A reward will be given every 10 minutes to one of the miners that are solving the math equation and confirming Blocks.
  2. The reward will start as 50 BTC in 2009.  Then it will “halve” approximately every 4 years.
  3. In order for a transaction to be confirmed, it must exist in a block. The blocks must be confirmed by the entire Bitcoin Network. (Or at least a large majority of it.) The blocks are the most secure and fully confirmed when the block your transaction is in is at least 6 layers deep.
  4. When broadcasting a transaction there must be a sender’s and receiver’s public address attached to the transaction so that the software knows where the transaction is going and where it came from.

The rules go on and on.

You could actually categorize the rules even further. For example, there are rules that apply to transactions. There are also rules that apply to sending transactions to the network and how the network propagates the transaction. There are even more rules around how the blockchain exists and what rules have to be followed in order for it to work.

When the planning began for bitcoin, the early developers probably had some very interesting conversations around these rules and what they would be. They had to somehow foresee what kinds of issues there would be and how the rules would correct itself.  The reason that the protocol is so important is that once they started the first Block in the Blockchain, the system would begin running on its own from 1/3/2009, until the end of the Internet.

It fascinates me that this system would start running in 2009 and then continue running on its own up until present day. (I am thinking that this blog will still be up when the internet is about to crash. )  That really is the whole point:  Create the system so it all runs in perfect harmony and have it run without having to rely on a trusted 3rd party. That is why this invention is so important.

The biggest issue that had plagued digital currency in the past was the “double spend” problem.  It was the issue where a person would spend $10.00 in the digital currency and then right away go and spend the same $10.00 on something else. There was no central ledger to keep track of which transaction was which.  That is the simplest explanation that I can have to explain that.

I hope that this helps you further understand what the bitcoin protocol is and how it relates to the rest of the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

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Bitcoin 101: More about the Blockchain – Part 8

For part 8 in my Bitcoin 101 Series, I want to go deeper into explaining what the Bitcoin Blockchain is.

In my last blockchain post, I started to explain what it is and what some of the concepts are to a blockchain.  I touched on it briefly and I am going to use this post to bring up some more details about it.  As a review, I explained where you can see the Blockchain and how it works. I came across the following video and I think that it will help even more in digging into what the blockchain is. It may seem long, but it is worth watching if you truely are interested in learning what is behind this new technology.  (Video is 22 minutes)


As you can see, it can get pretty in-depth to explain how the entire process works.  Early bitcoin developers took on the vision of Satoshi and built this system from scratch. (To read the first whitepaper, go here.) Today it has been the longest running and most attacked blockchain to this point in history.  While many other exchanges and technologies are failing, the Bitcoin Blockchain has continued to function just as it has since Jan. 3, 2009.

I am still learning about the blockchain.  I started learning about it 3 years ago and I learn more about it all the time.  The best reference I have on it is the book Mastering Bitcoin. Chapter 7 digs pretty far into what it is and the inner workings of it. (Read it here for free!) I would encourage any bitcoin developer to read that and study it.

Thanks for stopping by. I hope that this helps you further understand the blockchain and other parts of the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

Use the following website to fund this site:

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Bitcoin 101 Series Review and Index

I wanted to write a quick post about the series that I have been doing called the Bitcoin 101 Series.  I started writing it so it would be a simple way to explain to new people what Bitcoin was and some of the keywords that users would frequently hear.  I have had good responses to the content and I plan on writing more about it soon.

I wanted to post all of the content and links here in this post so it would be easier for people to find it.

Part 1:  Wallets

Part 2:  Transactions

Part 3:  Money and the Unit of Measurement

Part 4:  The Blockchain

Part 5:  Exchange and Exchanges

Part 6:  Security of your Wallet

Part 7:  Hosted Wallets

Part 8:  More About The Blockchain

Part 9:  The Protocol

Part 10:  Mining Bitcoin

 

Thanks for visiting my site and look forward to any comments or questions you have

 

Bitcoin 101: Hosted Wallets – Part 7

For part 7 in the Bitcoin 101 Series, I want to talk about Hosted Wallets.

Hosted Wallets are websites where you can sign up for an account and have a bitcoin wallet created for you. The wallet can then be used with almost all the functionality of a normal bitcoin wallet except it is controlled and managed by a 3rd party. The 3rd party is the website where it exists.

The best example that I can relate to is Coinbase. (www.coinbase.com)  Coinbase is the company that is a hosted solution for bitcoin wallets that many people have been using. I started using Coinbase back in 2013. Before choosing them, I had looked through a few other wallet vendors. The reason I went with them is because I watched a video where Brian Armstrong talked about Coinbase and the security behind it. The video was done at the Coinbase headquarters and featured Brian and the interviewer talking about the features of the online Coinbase wallet. I found the video to be very insightful without being too complicated for the new bitcoin user to follow along.

Each person that is new to bitcoin has to choose whatever wallet best suits their needs. The important thing to know about hosted wallets is that they have risk associated with them. All hosted wallets control the public and private keys of their user’s wallets. That can be a very bad thing when talking about some really bad hosted wallet websites.

The most popular example of this is Mt. Gox.

When I got started in mid-2013, Mt. Gox had around 70% of the bitcoin market in its wallets.  Most people knew about Mt. Gox and that everyone else was using them. What most of the public didn’t understand at the time was that the company was being mismanaged terribly by its CEO Mark Karpeles.  In March of 2014, I came across the wired story “The inside story of Mr. Gox, Bitcoin’s $460 Million Disaster.”  That story shed a lot of light on what was going on with Mt. Gox from the early stages of the downfall until the end.

The lesson to be learned is that hosted wallets are very risky. There is a chance that the website could either get hacked or it could just shut down at any point in time and the risk of losing all of your funds is real.

Full Disclosure:  I still have over $100 in my Coinbase wallet and it is my most popular hot wallet that I use today. I have also bought the Shift debit card and use it as my primary means of paying for things anywhere that VISA is accepted.

I encourage everyone that is looking to get an online, hosted wallet to do their research. The choice that you make is your own and you will have to live with the consequences – just like the rest of us.

 

 

Thank you for visiting. Be sure to stay tuned to the Bitcoin 101 series where I dig into the various parts of the bitcoin ecosystem and explain various subjects to new users of bitcoin.

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Bitcoin 101: Security of your Wallet – Part 6

For part six of the Bitcoin 101 Series, I want to go more in detail about Security and Wallets.

I started this series talking about Wallets because understanding Wallets and how they work is a good building block for explaining how bitcoin works. It is a fairly simple idea and everything explained after that can build on each person’s knowledge of wallets and the role they play in the bitcoin ecosystem.

I want to start by talking about an example I encountered recently:

A girl named Abby wanted… no… she NEEDED a wallet. She had heard about bitcoin and wanted to get started, but she didn’t yet fully understand a wallet. She got some help from her friend named Tom.  She talked to Tom and told him all about a trip she wanted to take and how she knew a bunch of people around the world that wanted to support her. All of her supporters wanted to send her bitcoin, but she didn’t have a wallet. Tom knew how to create a wallet so he gladly helped her out and they created a wallet together.  Once Abby had her wallet, she told everyone she knew about her brand new wallet.

A few days went by and Abby heard from so many people that were excited for her trip that was coming up. She went to look at her new wallet and – shockingly – her balance said:  BTC 0.00000

Abby was very confused. She knew people had sent her funds but the balance said zero?  How could this be?

The story goes similar to this:  Tom had a friend named Brian. Brian knew that Tom was setting up a wallet for Abby. Brian wasn’t very good friends with Abby but they lived in the same neighborhood and they both talked to each other every so often. The truth is that Brian wasn’t actually a very good guy. Brian had been in trouble before and he was always needing money. Somehow Brian had oversaw an email that Tom had received regarding Abby’s bitcoin wallet. Brian was able to use Abby’s password to her online hosted wallet and he logged in under her account and sent the bitcoin to a brand new wallet that no one else knew about. From that wallet he sent the full balance of bitcoins even further long to some more wallets that he was in control of. Before long, the trail was so long it was almost impossible for anyone to track down Abby’s original bitcoins.

The lesson here that Abby had to learn is that even though she trusts Tom, there are some people that Tom knows that aren’t very good people. They may seem helpful and friendly, but human nature tells us that if a person can take money and get away with it, then they might do that. You have to protect yourself.

Here are the two biggest items that you MUST protect if you want to keep your wallet secure:

(1) Password – if you sign up at a site like blockchain.com or coinbase.com or some other Online Hosted Wallet, then your password is going to be VITAL. The other password you will want to keep secure is your email password. If you lose your password on your hosted_wallet_account, you can request a password reset. They will send that to your email.

DO NOT SHOW or TELL ANYONE EITHER OF THOSE!  If you have to, start a new email address!

(2)  Bitcoin Wallet Private Key – every wallet has a public key and a private key. They mean exactly that:  Private and Public. The public key is the one that you give out to other people. That is how they send you money. Just like your email address is how people send you email. Your bitcoin public address is how people send you bitcoin. However, your private key should only be seen by you and only you.

If someone else should see either of these, your wallet is at risk of losing all of your bitcoin.

On a related note, since bitcoin is a decentralized network there are more and more applications being developed for bitcoin that revolve around the security being on the individual level. This is a change in shift from banks and other centralized institutions that have always had hosted servers sitting under their control. One of the big ways that the focus is shifting to users is by putting all of the responsibility about security on each bitcoin user. That is vital to understand:  wallet security is of the highest importance in the bitcoin ecosystem. This cannot be said enough. You can ask anyone familiar with bitcoin.

On final note:  if you want someone to show you how to create a wallet – then have them show you – but do not use that wallet. Go and make a brand new one… after you learn how… all by yourself. I highly recommend doing this by yourself. If you have anyone around you, then you could be putting your funds at risk. This is more than just trusting another person. There is no fallback like traditional financial systems. There will not be any help if someone else knows your private key or password. The funds will just be gone.

I hope that this helps you further understand Wallets and Security in the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

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Bitcoin 101: Exchange and Exchanges – Part 5

For part 5, in the Bitcoin 101 series, we are going to look at another part of the bitcoin world:  Exchanges

When you hear the word exchange you will probably think that someone could give you something and then you will give them something in return. That is basically what an exchange is. Previously in history, there was a system of bartering where a farmer would sell some of his chicken’s eggs in exchange for some corn from a different farmer. However, as different goods have different values, the system of currencies and money developed over time.

Now, when you go to the store and you buy some milk it may cost you $2.00. You would exchange your two dollars for the gallon of milk.

A modern day currency exchange is normally reserved for the exchange of currency from one fiat currency to another. When I recently traveled from the USA to Mexico, I exchanged some US Dollars for some Pesos. There was a fee involved, but in the end I got the equivalent value of pesos for what amount of dollars I had.

Bitcoin is different

In the world of bitcoin, it is different than most other currencies you are familiar with. Bitcoin is digital and global. That means that you won’t ever really need to exchange bitcoin into another currency just because you are crossing a border to a country. Bitcoin can be used in almost all countries. (I say almost because there are some countries trying to outlaw it. But overall, it can be taken anywhere.)  It is digital so it isn’t like you have to hide the paper money from anyone. All the bitcoins are stored inside your bitcoin wallet so you only need to make sure that you secure the private keys to your wallet.  I would also suggested adding a password and/or PIN and other security measures to protect it.

Bitcoin Exchanges

There are a large number of exchanges on the internet. When you go there you can do a lot of things. On Coinbase, you can create a wallet, buy and sell bitcoins, check the history of the bitcoin price, and a lot of other things. On shapeshift.io, you can exchange one digital currency for another one.  A good exchange will have a lot of good features for you to use.

Personal opinion:  I would recommend Coinbase because I have used them myself.

Here is the list of all exchanges and what features they provide.

Buy and then transfer

Exchanges – in my book – are meant for only 1 thing:  buying or selling currency. When you go to a site, they may want you to create an account. Even if you create an account and/or a wallet, once you have bought bitcoin at that site, be sure to transfer your entire balance to a secure wallet that you are comfortable with. Do not leave any bitcoin in an exchange account that you aren’t willing to lose. That is what happened to many people with Mt. Gox. At the time that Mt. Gox froze everyone’s accounts, they held about 70% of all bitcoins in circulation. It caused a big black eye for anyone using bitcoin at the time as well as new users that just entered the bitcoin world. It was a very sad point in time for the history of bitcoin.

On a personal note, I started learning about bitcoin around the time that Mt. Gox was so big and popular. They were the biggest exchange in use at that time (mid 2013) and if I had known more about bitcoin and how to set up a wallet there, I may have also been a victim. I have sympathy for anyone who used Mt. Gox because it was horribly managed and in the end caused so many terrible things to happen to the entire history of bitcoin.

One of the problems that made Mt. Gox such an easy target for hackers is that they tried to do too many things:  wallet service, exchange, payment processor and other processes. If a company wants to do all of those things now, they have a team of people to handle each area. A lot of sites are focused on being either an exchange or something else – like a hosted wallet service.

DO YOUR HOMEWORK!  

Be sure to read up on an exchange before you do anything. Look at their history and talk to other people that use the site. Sometimes even a quick google search can reveal a lot.

Exchange Rate

For a quick look at what bitcoin is worth, find a good exchange site that is interactive and applies to your countries’ currency. For USD, I use preev.com.  It allows me to put in partial amounts and then convert in real-time what it is worth.

For a look at what the exchange between USD, BTC, and the Ghana Cedi is, I created the follwoing chart:

Picture1

It shows what the smallest unit is for each currency is and what the value was in October 2015.

Conclusion

Thanks for stopping by, If there are any of these points that need clarification, feel free to shoot me an email or use the Contact form. Be sure to stop back and see other postings in the Bitcoin 101 series.

 

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Bitcoin 101: The Blockchain – Part 4

In part 4 of the Bitcoin 101 series, we are going to dive into the Blockchain. We are going to answer all of the important questions you might have:  What is it?  How is it used?  Why is it important?

Editor’s note:  this may become too big to put all in one blog post so it may be spread out over a few different posts.

What is it?

The blockchain is a public ledger of transactions.

That is the simple answer. In truth is that the blockchain is a lot of things all combined into one giant moving system. In order to keep this simple, I will only include specific details to start and then grow on this topic until everything is covered.

When I talk about “the blockchain” I am referring only to the Bitcoin Blockchain. There are many other blockchains out there, but the bitcoin blockchain is the one that started the blockchain movement and it has been around the longest. For now I am going to stay away from talking about other blockchains out there and only focus on this one.

The blockchain is a series of blocks that are connected – one after another – starting from the genesis block all the way up until present day – which is the block that was just formed within the last ten minutes.

Taking a step backwards, you should by now know what a transaction is. (If not, see this previous posting about it.)

How does it work?

When a bitcoin user sends a transaction out to the bitcoin network to get confirmed, a miner takes it and puts it into a block – along with hundreds of other transactions. All the transactions that are in the “winning” block are confirmed  – on the network by all the other miners – and that block is added to the blockchain. That is the newest block in the blockchain. The software that runs on the miner’s computers (called bitcoin core or bitcoind) can see that the next block is correct and automatically starts trying to confirm the next block in line. The software also knows that a new block needs to be confirmed every ten minutes. If it is taking the miners too long to solve the math equation, the difficulty is lowered. If the blocks are being confirmed too fast, the difficulty is increased.

I’m not going to get into mining or miners right now. That will be in a different Bitcoin 101 post.

Hope you are still with me. I want to tell you everything, but I am trying to pace myself so that I don’t lose you. If you are about to get lost, take a break and come back to where you are at. There is a lot to understand this and I will do my best to tell you everything you need to know without losing you along the way.

OK so where is this blockchain? Can I see it somewhere?

The blockchain exists all over the world. By now it is in almost every country. (They are also trying to put it in space.)  This is what everyone means when they talk about how the bitcoin network is decentralized. It means that no one person has control over it. It is running independently on thousands of computers all over the world. It does still communicate to other miners and nodes through the internet. Inside of this software is a copy of the entire bitcoin blockchain. In fact when it first is turned on – before the software can do anything – it loads all current blocks/transactions from other nodes. Only when it is completely up to date is it able to move on to the next process that is coded to run.

You can see it out on the internet at various sites like blockchain.info or Block Explorer. Go take a look for yourself. Find the latest block number. See if you can look inside of a block and find some transactions that took place. It will help you to understand better.

When someone talks about Full Nodes they just mean the same software that the miners are using except it doesn’t confirm the blocks, it just relays the blockchain information. It is a smaller version of the same Bitcoin Core software.

That is a high level overview of some of the pieces to the blockchain. There will be more posts coming out in the Bitcoin 101 series that will go into more detail.

Thanks for stopping by!

 

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Bitcoin 101: Money and the Unit of Measurement – Part 3

In the first two topics that I have covered, I discussed wallets for holding bitcoin and I explained transactions and how they work within the bitcoin ecosystem. For the third topic, I need to explain some more basics about money so everyone can further relate how money works. Based on what is explained, you should be able to understand how to translate all of the terms over to the bitcoin way of thinking.

Before bitcoin started, everyone used fiat money to buy things. A merchant that was selling a hat – for example – would set the price of a hat at a certain price. For this example I will say that the hat cost $5.00.  If the buyer saw this price as acceptable, they would give the merchant the five dollars in the local currency. (I will use US Dollars for this example.)  The buyer would get the hat and the merchant would get the five one-dollar-bills.

 

The Six Truths

There are six truths that applies to any currency:

1. scarcity – supply cannot be manipulated like fiat money which causes the boom and bust cycles in the economy

2. durability – gold and silver will not rot which makes them a great store of value

3. fungible and divisible – they can be divided into small, interchangeable amounts which make them ideal for trade.

4. portable – Their high concentration of value allows you
to carry and store substantial value

5. proven – gold and silver have been used as money for over 6000 years of recorded history.

6. use value – both gold and silver have tremendous use value in industry. The highest use value though is in their role as money

 

 

Value

Each dollar represents one US dollar. Everyone that uses the dollar (or your currency) understands what the value of that dollar is and what it can buy.

The smallest unit of measurement in USD is the penny and has a decimal place of 0.01. It is the smallest unit needed for that currency.

Now I am going to translate all of that into the bitcoin way of thinking.

Exchange Rate

The price of one bitcoin can move up and down so much, it is a good idea to keep an eye on the exchange rate. Yesterday it might be worth $250. Today it may be worth $300. It is hard to predict for the average user. (Here is the site I use for viewing the exchange rate.)  Knowing what a bitcoin is worth helps merchants set the price of goods and it helps buyers/users understand what one bitcoin is worth.

Since the price of bitcoin can change so rapidly, when you go to buy or sell bitcoin, there will be a specific buy and sell price. Exchanges do this because they anticipate the currency moving in a certain direction and try to minimize the difference between what the value is when it is first agreed-upon-purchased and when it is actually purchased. When you go to buy bitcoin for the first time, you will see that difference.

Unit of Measurement

The smallest unit of measurement in bitcoin is called a Satoshi and in decimal format it looks like this:  0.00000001. There are a total of 8 decimal places.

Having eight decimal places is a really good idea because this currency is global and it can represent much smaller units of measurements in currency where they have small value.

USD            BTC                 CEDI (GHS)

0.01 =    0.00004038   =   0.0381

Shown here is what an American Penny looks like across all three currencies. Instead of having a standard 2 digit unit after the decimal place, it can go all the way to eight places and is more accurate to show value.

This concept of measurement in bitcoin can be a difficult one for most people to understand. I wanted to have one of my blog posts about this because when this is understood, you can start to understand bitcoin better overall.

Physical vs. Digital

Bitcoin is a digital currency so there is no physical money to hold on to. This is also something that can be difficult for anyone to understand. Bitcoin is held in wallets and the value is shown as the balance on your wallet. For some older people, it will not make any sense that you cannot hold any piece of paper or coin.  There are some companies that still do produce a physical coin, but that is not very common. Since all transactions are digital and users within bitcoin do not normally use physical coins, the whole idea is more for having souvenirs then for any real purpose. Bitcoin – as a digital currency – means it is made to exist inside of the digital world. Not physical.

It is a similar thought from when people would move from writing physical letters to people to then using email to write letters to people. There was no longer a stamp needed to send the letter. You didn’t have to put the letter into an envelope so that is would stay private. Email is free to send and receive and it is basically private between the two users.

Summary

Some of these concepts translate easily and some are harder to understand. For further explanation, please contact me and I can further explain in better detail. Understanding these basics will help to further your knowledge of bitcoin. That will help you feel more comfortable when you start to use bitcoin in the real world.

Thanks for stopping by and stay tuned for our next topic in the Bitcoin 101 series!

 

Donate any amount to this address to help fund this site:

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Bitcoin 101: Transactions – Part 2

In part 2 of the Bitcoin 101 series, I am going to go over a very simple view of what transactions are in Bitcoin.

If I was going to send you 1 bitcoin, that would be 1 transaction. It would consist of me – the sender – sending bitcoin over to you – the receiver.

Here is 1 view of what it would look like:

Untitled

That picture is rather silly. But it is the starting point to understanding transactions. (txs)

Bitcoin is a currency that has value. The payment of 1 bitcoin to you would be in exchange for a good or service with a related value. Knowing what a bitcoin is worth at any point in time is very important – so be sure to look at a good exchange rate site if you ever need a reference to that.

All transactions are recorded on a public ledger. All txs are public and can be seen by looking at the bitcoin blockchain. My favorite place to look is at www.blockchain.info.

Whoa whoa whoa you say. Going too fast Brock ….

OK let’s step back a minute. Transactions happen because a certain amount of bitcoin is moving between people. A better way to think about it is that bitcoin is moving between two wallets. (If you need to know what that is, see my previous post about wallets.)

The owner of the wallet sends bitcoin to another wallet. So in this case, I would be sending 1 bitcoin from my wallet to your wallet.

All good wallets should have the ability to send and receive bitcoin. Once I put in your wallet address and hit send, there should be a notification to me that bitcoin was sent from my wallet. If you have a good wallet, then it should also notify you that there is a transaction headed your way. That transaction is considered unconfirmed.

 

Stay with me here… I will try to wrap this up very soon…

The unconfirmed transaction goes from my wallet and it lands on the next closest NODE that is in the bitcoin network. Once the transaction has been added to the next block on the blockchain by miners, it becomes confirmed and you see the bitcoins show up in your wallet. They are now yours!

Editor’s Note:  For more details on each of these, follow any of the links above. (Trying to keep this post short)

Important Points:

  1. New blocks are confirmed (on average) every 10 minutes, so you may have to wait that long before the transaction is confirmed.
  2. When you get ready to SEND bitcoins to another person/wallet, keep in mind that YOU CANNOT REVERSE BITCOIN TRANSACTIONS!  You just can’t. There are no chargebacks. This is a good and bad thing. It is the same as cash in the fact that if you give a stranger a dollar and he or she walks away, you cannot get that dollar back. Same goes for bitcoin. So just be sure you are meaning to send that money when you are hitting SEND.

 

Here is what a confirmed transaction looks like:

confirmed-transaction

There are a lot more details, but for now that is a high level overview of what a transaction is and how it moves from one wallet to the next.

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