Bitcoin Transactions Explained – How Private Keys Keep Your Money Safe!


Okay, so I just
want to reiterate, if there’s anyone watching this that’s into computer
science or cryptography, just turn the other way right now because it will probably make
you cringe. I am absolutely oversimplifying this to a
ridiculous degree, but it just still gets across the basic function of how this works
in a much more digestible fashion. So when you first create a bitcoin wallet
you’re going to be given a private key, and this is just a sequence of numbers and letters
thats generated when you create that wallet. So lets say we’ve got person A over here,
and this is the private zone. So this is private key A. and over here they
want to interact with some person B. and over here they’ve got their private, and this is
the key B. Now, when a transaction actually occurs these two people are going to have
a brief interaction where…its all done in the background but basically an algorithm
is going to pick some number C. And this is in the public. This is private, thats private, this C that
they both select is public. So now, what they’re going to do is; person
A is going to take their private key, they’re going to put it against this public value
C. and lets do black for our transfers. So thats going to go over, that key is going
to sign that C. And this B is going to come over and its going to sign that C. So now
the result is two new keys where you’re going to have a public AC, and on this side you
are going to have a public BC. So now you’ve got something general that is
signed with that side and signed with this side. So now, whats going to happen, and remember
all of this is done automatically via an algorithm in the background, you’re not actually applying
these signatures or doing any of that, it all just happens instantly. So now whats going to happen is this public
section AC is going to get brought over into this private zone and BC is going to get brought
over into this private zone. So now what you’re going to do is you have
your…..you have your AC which is now moved into the private, you have your BC which has
now moved into the private. And your kind of second to last step here
is, now you’re going to go and you’re going to take that A, private and your once again
going to this BC section. And the same over here, the B is going to
sign the AC. So now the result of this, its going to come
out here so you’ve got ABC, and now you have ABC. Over on this side the B is signing the AC. So once again you have ABC. And now these are back in the public domain
and you can confirm that ABC is indeed ABC. They’re the same value, and the beauty of
all of this is that, person A can absolutely confirm that they are sending their money
to person B, person B can confirm who the money is coming from as well, and they do
all of this and confirm all of this information without ever having to share that private
bit of information. So essentially those private keys will now
be used as the backend of the signatures for all of these transactions and all of this
shuffling around is basically just to put together enough information that they can
come forward and they can say yes, the person that says they’re sending this is indeed the
person thats sending it, whatever is in the transaction is indeed there, but you never
actually have to share any of that private, secure information that would allow something
to be decoded if you only had one bit. So, as I said, its extremely over simplified
but I think a lot of people get so confused by crypto and they think that its this crazy
thing but its really not that nutty of a process you know. This signs this, this signs this. They sign each other., they come back over,
they’re signed. And you compare them. Thats really the gist of a bitcoin transaction. Its not that crazy, and you know its incredibly
secure. And its just a very unique way of doing things,
because, you know it doesn’t matter what information you’re sharing and it doesn’t
matter if you are in contact with that person or they’re halfway across the world. You can share that information and know that
its secure without ever revealing anything private. And thats really the beauty of asymmetric
key exchanges. So, if you have any questions about this I’d
be glad to explain a little bit more, I might even do a follow up video, maybe talk about
the actual math of it. But hopefully this kind of just breaks down
the mystery of what happens with a bitcoin transaction. Its really not that scary. So anyways I hope you enjoyed this and hope
you learned something. We’ll see you next time.

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