Transaction in Bitcoin System

Scenario: Person A wants to send 5 BTC to Person B

1. Person B shares his address with Person A

2. Person A creates a transaction message and adds Person B’s address and 5 BTC to it

3. Person A then signs the transaction with his private key and shares his public key to the network for signature verification

4. Person A broadcasts the transaction on the Bitcoin network

Double Spending Problem

Spending the same Bitcoins in more than one transaction is called the double spending problem.

Encountering Double Spending in Blockchain

The security measures which prevent double-spending in Blockchain:

1. Transaction details are sent to all or as many nodes in the network

2. Blockchain is constantly growing, and each peer maintains a copy of the Blockchain

3. Blockchain ensures that any modification in the block will lead to recomputing of the following blocks

4. Anyone can validate the transactions and this validation prevents double spending

Pseudonymity in Bitcoin

Pseudonymity is the near anonymous state in which users have disguised identities and do not disclose their true identities

• Bitcoin is a permissionless Blockchain where you don’t need to set up an account

• The public and private keys are generated by the wallet

• The address acts as an identifier or pseudonym of a user’s transaction

Bitcoin Addresses

The Bitcoin address corresponds to a public key based on ECDSA(Elliptic Curve Digital Signature Algorithm) used in Bitcoin.

Here is a sample Bitcoin address: 1PHYrmdJ22MKbJevpb3MBNpVckjZHt89hz

A wallet can have many such addresses and can be used for transactions

Bitcoin Transactions: UTXOs UTXO or Unspent Transaction Output is the fundamental building block of Bitcoin.

Bitcoin Transaction Structure

A Bitcoin transaction has three pieces of information:

1. Input: This is a record of which Bitcoin address was used to send the Bitcoins to a receiver in the first place

2. Amount: This is the number of Bitcoins that the sender sends to the receiver

3. Output: This is sent to the sender’s address as a change

Bitcoin Transactions and Input/Output

Transaction structure in Bitcoin reflects double entry bookkeeping