Do you know how a cryptocurrency network works? Transactions are done all the time, and people get digital money into their wallets and exchanges.
But does the bitcoin network know users’ balance? Let’s check about that.
How does bitcoin know your balance?
Bitcoin operates with a public ledger where value assignments are tracked. Every bitcoin gets first assigned to a miner who can sell that bitcoin, generating a value assignment registered on the ledger.
It is possible to estimate how many bitcoins a user has. This is done by checking all the transactions of a determinate address, and how much remains unspent.
Unspent transactions are referred to as UTXO (unspent transaction output). That way, the “balance” for an address is the UTXOs of it.
There are many transactions to calculate manually, so the Bitcoin-Qt/bitcoind client uses LevelDB to retrieve all data from the blockchain. That way, it is easy to determine how many bitcoins any address has.
You don’t need to do that yourself, as there are services that do it for free by checking the data on the blockchain.
One of these services is Coin Tracker. You can enter any address on it to see how many coins that user has. The amount is shown both in BTC and USD.
It is possible to know anyone’s balance because addresses are public. What you can’t know immediately is who that person is. Such data isn’t available, as people trading bitcoins only identify through a randomly generated alphanumeric identity/address.
The problem is, though, that these addresses are always the same. This allows you to know how much someone has, and if you want to track someone down, you could eventually find out who the person behind an address is.
Can Bitcoin payments be traced?
In a certain sense, yes. The information of all transactions is a public record kept on the ledger. Anyone can get access to this data at any time. However, the depth of info you get from it is not enough to know who is sending bitcoins and who is receiving them.
All you see is a randomly generated alphanumeric address that protects users’ identities.
Bitcoin recommends users to use each address only once and never to disclose their info to other users.
Where do I buy bitcoins?
To buy and sell bitcoins, you need to create an account at a safe Digital Currency Exchange (DCE). There are plenty of them. Let’s check five great DCE for beginners.
Coinbase is the most popular DCE overall. The platform is accessible and doesn’t require you any guide to get started. It is truly intuitive. All you need is a valid email, a phone number, and a valid ID.
Coinbase offers reasonable fees and has support for a large number of cryptocurrencies.
Better yet, they also have a wallet service for you to keep your coins safe. Your coins are kept in cold storage (offline), which is safer than hot storage (online).
eToro is another very known and cherished DCE. It is amazing for beginners since it lets you simulate transactions.
That way, you can know how it feels and see what the results are without truly compromising your valuable money.
Moreover, it has a copy-trading system that lets you learn from other users. One thing to note, however, is the 0,75% spread price, and the high fees for altcoins.
Robinhood is terrific if you are looking to buy Bitcoin and only a few other altcoins. You don’t have to pay commissions to buy or sell your bitcoins, and the platform resembles those of stock trading.
Not everything is gold, though. Its support of cryptocurrencies is limited to only a few options. Moreover, you can’t withdraw your bitcoins into a crypto wallet.
If you are looking for options and agility, Coinmama is a great option. This DCE offers ten different cryptocurrencies, one of them being Bitcoin.
Coinmama claims to deliver your coins instantly to any crypto wallet, so that is a huge plus compared to other DCEs.
People living in the UK and EU even have instant funding options. The part that is not so sweet about this DCE is the 5% fee for instant purchases and lack of ACH bank transfers if you live in the USA.
BlockFi is a versatile DCE that lets you explore other possibilities with your crypto coins. For example, you can deposit coins into an interest-earning account that generates 8,6% APY.
If you are a person that needs to take loans in the USA, you can use your bitcoins as collateral.
Another benefit is that there are no fees for crypto trades.
However, if you are going to take loans with BlockFi, keep in mind that interest rates can go all the way up to 9,75%.
How long can a Bitcoin transaction take?
You probably have already read somewhere (even here on Coinwut) that the validation time for a Bitcoin transaction is around 10 minutes.
However, that is not the time that a transaction truly takes. There is a difference between a transaction getting sent into the network and the miners working on its validation.
Miners don’t work on the validation of each transaction separately. Miners mine blocks and each block contains a certain number of transactions.
If your transaction gets included in the current block getting mined, then it will get validated very soon.
You can expect your transaction to get validated in the next 10 minutes, in the next hours, or only on the next day. Since the blockchain is decentralized, you have to wait for the work of miners.
Sometimes the network is overloaded with transactions, meaning many blocks are waiting to get mined. That makes the new transactions take longer to get validated.
Another factor coming into play is the fee attached to each transaction. The higher the amount of bitcoin you are sending or receiving, the higher the priority of the transactions on the blockchain.
Many delays of transaction confirmations happen due to very low amounts being sent through the network.
This is one reason that makes people create alternative blockchains for everyday transactions.
This takes the load away from the Bitcoin network, and people can get their digital currencies faster.
How do you cash out a Bitcoin?
There are different methods to cash out Bitcoin and any other cryptocurrency. You can do that through DCEs.
You will also see them getting called a third-party broker or third-party exchange. Coinbase is an excellent example of DCE that lets you withdraw your bitcoins as fiat money. Here is how to do it.
Another way is through P2P exchanges such as LocalBitcoins. Here is a helpful guide for doing that.
Note that when you “cash out” cryptocurrencies, you are selling them away in exchange for fiat money.
After that, you no longer have access to the crypto coins you sold. This might seem obvious, but since cryptocurrencies are also investment assets, you can lose investment opportunities in the future. So, think right before withdrawing your coins.
How do I reverse a Bitcoin transaction?
Right now, it is impossible to reverse Bitcoin transactions. Once you sent the funds to another address, that address will receive the amount.
What you can do is talk to your buyer and tell them the reasons why you need the bitcoins back. That way, you can get refunded.
Because of this aspect of Bitcoin, you always need to take care when you are doing transactions. Only send bitcoins when you are sure of what you are doing.
Moreover, also send bitcoins to people and organizations you trust. That way, if you come to regret your purchase, you can get your coins back.
Can a Bitcoin transaction be Cancelled?
This connects straight to the topic above, and the answer is also negative. Once a transaction gets initiated in the network, it can’t get stopped. Again, what you can do is ask for the bitcoins back.
If your question is about being able to cancel the purchase of bitcoins in some DCE, then the answer is also “no.”
However, most DCEs will ask for your confirmation when you decide to buy, sell, withdraw, etc. They show you a confirmation button which you have to click. After you do that, you can’t go back.
What happens if a Bitcoin transaction is not confirmed?
Confirmation of Bitcoin transactions depends on them being added to the network and included into a block that will get mined by the miners.
If the traffic on the network exceeds expectations, your transaction might take a long time to get confirmed.
In the worst of cases, a transaction can remain for too long in the network and will vanish from it.
At some point, most clients will remove the transaction from the pool of unconfirmed transactions. Then, the coins remain unspent, and you can try to send them again.
Bitcoin is versatile and gives users certain privacy impossible to achieve with fiat money. However, you need to use it carefully.
Since transactions on the blockchain work differently from centralized ones, you need to be sure of the actions you take.
And, if you want to use cryptocurrencies for small transactions, you can look for many alternatives to bitcoin.