A Quick Guide to Cryptocurrency Transactions
June 8, 2022
Okay, you set up your retail store to accept cryptocurrency, and you’re excited to make your first transaction. What now? You might be feeling hesitant about how digital money is transferred from one account to another. We’ve created a quick guide to cryptocurrency transactions that’s perfect for a cryptocurrency beginner.
Cryptocurrency Transactions Overview
In the simplest terms, a transaction occurs when entity A transfers a certain quantity of crypto to entity B.
You Keep Your Money in a Digital Wallet
To store cryptocurrency, you will use a digital wallet or a crypto exchange account. A cryptocurrency transaction occurs when Bitcoin or another currency is transferred from one digital address to another. The sender must sign the transaction for it to be legitimate.
Instead of banks regulating transactions, the peer-to-peer transaction allows anybody to make and receive money from anywhere.
Transactions Are Traced Through Blockchain
Cryptocurrency transactions exist solely as digital inputs to an online database (blockchain). These records describe specific transactions rather than the exchange of tangible money.
Your transactions with cryptocurrencies are recorded on a public ledger inside the blockchain. Data is mined or added into the ledger by the network’s many users (or nodes) that execute the program.
Unlike a conventional database, transaction data cannot be changed or erased once entered into the ledger—your data is safe.
Elements of Cryptocurrency
Before we jump into the steps needed to make a cryptocurrency payment, here’s some important vocab you’ll need to know about a standard crypto transaction.
Public Keys: The address for your wallet that can be seen or used by anyone to send you a transaction
Private Keys: The key that verifies that you own the wallet attached to your public key
Wallet: The virtual storage location of all the transactions linked to your keys
When a transaction is going to happen, the steps might seem simple from the outside. But it’s the computers working behind the scenes to do the heavy lifting that make everything secure.
To issue a transaction, you need to input your private key, the amount of cryptocurrency being sent, and the public key of the entity you want to receive the transaction into your preferred crypto software.
Once this is entered, the software generates a digital signature from your private key and then sends the transaction to be validated. The network will check that you actually own the amount in the transaction by checking the public ledger for your previous transactions. Once all the information has been verified by the network, the transaction can be confirmed.
The Safety of Cryptocurrency
Cryptocurrencies use public-key cryptography to secure the integrity of transactions made on the network. Each participant has a pair of public and private keys that govern the amount of digital currency they hold.
A public key is a set of letters and numbers that a user must share with another address to receive cash. An address represents a public key, and the two terms are frequently interchanged.
Your Privacy Settings
On the other hand, a private key must be kept confidential since it permits the expenditure of any monies received by the linked public key. A user can sign transactions and transfer the value of their money to another account by using the private key associated with their currency.
After that, the transaction is broadcast to the network and added to the blockchain. Keep in mind that anyone with your private keys has access to your cryptocurrency.
Do You Have the Right Keys?
A cryptocurrency wallet is made up of private keys and public addresses. Anyone can deposit crypto into a public address, but you cannot withdraw money without the private key associated with that address.
Cryptocurrency Transaction Fees
When you move a particular quantity of cryptocurrency from one wallet to another, you must pay a transaction fee. Transaction fees are adjustable and can change depending on the level of activity on the blockchain.
The cost of shipping cryptocurrency might range anywhere from a few cents to hundreds of dollars. The large variance is because cryptocurrency fees are determined by supply and demand (i.e., how crowded the network is at any particular time) and your transaction volume.
Fees Make Transactions Move Faster
On cryptocurrency exchanges, most transaction costs are fixed. When it comes to cryptocurrency wallets, some users can modify costs; this way, you may prevent overpaying fees.
If you’re not in a hurry, you can decrease the fee so that it’ll be picked up by a miner when the network is less busy. On the other hand, increasing your fee will ensure that your transactions are handled quickly.
Step-by-Step Guide to a Cryptocurrency Transaction
The following is a step-by-step guide to paying using cryptocurrency:
- Open your Bitcoin digital wallet on your smartphone.
- Scan the given QR code with the recipient’s address and optionally the amount.
- Fill in the amount you will send if not embedded in the QR code.
- Send and verify using your private key.
- Your transaction will be propagated (spread through the network).
- Miners queue the transaction to be a part of their next mined block.
- Mining (verifies and adds transactions to the network blockchain using Proof of Work).
- Once mined, the transaction is now a part of the blockchain, and miners receive the fee you included as part of your transaction.
- Network nodes verify the work done by the miners.
- The recipient sees that the transaction has been completed.
The Buying Power of Cryptocurrency
While the number of companies accepting cryptocurrencies is increasing, transactions utilizing cryptocurrencies are still uncommon. Despite that, you may use crypto to purchase various items; below are a few examples of what you can buy with your cryptocurrency.
Several luxury goods producers and vendors have begun to accept crypto as payment. BitDials, a crypto-only luxury marketplace, accepts bitcoin and other cryptocurrencies in exchange for Patek Philippe, Rolex, and other high-profile watches.
A Swiss luxury watch manufacturer, Franck Muller, even created a watch adorned with diamonds and gold that incorporated a QR code from the bitcoin genesis block. Other jewelry businesses have joined with payment processors to make crypto transactions easier.
Certain automobile vendors already accept Bitcoin. The list includes luxury car sellers who sell Lamborghinis (a popular choice among Bitcoin owners) and more practical car retailers that sell Subarus.
Technology and Online Marketplaces
Several websites that specialize in selling technology items accept Bitcoin. Newegg, AT&T, and Microsoft are among them.
The CEO of eBay also stated in 2021 that the company was looking at the future of all payment types, specifically cryptocurrencies. Furthermore, customers may now purchase, trade, and keep cryptocurrencies in their PayPal accounts.
Cryptocurrency transactions are becoming increasingly popular as more and more retailers accept crypto as an acceptable payment option. Is your digital wallet ready?