How do Bitcoin transactions work?

Bitcoin transactions are sent digitally to and from electronic bitcoin wallets, they are cryptographically signed which makes them secure. Everyone that participates on the network will be confirming transactions in a peer-to-peer manner. The history for every transaction can be traced on the public ledger known as the Block chain.

How it works

There are no bitcoins as such, only distributed records of transactions

The thing about bitcoins is that they don’t exist anywhere, not even on your computer or your hard-drive. You cannot point to a physical or digital object and say “There lies my Bitcoin.”. Instead there is a public record that keeps track of all movements between bitcoin addresses.

Here’s a quick demonstration.

If Ayanda sends some bitcoins to Jamie, we will be able to deduct three things:

  • Input– A record of which bitcoin address was used to send the bitcoins to Jamie in the first place
  • Amount. This is the amount of bitcoins that Ayanda is sending to Jamie.
  • An output. This is final bitcoin address which the Bitcoins were sent to.

What makes it Secure?

secure bitcoin

When sending bitcoins, you need to have the following: a public bitcoin address and a private key. This address is generated randomly, it’s a sequence of numbers and letters. The private key is another sequence of letters and numbers, but unlike your public bitcoin address you must never pass the private key to anyone!


How are bitcoins created?

Bitcoins are brought into circulation using a process known as mining. This is when those that participate in confirming the transactions are awarded when they are the first to complete a chain of transactions known as a block. These are mined one after another to form the blockchain. They were designed in such a way that only 21,000,000 will ever be created by mining, some have calculated that close to 100% of bitcoins will be in circulation by the year 2140.

What are the transaction fees?

Transaction fees are rather complicated as they are determined using various options. Certain bitcoin wallets allow you to set your own transaction fees. A predetermined portion of a transaction that isn’t picked up by the receiver will be a fee. This will be awarded to the miner lucky enough to solve the transaction block as an additional reward.

Can I only send part of a bitcoin?

A bitcoin is divisible into 100,000,000 parts known as Satoshis, named after bitcoins anonymous creator, 1 “Satoshi” = 0.00000001 BTC this means you can send the smallest micro-payments a minute fraction of R0.01