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Transactions

This blogpost is designed to explain how Bitcoin transactions are made.

The information is structured for people who have a general understanding of what Blockchain technology is, but want to learn more about the technology’s inner workings.

What is a Bitcoin Transaction? 

Bitcoin is based on a Blockchain ledger of transactions. A Bitcoin transaction is a string representing the transfer of Bitcoin from one public address to another. Every entry in the Bitcoin Blockchain refers to a transaction. Each transaction is organized in an ordered sequence from oldest to most recent in the ledger.

This digital transaction ledger is replicated on every one of the millions of computers operating on the Blockchain. Each computer has to agree with every transaction from the very first one to the most current one, for the transaction to be valid. This process insures security, prevents fraud, and 

determines how much Bitcoin is in each person’s Bitcoin address

Wallets and Addresses and Keys, Oh My!

For a transaction to execute, both the receiving and sending parties must have a Bitcoin wallet. A bitcoin wallet is a file that gives users access to Bitcoin addresses. An address is a string of letters and numbers that identify Bitcoins. When a user wants to make a Bitcoin transaction, the receiver creates a new Bitcoin address for the Bitcoins to transfer to. The receiver then shares the newly-created address with the sender. The sending party uses this address as the transaction input for which to transfer Bitcoins to. 

The sending party then proceeds to specify the desired amount of Bitcoin to transfer to the receiver’s Bitcoin address. For a transaction to go through, both the sending and receiving parties must have a private and a public “key” for each Bitcoin address in play. Public and private keys are generated so both parties have an official record of who was involved in the transaction. The private key is never shared and is later used to validate transactions. Before the transaction is finalized, it is confirmed as “valid” using cryptography to make a digital signature. Digital signatures come into the online world using the sending party’s private key of the address they are transferring Bitcoins from to ensure the sending party is legitimate and consenting to the transaction. 

What is the General Consensus?

In order to conduct future transactions, all users of the Bitcoin Blockchain must agree on the existing content in the Blockchain-based on the status of the accounts tracked by the public key in that ledger. The Bitcoin Blockchain is a “trustless’ network, meaning no central authority authorizes transactions. Instead, users rely on a consensus algorithm to validate transactions and add them to the ledger. The job of consensus algorithms is to ensure that reliable nodes are the ones adding things to the Blockchain, prevent double spending, ensure transactions are tamper-proof, ensure the payee possesses the Bitcoin they are transferring, and ensure there is no foul play and an agreement is carried out to both parties’ specified terms. 

Bitcoin users the Proof of Work Consensus Algorithm (POW).

The Virtual Pickaxe

The Proof of Consensus Algorithm adds transactions to the Blockchain using nodes or “miners” that compete to add transactions to the Blockchain. Since this key is public, anyone on the network may use the public key of the sending party to legitimize the transaction. A transaction is added to the Blockchain (and thus completing the transaction) by nodes that attempt to bundle transactions from the last ten minutes into a “BLOCK.” To do this, miners first verify the digital signature of the sending party, using special computers. These computers are designed to calculate cryptographic hash functions. You can think of these specialized computers as the virtual pickaxe dedicated to mining Bitcoin or adding Bitcoin to the Blockchain. The validated transactions are combined to create a block. Once a node validates a block, it is added to the last chain on the Blockchain following the longest-chain-rule (the rule that miners must add blocks onto the longest chain). A hash is generated in the process of validating a block.  The hash cryptographically secures the block to the previous block by transforming the data into an alphanumeric string (the hash value).  The result is tamper proof because any changes on the Blockchain would mean that all following blocks on every computer node on the Blockchain would have to change, requiring enormous amounts of time and computing power. These dramatic changes would have to occur while blocks are still being added to the chain daily, making it statistically impossible. 

Written by Aubree Kitzmiller – Moore  
(18 -Year-Old Daughter of Josh Moore Founder and CEO of NFN8)

Written by Aubree Kitzmiller – Moore  
(18 -Year-Old Daughter of Josh Moore Founder and CEO of NFN8)

Cryptocurrency is a relatively new technology, and like all new technologies, we have seen some initial skepticism. The big question concerning most is cryptocurrency a fad, or will it stick around in the long run? 

This article will address concerns regarding the future of cryptocurrency, as well as analyze the current conditions that will shape its future.

Will cryptocurrency stand the test of time?

The short answer is YES!

The Cypherpunk movement that helped spark the creation of bitcoin did not start until the 1970s, and it was not until 2008 that Satoshi Nakamoto released The White Paper. While there were attempts at decentralized software-based payment systems before the release of the Bitcoin protocol (such as B-Money and Bitgold), Bitcoin was the first fully decentralized, globally accepted, digital currency. After the Bitcoin protocol was released eleven years ago, investing in cryptocurrency has become increasingly more popular.

As with any new up and coming technology, there are many kinks yet to be worked out and a steep societal learning curve. This does not mean cryptocurrency is a bad investment.

Yes, cryptocurrency is volatile. Yes, there are booms and busts. Yes, it is complex; yet, despite criticism, it has not to deterred believers.

Why is this?

The shortcomings of cryptocurrency are strikingly similar to the shortcomings experienced by some of the most impactful technological innovations in history. Both the “railway mania” and the “internet mania” saw a massive influx of money that eventually led to a bubble and crashed. Most new technologies have also started out complex and overpriced, such as cell phones and computers. All of these examples currently play a huge role in everyday life because their usefulness was recognized by trailblazers as significant and worthwhile, regardless of tough hurdles. Contemporary blockchain innovators believe in the ability of cryptocurrency to create a better future for society, but not just because of blind belief, as I’ll point out later. 

Diffusion of Innovations Theory, popularized by Everett Rogers in his book, tells us that the adoption of new technology follows an S-curve when plotted over time. The graph of the adoption of new technology can be split into five sections based on the people who promote adoption: Innovators, early adopters, early majority, late majority, and laggards. Innovators are the risk-takers in the adoption process. They have the audacity to try something no one has before and innovate a product that has the promise to be adopted. On the other hand, the early adopters influence the rest of the population to adopt a new technology by self-example of adopting the product and testing its grandeur; this group essentially reduces the uncertainty people have about a new innovation and accelerates the adoption to exponential growth. 

The theory is seen to hold true in the United States for many transformative innovations over the last hundred years. 

Data suggests that the growth of cryptocurrency will be no different from the preceding growth of some of the most significant technological innovations. When looking at the total number of blockchain wallets created since late 2011 to contemporary time, the result is slow for the first couple of years but then excels into what appears to be exponential growth. A similar result is seen by the total market capitalization of cryptocurrency globally, with a slow start to a gradually increasing growth. 

Look familiar? 

If we revisit the internet user growth and compare it to the current estimated crypto user growth, the similarities are uncanny. Our sources predict that if we compare crypto growth to internet growth, we would be in the year 1994 comparatively.

While it is impossible to predict the future with a hundred percent accuracy, the current data we hold shows many similarities to the previous growth of some of the greatest technological innovations in history, and we can only predict that its growth will continue as such. 

Analyzing current events and the interests of society shed light on a promising future for cryptocurrency as well.

Over the next couple of decades, we are likely to witness Generation X and Millennials lead the world to the early adoption phase of cryptocurrency. 

Currently, believers of cryptocurrency can be lumped in the innovator section of the S-curve. They are the ones taking risks, creating new technology to make crypto more user-friendly, and working through the initial problems that inevitably arise with all innovations. They are the first to overcome the learning curve and will be the ones experiencing the most profit in the likely case of widespread adoption. Several factors could lead to this widespread adoption faster than you may think. 

First and foremost, the number of cryptocurrency users has been gradually increasing over the years, as we saw in figures 3, 4, and 5. In addition, the propensity of people to purchase cryptocurrency and the awareness of cryptocurrency is also increasing.

For simplicity reasons, our data focuses on people’s opinions of bitcoin (the most popular cryptocurrency). 

The awareness people have of bitcoin is almost the same across all age groups, which makes sense, as we live in a world where information is nearly evenly accessible to all age groups. More interestingly is the data that shows how different age groups felt about purchasing bitcoin. The propensity people held to buy bitcoin followed the same pattern: as the people responding to the question got older, their interest decreased. Where 42% of people ages 18-34 responded that they were very or somewhat likely to purchase bitcoin over the course of five years, their 65+ counterparts only had 8% of people answer the same.

It is notable that while all age groups experienced a higher awareness of bitcoin and propensity to purchase bitcoin between the fall of 2017 and spring of 2019, most of the support of cryptocurrency is coming from the younger generations, notably Generation X and the Millennials, suggesting the current youngsters of society will be the ones driving cryptocurrency adoption.

Looking at the values generally held by Generation X and Millennials, it makes more sense why they seem to be much more supportive of cryptocurrency than their older counterparts. 

Generation X and Millennials both tend to hold disdain for authority. Generation X experienced the economic recession and stock market crash in the late 1980s and early 2000s and the Global Financial Crisis in 2008. These major life events can be attributed to the two generations’ hesitancy to trust banks, third parties, and government financial involvement. Both generations are also more tech-savvy than their preceding generations, as Generation X is accustomed to relying on technology in their work environment, and Millennials were the first generation to grow up with computer technology having a significant presence in their life. Regarding financials, the two generations are not likely to rely on pensions and social security like their former generations and generally support new technology to help manage their financials. Millennials specifically rely heavily on information from online sources —think of that one friend that must pull up google search to fact check you during a conversation. 

Cryptocurrency provides a service that aligns directly with the values of the younger generations. Its mobile, easily accessible, an alternative to banks and third parties, and its digital. The younger generations familiarity with technology gives them a foot up in the crypto world because it is easy for them to navigate it. Considering this, it is unsurprising that the younger generations show the most interest in investing in cryptocurrency. 

THE TRUTH IS, CRYPTOCURRENCY IS TECHNOLOGICALLY AND LOGISTICALLY COMPLEX. NOT EVERYONE HAS THE CAPABILITY TO BECOME A SUCCESSFUL CRYPTO MINER OR TRADER. THIS DOES NOT MEAN THERE IS NOT A ROLE FOR EVERYONE IN THE CRYPTO WORLD. 

ONE OF THE REASONS OUR COMPANY WAS BUILT ON A SALE-LEASEBACK OPPORTUNITY, WHERE CLIENTS DON’T NEED A COMPUTER SCIENCE DEGREE AS A PREREQUISITE, IS BECAUSE WE RECOGNIZE THAT BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCY TRADING IS COMPLEX AND NOT SOMETHING THAT EVERYONE CAN UNDERTAKE. HOWEVER, MANY CAN PARTICIPATE IN OUR OFFER TO DO IT FOR INDIVIDUALS WHILE THEY RECEIVE MONTHLY CASHFLOW.

THERE ARE MANY OPTIONS FOR THOSE WANTING TO BE INVOLVED WELL BEFORE THE “LAGGARD” PHASE OF ADOPTION. IT IS EVIDENT THAT THE LARGEST GROUP OF BENEFICIARIES OF BLOCKCHAIN TECHNOLOGY WILL BE OUR YOUNGER COUNTERPARTS, BUT NO ONE HAS TO BE LEFT BEHIND.

The Great Wealth Transfer

The significance of Generation X and Millennials driving the adoption of cryptocurrency lies in the great wealth transfer. 

The great wealth transfer refers to the large sum of money that is to be passed down to Generation X and Millennials as the baby boomers age. Cerulli associates estimate that over the next couple of decades, more than $68T of US wealth is to be passed down to Generation X and Millennials, marking the largest sum of wealth transfer in history. 

Considering these younger generations growing interest in cryptocurrency and the fact that their values align with crypto benefits, it is a reasonable assumption to expect a significant percentage of this wealth transfer to be invested in cryptocurrency.

Suffice it to say, the world we are living in is changing. Our younger, tech-savvy generations are turning into adults. The world is in an ever-growing transition towards more technology. People have a higher demand for easy access of materials via mobile and digital platforms, and the growing distrust of third parties from our younger generations leads the future towards an increase in self-directed financial platforms. All that aside, we are about to witness the largest transfer of money in history and currently experiencing one of the longest bull markets in history that will inevitably have to come to an end. In need of a market correction, cryptocurrency will provide an appealing alternative to fiat currencies, as crypto retains its value far better in the face of economic struggle. 

While we cannot predict the future, with the bull market coming to an end, the increasing appeal of cryptocurrency, and the largest sum of inheritance in the world coming, we can expect the world to bear witness to a technological, paradigm shift upon us.