Wallet Series #3
There is a lot of misconception and confusion among the cryptocurrency community about how a transaction or transfer of cryptocurrencies works. Its no surprise that there is confusion because it is a little difficult to understand especially if you are new to cryptocurrencies. In this article I will be explaining this process in a simple manner step by step process. This is not going to be in depth technical breakdown, but it will be informative enough to get the technical details, while not needing to know ALL the details. If you’d like an even more in depth article, please let me know in the comments or by email, I would be happy to write one up if I get enough people requesting it.
Here is an example that I have created to illustrate the transaction process from one wallet to another in a simple format.
Confirmation of Transactions
The confirmation step is verifying that the transaction has not been tampered with throughout the transaction. If there were any changes, the original string of characters that makes up 10 bitcoins will not match the encrypted version that is “sealed” with your private key. If the original and the “sealed” or signed transactions are different by the end of the transaction process the transaction will not be confirmed. This process may seem like it takes a long time but it is quite fast.
All of the times noted that are dealing with the algorithms are typically handled by miners. Miners are people all over the world who work alone or in groups, utilizing their computing power to solve the algorithms. They get paid a transaction fee and you get security, encryption, and anonymity. Mining is a whole other process that I will be going over in depth soon. So make sure to subscribe to our blog to keep updated!
The need for security
Now that you know what the keys are and how important they are to your coins not being stolen, you will want to ensure their safety. When you are setting up your wallets, ensure that you are on a safe internet connection, away from wondering eyes, and have a pen and paper. I recommend writing your private key and any other important information like your mnemonic, passwords, pin codes, etc. You’ll want to keep that where you keep your other important documents, such as your social security card and birth certificate. You can also put it into a document, on a secure computer, then encrypt the file with a high encryption standard. I typically have wallets backed up onto multiple hard drives at multiple locations, then the keys and information in separate locations, and a final pen and paper document in another location. This just ensures you never lose access to your wallets. If requested, I can do a full article on some security tips.