Welcome to Bitcoin Basics Lesson 5: Transactions and the Blockchain

In Lesson 4, you learned that there’s a wide range of wallet solutions available to you as a consumer. You also learned that bitcoin wallets do not actually store bitcoins, but rather they store the private and public keys used to handle your bitcoins.

InLesson 5, youwilllearn:

· A bitcoin transaction is a transfer of value via the Bitcoin network

· Bitcoin transaction records are not encrypted

· Transactions can be viewed by anyone using a ‘blockchain explorer’

· Transactions must be verified by miners on the blockchain network

· Miners are rewarded with bitcoins for doing verification work

Bitcoin Transactions on the Blockchain

The blockchain is a public ledger where every bitcoin transaction is recorded. The ledger is maintained by a network of communicating computers running bitcoin software. It operates without any central authority.

Transactions are sent to this network using wallet applications. Mining computers and nodes try to validate these transactions. Valid transactions are added to their individual copy of the ledger. Each computer will then broadcast their ledger additions to the other nodes in the Bitcoin network.

The blockchain is a distributed database. This means that to achieve independent verification of the chain, (the correct ownership of each and every bitcoin amount), each participating computer stores its own copy of the blockchain and all of its transactions. A transaction typically references previous transaction outputs as new transaction inputs and dedicates all input bitcoin values to new outputs. As such they constitute a chain of transactions. Therefore, it is also possible to “trace” a particular bitcoin back in time (to check which addresses the bitcoin has “visited”).

To clarify: bitcoins don’t really ‘exist’ anywhere. There is no file with bitcoins in it. Instead, there are records of transactions between different bitcoin addresses with balances that can increase and decrease. And while each bitcoin transaction is secured via encryption, the record of that transaction is not. This enables the ability to browse and view every transaction ever collected in the blockchain using a hex editor. There are also blockchain explorers online where every transaction included within the blockchain can be viewed in human readable language.

A Practical Example of a Bitcoin transaction

Step 1: Submission of Transaction to the Bitcoin Network via Wallet
Alice wants to transfer bitcoin to Bob and they both have bitcoin wallet apps on their smartphones. Bob opens his wallet, creates a new bitcoin address, and shares this address with Alice. She pastes Bob's address into her wallet’s “Send to” field, she also inputs the amount of BTC she wants to transfer. Alice’s wallet (also called a client) signs her request with her private key corresponding to the address she’s transferring from.

Step 2: Verification
Now the bitcoin mining network goes to work. Connected computers all over the world simultaneously verify all transactions, and compete with each other to earn newly minted bitcoins as a reward. Bob and Alice’s transaction, once verified, will be added to the next transaction block. Once the block has been found by a miner, their transaction is confirmed, and can no longer be reversed. When this process is done, Alice and Bob’s wallets will display that the transaction is complete. This verification process ensures that the same bitcoins cannot be used for more than one transaction at a time.

This ends today’s lesson. You now know that transaction records stored in the blockchain are not encrypted and can be viewed by anyone using a blockchain explorer available online. You have also learned that transactions need to be verified by miners on the blockchain network, who are then rewarded with bitcoins for doing the work.

Tomorrow's lesson will cover how you can earn some bitcoins of your own.

Welcome to the Bitcoin Basics Lesson 6: How to Buy Bitcoin!

In Lesson 5, you learned that bitcoin transactions are not encrypted and can be viewed by anyone using a blockchain browser. You also learned transactions need to be verified by miners on the blockchain network, who are then rewarded with bitcoins for verifying and timestamping the transactions.

InLesson 6 youwilllearn:

· Bitcoin is sold and purchased much like other currencies through exchanges using a credit card, bank wire, Paypal, etc.

· You can also exchange bitcoins for goods and services with people directly, just like you would with cash.

Buying Bitcoin and How Exchanges Work

Bitcoin can be bought and sold from various sources, online and offline, like any other currency. You can purchase BTC online directly with a credit card, or use an exchange or brokerage service that will enable you to buy bitcoin via a bank transfer. Some applications also offer buying and selling bitcoin with PayPal and other online payment processors. Some of these sites are full-service exchanges intended for institutional traders, while others are simpler wallet services with limited buying and selling capabilities.

Most exchanges and wallets can store digital and fiat currency for you, functioning like a regular bank account. Exchanges and wallets are the go-to option if you want to do regular trading and speculating. Beware of the fact that total anonymity is difficult to achieve at these sites. Also, there are setup procedures which usually involve supplying proof of identity and detailed personal information. Bitcoin can also be purchased locally from other people via marketplaces e.g. LocalBitcoins, and from Bitcoin ATMs that operate just like the cash ATMs you see worldwide. These servicess offer higher anonimity, but tend to charge higher fees.

This ends today’s lesson. You have learned bitcoin can be purchased and sold much like other currencies through exchanges. You know you can exchange bitcoins with other people directly, just like with cash.

Tomorrow you will learn more about where you can spend bitcoin and how you can shop online.

If you have selected a wallet already, you could go and get yourself some bitcoin today over at Bitcoin.com.

Welcome to the Bitcoin Basics Lesson 7: How to Spend Bitcoin!

In Lesson 6, you learned that bitcoin can be sold and purchased just like other currencies through exchanges. You also learned that you can exchange bitcoin with people directly, just like with cash.

InLesson 7 youwilllearn:

· Many merchants accept bitcoin as payment

· How to find places that accept bitcoin payments

· How to use bitcoin debit cards as payment in any store that accepts credit or debit

Where to Spend Bitcoin

Spending bitcoin is very similar to spending traditional money. However, since bitcoin is not yet universally accepted, you just need to select stores that accept it. Luckily, there are a bunch of them! Recent figures show that the number of retailers accepting bitcoin has now surpassed the 100,000 mark. As more countries continue to recognize bitcoin as a legitimate form of payment, these figures will continue to rise. The best way to find bitcoin-friendly merchants is by browsing online marketplaces and using specialized search engines that populate with large numbers of supporting establishments. For example, the site Coinmap offers a visual way to locate bitcoin-friendly stores, restaurants, and services around the world. The site also adds new locations regularly.

Bitcoin payments are easy to make online and offline. You just need to download a wallet application for your desktop, tablet or smartphone. Then, during checkout at a store, you will be presented with a code in text format or as a QR-code. This is a visual barcode representing the store’s public key. You scan their code with the scanner on your wallet application and confirm the total amount to be paid and then the transaction is complete. In the case of purchasing online where no scan option is available, you can simply copy and paste the public key address of the store into your wallet’s “Send to” field.