Bitcoin and other cryptocurrencies allow users to be their own bank, delivering a wide range of advantages.
Transactions can be made for a fraction of the price of traditional bank transfers, don’t have any account keeping fees, and are completely separate from the traditional financial ecosystem.
The same benefits that allow Bitcoin owners to retain total control over their Bitcoin, however, make them responsible for the safety and security of their funds and transactions. To learn more about what makes Bitcoin transactions so secure, read our guide on Bitcoin confirmations.
Sending, storing, or securing Bitcoin can, at first glance, can seem extremely complicated — but it doesn’t have to be. Bitcoin, at a fundamental level, is extremely simple.
While the simplicity of Bitcoin appears to be counterintuitive to new cryptocurrency users, the manner in which Bitcoin is stored, sent, or received is rather straightforward.
To make a Bitcoin transaction, you’ll need Bitcoin stored in a Bitcoin wallet, and the wallet address of the individual you’d like to send Bitcoin to.
We’ll proceed to break down the practices used to store, send, and receive Bitcoin in simple, easy-to-understand terminology.
Your first step into the Bitcoin world will be through a wallet. Bitcoin wallets are addresses on the Bitcoin blockchain used to store Bitcoin. When you send Bitcoin to another person, you’re sending Bitcoin from your wallet address to theirs.
A Bitcoin wallet is, at the most basic level, a 34 character series of digits and letters. Owners can access their wallets in a variety of different ways — some choose to use wallet software, while others prefer dedicated hardware devices.
Some users download wallet software, which is installed on a computer or a smartphone. Mycelium wallet, for example, allows users to access their wallet via iOS or Android devices.
Other Bitcoin users choose to store their Bitcoin in highly secure hardware wallets — dedicated hardware units that keep Bitcoins protected and completely disconnected from the internet.
Once you’ve used an exchange, software wallet, or hardware wallet to create a wallet, you’ll be able to find your Bitcoin wallet address. A Bitcoin wallet address looks like this:
When you log into a platform such as Binance or Coinbase, you’re not logging into your wallet — you’re logging into your account with the platform, which allows you to access the wallets associated with your account.
When you send a transaction from your wallet, you’ll only need to provide the wallet address that you’d like to send Bitcoin to and the total amount of Bitcoin you’d like to send — that’s it.
No account details, no names, no additional numbers, just a wallet address. It’s important to double-check the wallet address before sending to make sure you haven’t made a mistake.
Sending a Bitcoin transaction from Coinbase, for example, is extremely easy. Clicking “Send” from the accounts view of your Coinbase account will provide a pop-up transaction screen that looks like this:
Coinbase users must only provide the wallet address in the recipient field, and the total amount of BTC or USD equivalent they want to send.
Coinbase also integrates a convenient feature that will confirm whether a BTC address is in the correct format via a small green tick in the address field.
Bitcoin and cryptocurrency users that prefer to use Coinbase or other exchange platforms to store and send cryptocurrency don’t need to worry about private keys, as they can’t access them.
Understanding private public and private keys, however, is essential when learning how to send a Bitcoin transaction.
That’s it — there are no account logins, usernames, or other identifying factors associated with a Bitcoin wallet.
A public key is the wallet address outlined in the wallet section above and can be shared with anybody.
Anybody can search for the public key of a wallet and reveal the total amount of Bitcoin it contains as well as a complete list of every single transaction in and out of the wallet.
A Bitcoin private key is a 64 character sequence of numbers and letters that allows users to access a wallet. Anybody with the private key associated with a wallet will be able to open it and execute transactions with the balance it contains.
A private key looks like this:
This particular private key opens this wallet:
The private key to a wallet gives the holder full control over the wallet and allows them to access it from any wallet software. For this reason, it’s important to ensure you never share your private key with anybody. Coinbase, Binance, and hardware wallets keep user private keys secret, even from users themselves.
Wallet addresses are long and complicated. If you want to send Bitcoin to a friend it would be time-consuming and complicated for them to read out every single character in their address to you, and could potentially cause you to send Bitcoin to an invalid address.
QR codes streamline the transaction process by representing a Bitcoin wallet address in a manner that is readable by a machine.
QR codes have become extremely popular in smartphone applications, and function as “barcodes” that smartphone cameras can read.
The wallet address provided in the public and private key example above can be represented as a QR code that looks like this:
A smartphone Bitcoin wallet will include a QR code reader function that will be able to decipher the above QR code and capture the wallet address it contains, streamlining the transaction process.
Block explorers are online blockchain browsers that allow users to view the details of wallets and transactions.
The Blockstream.info Block Explorer is one of the most popular Bitcoin block explorers and allows users to search for either transaction IDs or wallet addresses in a search bar at the top of the page.
Inserting a wallet address into the search field of a block explorer will provide details on the wallet that include current balance, number of transactions performed, and a chronological list of transactions complete with transaction ID’s.
Block explorer wallet details look like this:
Every transaction made on the Bitcoin blockchain is associated with a transaction ID — when you make a transaction, the wallet that you use will provide you with a transaction ID, or TXID. Transaction ID’s look like this:
Searching for a transaction ID in a block explorer will provide details that include:
Block explorer transaction details look like this:
Transactions on the Bitcoin network are processed by miners. Bitcoin miners collect transactions together into “blocks”, then encrypt them so they can’t be changed.
Each block contains a group of transactions and a reference to the last block before it.
Miners make these blocks on a schedule — Bitcoin blocks are made roughly every 10 minutes.
When you make a Bitcoin transaction, most exchanges and crypto platforms will wait for the transaction to be included in a block and then “buried” by several successive blocks to make sure it’s safe.
For more information on this, see our guide on Bitcoin confirmations.
Bitcoin miners collect fees for processing transactions. When you make a Bitcoin transaction, you’ll need to send the Bitcoin for the transaction in addition to a small amount of Bitcoin as a fee. This fee is used to pay the miner that collects your transaction into a block and commits it to the Bitcoin blockchain.
In most cases, this fee is only a few cents. When the Bitcoin blockchain is flooded with a lot of transactions, fees may increase.
Think of Bitcoin transaction fees like Uber pricing — fees become higher at rush hour.
Some wallets provide users with the option to pay lower fees if the transaction isn’t a high priority or pay higher fees if they’d like their transaction processed faster.
Miners will process transactions with higher fees first.
Just like with dollars, something is worth whatever someone will pay for it. There are several major companies that currently accept Bitcoin. In addition to companies that have payment options for Bitcoin, there are also services like Flexa.
CoinJoin’s are an interesting development within Bitcoin proposed by Gregory Maxwell in 2013. By mixing inputs and outputs, users are able to add higher levels of security to their transactions. Read our full guide to CoinJoins to learn more.
Sending a Bitcoin transaction is relatively simple — but it’s critical to ensure that you’ve kept your private key safe if you have access to it.
Always double-check the wallet address you’re sending to, and consider storing large amounts of cryptocurrency in a secure offline wallet such as a hardware wallet.