Transaction in Bitcoin Network

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A sample bitcoin transaction

·       X PERSON wants to send some bitcoin to Y PERSON. Essentially, a BTC transaction is consist of three parts:

 

·       An input:

o  This is a record of the BTC address from which X initially received the bitcoin he wants to send to Y.

·       An amount:

o  This is the specific amount of BTC X wants to send Y.

·       An output:

o  This is Y's public key; also known as his 'bitcoin address'

How does a bitcoin transaction work?

·       Sending BTC requires having access to the public and private keys associated with that amount of bitcoin.

·       When talk about someone "having bitcoins", what actually mean is that person has access to a key-pair consist of:

 

1.   A public key to which some amount bitcoin was previously sent.

2.   The corresponding unique private key which authorizes the BTC previously sent to the above pub-key to be sent elsewhere.

Public keys, also called a bitcoin addresses, are random sequences of letters and numbers that function similarly to an email address or a social-media site username.

·       They are public so it is safe sharing it with others.

·       In fact, you must give your Bitcoin address to others whenever you want them to send you BTC.

·       The private key is another sequence of letters and numbers.

·       However, private keys—

o  like passwords to email or other accounts, are to be kept secret.

 

Never share your private key with anyone that you do not 100% trust to not steal from you, ever.

·       Also, remember to backup private keys with pen and paper and store them somewhere safe.

·       Your Bitcoin address is basically a transparent safe. Others can see what's inside but only those with the private key can unlock the safe to access the funds within.

 

In our example transaction above, X wants to send some BTC to Y.

·       To do this, he uses his private key to sign a message with the transaction-specific details. This message is then sent to the blockchain and contains an:

·       input:

o  the source transaction of the coins previously sent to X's address

·       amount:

o  some amount of BTC to be sent from X to Y

·       output:

o  Y’s public address.

 

·       This transaction is then broadcast to the Bitcoin network where miners verify that X's keys are able to access the inputs (i.e. the address(s) from where he previously received BTC) he claims to control.

·       This confirmation process is known as mining because it requires resource-intensive computational labor and rewards miners, in BTC, per block solved.

·       This is also the process by which new Bitcoins are 'created'.

 

Why do some bitcoin transaction confirmations take so long?

 

·        All Bitcoin transactions must be verified by miners on the blockchain.

·        Note, miners do not mine transactions; they mine blocks which are collections of transactions.

·        Sometimes your transaction gets left out of the current block and gets put on hold until the next one is assembled.

·        The Bitcoin protocol dynamically adjusts requirements to have each block take approximately 10 minutes to mine.

·        Another reason for long confirmation times is that blocks are limited to 1MB by the current Bitcoin protocol.

·        This arbitrary limit can be increased but for the present it limits the amount of transactions that may enter a block which effectively slows down confirmation times and by extension, the entire Bitcoin network.

 

A peer-to-peer computer process, Blockchain mining is used to secure and verify bitcoin transactions. Mining involves Blockchain miners who add bitcoin transaction data to Bitcoin’s global public ledger of past transactions. In the ledgers, blocks are secured by Blockchain miners and /are connected to each other forming a chain.

There are two ways to mine bitcoins.

1.   Mining bitcoins on cloud

2.   Mining bitcoins on your own

 

Mining Bitcoins on Cloud

·       Obtain a bitcoin wallet: Bitcoins are stored in digital wallets in an encrypted manner. This will keep your bitcoins safe.

·       Secure the wallet: Since there is no ownership on bitcoins, anyone who gains access to your wallet can use it without any restriction. So, enable two-factor authentication and store the wallet on a computer that does not have access to the Internet or store it in an external device.

·       Choose a cloud mining service provider: Cloud mining service providers allow users to rent processing or hashing power to mine bitcoins remotely. Popular cloud mining service providers are Genesis Mining and HashFlare.

·       Choose a cloud mining package: To choose a package, you will need to decide on how much you are willing to pay and keep your eyes open to the hashing power the package will offer. Cloud mining companies will mostly envisage the Return on Investment (ROI) based on the current market value of Bitcoins.

·       Pick a mining pool: This is the best shot you can get to earn bitcoins easily. There are many mining pools which charge a mere 2 percent of your total earnings. Over here, you will have to create workers which are basically subaccounts that can be used to track your contributions to the pool.

·       Put your earnings in your own secure wallet: Whenever you witness an ROI, simply withdraw your earnings and put them in your own secure wallet.

 

Mining Bitcoins on your own:

·       Purchase a custom mining hardware: You need to purchase an Application-specific Integrated Circuit (ASIC) miner to mine bitcoins. While purchasing an ASIC Blockchain miner, you should consider its efficacy in hashing power and take a note of its pricing policies.

·       Purchase a power supply: Blockchain miners consume a lot of power. So, get a dependable power supply which is compatible with the ASIC miner that you purchase.

·       Obtain a bitcoin wallet: Bitcoins are stored in digital wallets in an encrypted manner. This will keep your bitcoins safe.

·       Secure the wallet: Since there is no ownership on bitcoins, anyone who gains access to your wallet can use it without any restriction. So, enable two-factor authentication and store the wallet on a computer that does not have access to the Internet or store it in an external device.

·       Pick a mining pool: This is the best shot you can get to earn bitcoins easily. There are many mining pools which charge a mere 2 percent of your total earnings. Over here, you will have to create workers which are basically subaccounts that can be used to track your contributions to the pool.

·       Connect the power supply to the ASIC Blockchain miner.

·       Connect the ASIC Blockchain miner to your router.

·       Boot up your ASIC miner.

·       Enter your router’s IP address in a web browser.

·       Find ‘connected devices’ in the router miner page.

·       Find your ASIC miner and click on it to display the device information.

·       Copy and paste the IP address of your ASIC miner into your web browser.

·       Log in to the ASIC miner with the default username and password that are ‘Root’ and ‘Root.’

·       Select ‘Miner Configuration’ to set up the miner according to your preferences.

·       Enter the URL, username, and password for your mining pool on the Miner Configuration page of the ASIC Miner.

·       Click ‘Save and Apply’ to save your credentials for future use.

·       Start mining and in periodic intervals check your profitability.

·       Put your earnings in your own secure wallet: Whenever you witness an ROI, simply withdraw your earnings and put them in your own secure wallet.