Blockchain Concepts Through Bitcoin/Ethereum/EOS -2.
(Sending and Receiving Bitcoin)
Second blog of these series. Here I m explain how the sending and receiving in bitcoin happens.
As we know bitcoin is the protocol that can access using a client application that know the protocol. Just like http is protocol , web browser is the client to interact with http. A “Bitcoin Wallet” is the most common user interface to connect with bitcoin system. There are many implementation and brands of bitcoin wallet , just like the web browsers ( chrome , safari , Internet explorer). Bitcoin wallet vary in quality , performance , security and reliability. There is also a reference implementation of the bitcoin protocol that includes a wallet , known as the “Satoshi Client” or “Bitcoin Core” which derived from the original implementation written by Staoshi Nakamoto.
Aswani just heard about bitcoin and want to use it. For this he download a “Mycelium” . When he run “Mycelium” , it create a new wallet for the him.
The above screen shot show the bitcoin address appears as string and number. A bitcoin address is start with 1 or 3 like. Like a email address, they can be shared with other bitcoin user who can use them to send bitcoin directly to your wallet. There is nothing sensitive , from security perspective , about bitcoin address. It can be posted anywhere without risking the security of your account. Unlike email address, you can create new address as often you like, all of which will direct funds to your wallet. In fact many wallet lets automatically create a new address for every transaction to maximize privacy. A wallet is simply the collection of address and keys that unlock the funds within.
Wallet application randomly generate a private key (more details on later blogs) together with its corresponding bitcoin address.
At this point aswani bitcoin address is simply a number corresponds to a key that he can use to control access to fund. This address is generate independently by his wallet without reference to or register with any service. Only once it has been associated with a transaction does it become part of the known address in the network.
Bitcoin transaction are irreversible. But the electronic payment is reversible. You simply can buy the bitcoin. You have to find your any friends or service from where you can purchase the bitcoin in exchange of anything or paper currency.
Aswani get his first bitcoin from his friend Sunny . Next we will look at how he buy bitcoin from his friend sunny and how sunny sends the bitcoin to his wallet.
Who sets the bitcoin price?
The short answer is that the price is set by markets.
Bitcoin, like most other currencies, has a floating exchange rate. That means that the value of bitcoin vis-a-vis any other currency fluctuates according to supply and demand in the various markets where it is traded. For example, the “price” of bitcoin in US dollars is calculated in each market based on the most recent trade of bitcoin and US dollars. As such, the price tends to fluctuate minutely several times per second. A pricing service will aggregate the prices from several markets and calculate a volume-weighted average representing the broad market exchange rate of a currency pair (e.g., BTC/USD). There are hundreds of applications and websites that can provide the current market rate.
Aswani decide to exchange 10 dollar for bitcoin. So he gives 10 dollars to sunny and then open his wallet and press the receive button. As press the receive button a QR code is displayed as bitcoin address. Now sunny just click on send button on his wallet . He have to provide to information to send the money a destination address and amount he want to transfer.
Sunny just scan the QR code of Aswani .Put the amount (10 dollars ) , wallet will automatically convert the US dollars to bitcoin by accessing the most recent exchange rate an online service. Suppose exchange at that time is 100 dollars per bit coin. So his wallet convert 10 dollars to bitcoin which 0.10(BTC) bitcoin or 100 milibitcoin (mBTC).
Now after entering the amount , Sunny check carefully that he entered the correct amount because bitcoin transaction is irreversible. As he press “send button” , his wallet construct a transaction that assign 0.10 BTC to the address provide by Aswani , sourcing the funds from Sunny wallet and signing the transaction with Sunny private key. This information tells the bitcoin network that Sunny authorized a transfer of value to Aswani new address. Now the transaction in transmitted on peer-to-peer network , and propagates across the bitcoin network. Within a second most the nodes connected to bitcoin network receive the transaction and see the Aswani address first time.
Meanwhile “Aswani” wallet is constantly “listening” all the published transaction in the bitcoin network, matching the address. Once the address is matched , he will receive the bitcoin. It will take a few sec.
How the confirmation work ?
Bitcoin is received in Aswani wallet but its status is showing “Unconfirmed”. The goes in “Confirmed” state when the transaction is added to the block , and block is included in the transaction ledger , know as blockchain. “Unconfirmed” state show that the transaction has been propagated to the network but not yet been included in blockchain. Block is entered in blockchain in every 10 minute. Changing of transaction from “Unconfirmed” state to “Confirmed” state , in traditional financial term , known as “clearing”.(We will discuss more in details later about propagation, validation, clearing (confirmation) of bitcoin transaction).
