Bitcoin is a peer-to-peer electronic payment system that allows parties to transact with each other without the need to use any trusted third-party intermediaries. It is an alternative to our traditional financial system, where payments need to be routed through financial institutions
It is against this backdrop of the global monetary crisis that the Bitcoin whitepaper was published pseudonymously by an entity known as “Satoshi Nakamoto”. Satoshi released the Bitcoin whitepaper on a cryptography focused mailing list on 31st October 2008.7 The 9-page whitepaper outlines a new financial system with a new cryptocurrency called bitcoin.
On 3rd January 2009, The Genesis Block started the Bitcoin Network, bringing the world’s first decentralized payment system to life. Genesis block itself means first block of the bitcoin.
Bitcoin is divisible to 8 decimal places. The smallest unit for bitcoin is 0.00000001 BTC, also known as a satoshi. This was named as a tribute to the creator of Bitcoin, Satoshi Nakamoto. This means that you do not need to send or own 1 whole bitcoin but can send small fractions of bitcoin to pay for goods and services.
There are three key variables in any bitcoin transaction: an amount, an input and an output. An input is the address from which the money is sent, and an output is the address that receives the funds. Since a wallet can contain several input addresses, you can send money from one or more inputs to one or more outputs. There is also a data storage portion on each transaction, a sort of note, that allows you to record data to the blockchain immutably.
The unique thing about bitcoin transactions is that, if you initiate a transaction that’s worth less than the total amount in your input, you get your change back not to your original output, but through a new third address in your control. This means your wallet typically ends up containing multiple addresses, and you can pull funds from these addresses to make future transactions.
You’ve learned how to buy and store your bitcoins, so you already know what public and private keys are for, and you’ll need these to issue a transaction. To do that, you put your private key, the amount of bitcoins you want to send and the output address into the bitcoin software on your computer or smartphone.
Then the program generates a signature made from your private key to announce this transaction to the network for validation. The network needs to confirm that you own the bitcoin being transferred and that you haven’t spent it by checking all previous transactions which are public on the ledger. Once the bitcoin program verifies that indeed your private key corresponds to the provided public key (without knowing what your private key is), your transaction is confirmed.
This transaction is now included in a “block” which gets attached to the previous block to be added to the blockchain. Every transaction in the blockchain is tied to a unique identifier called a transaction hash (txid), which looks like a 64-character string of random letters and numbers. You can track a particular transaction by typing this txid in the search bar on the blockchain explorer.