In the Bitcoin context, a transaction represents a single payment moving bitcoins between two parts.
Generally every transaction is identified by a text ID and a number, called respectively Transaction ID and Transaction Output.
What is a Bitcoin transaction?
A Bitcoin wallet is an identification code used by a user to receive a payment. Within each wallet there can be many Bitcoin address, one for every payment received. It is in fact recommended to use each address for a single payment only. Reusing the same address for multiple payments is possible but it could, in fact, harm your privacy and security.
In order to facilitate the transcription of an address, many wallets allow users to represent them as QR codes or insert them through NFC technology.
The easiest way to use Bitcoin is through an app for smartphone or desktop, called wallet. A bitcoin wallet is an tool to contain your bitcoin, just as a normal wallet is for your cash. Thanks to these apps you can easily exchange bitcoin with whoever you wish.
Bitcoin mining is a process needed to avoid double spending attempts (i.e. when somebody tries to spend the same bitcoin more than once), confirm transactions and regulate the emission of new bitcoins.
Since the Bitcoin network is decentralized, no central authority can be in charge of confirming transactions, the process has to be carried out in a decentralized manner.
A system of economic incentives guarantees the security of network, as users are rewarded for good behaviour. The blockchain is maintained by miners, providing computational power (with specific hardware) to verify and successively confirm transactions in exchange for bitcoin – an economic incentive to compensate them for the task performed. Through the mining process, transactions are added to the Bitcoin blockchain. This process is fundamental to confirm to the rest of the network that a transaction has taken place and to avoid malicious attacks to double spend bitcoin.
There are several alternative to purchase bitcoin:
- Buying them from an online exchange;
- Buying them from a private vendor;
- Gaining bitcoin by being a miner;
- Receiving bitcoin as a payment for goods or services.
The Euro, just like any other government-minted-currency, is defined as a “fiat” currency (that is, has a value because it is imposed by an authority) and has legal tender. A currency has legal tender in a certain territory when no one in that territory can refuse to accept it. On the contrary, Bitcoin does not have legal tender and its acceptance is purely voluntary. Among the main differences is the fact that, while the emission of Euro is regulated by the European Central Bank, the emission of new Bitcoin is predetermined and regulated mathematically, offering more long term guarantees for its users (in terms of purchasing power).
Since it is not regulated by central authorities nor governments, the value of bitcoin is calculated based on demand and supply in a particular moment. This is the reason why different exchanges have different prices, because it depends on the demand and supply on their platform. At the moment, the daily fluctuation of bitcoin price is relatively high. The causes count the novelty of the technology, its low market capitalization and the high speculation to which bitcoin is subject to.
No intermediaries: the main advantage of bitcoin is the absence of financial intermediaries. The Bitcoin network is purely peer-to-peer: funds are directly transferred from one user to the other, with no need for third parties or centralized servers. In this way, users have full control over their funds and the transactions they make.
24/7/365: it is possible to send and receive bitcoin everywhere in the world, at any time. There are no restrictions: no bank closing time, no bureaucracy, no borders.
Fast payments: Bitcoin payments are faster than traditional ones, as transactions are confirmed in about 10 minutes. This represent a particular advantage for international transfers, that usually take a couple of days and are subject to high commissions and dependent on the opening times of the institutional intermediaries that carry them out.
Security: last but not least, Bitcoin offers a higher level of security compared to traditional payments. In fact, it is impossible to modify a Bitcoin transaction once it is included in the blockchain. This offers a guarantee against frauds or chargebacks. Furthermore, the protocol minimizes the risk of identity theft and allows users to retain full control over your funds. Users can also decide to use other instruments to increase their security, such as the type of wallet to store their funds.
Being a digital currency, bitcoin can be used in the same way as traditional currencies are. It can be used as a mean of payment or a store or value. You can spend bitcoin in every shop that accepts them: you can buy groceries with them, invest, donate to charities etc.
Being a decentralized network, no one controls Bitcoin, if not all of its users as a whole. The security of network is guaranteed by the process of mining and the system of incentives that encourages miners to behave correctly. Furthermore, the Bitcoin code is open source, meaning that there are many independent developers that are committed to improve the technology, making sure that the code is frequently audited.
