Sending and Receiving Bitcoin
Table of Contents
- Bitcoin wallet software provides a free and easy way to send, receive, and store bitcoin. Every wallet is different, with varying levels of security and privacy.
- Depositing and withdrawing from a brokerage or exchange is as easy as sending bitcoin to the address your exchange provides or providing your exchange with an address from your wallet, respectively.
- Once confirmed, bitcoin transactions cannot be cancelled, changed, or reversed.
As with the internet, a user does not need to know the layers of technology that make up a complex system like Bitcoin before being able to successfully navigate it. Sending and receiving Bitcoin is made easy and reliable by wallet software and block explorers.
How to Send and Receive Bitcoin
Creating a Wallet and Generating Bitcoin Addresses
Wallets are software applications that allow you send, receive, and manage bitcoin. Wallets allow the user to generate Bitcoin addresses. An address is encoded in either an alphanumeric string or a QR code. Typically a wallet will generate a new address with each new transaction you create. This makes it more difficult for someone to track your payment history on the blockchain.
To obtain a Bitcoin wallet, you can download a software wallet in the form of an mobile or desktop app, or you can buy a hardware wallet.
How to Receive Bitcoin
To receive bitcoin, you simply need to provide a Bitcoin address to the sender. Your wallet can generate these addresses as needed, and you can share this address with the sender via any method of communication. Once the sender has your address, they are responsible for creating and sending the transaction using their own wallet software.
There are relatively few requirements for receiving bitcoin, as most of the work is done by the sender. As long as you can send a Bitcoin address to the sender, they will handle creating, signing, and broadcasting the transaction.
How to Send Bitcoin
Creating a Transaction
In order to send bitcoin, you will need an address to send it to. The receiver of the payment should send you their address, which you can then enter into your wallet. The wallet will also ask you to enter the amount of bitcoin to send, as well as the transaction fee you wish to pay.
Signing a Transaction
After you have created a transaction, the wallet will ask for your password. The password is what allows your wallet to use your private keys to sign the transaction. Once signed, the wallet will broadcast the transaction to the Bitcoin network.
Broadcasting a Transaction
In order to broadcast a transaction, you will need access to the Bitcoin network. Most commonly, wallets use the internet to connect to the network and broadcast transactions to other nodes. However, other methods, such as mesh networks, radio, and satellite, also enable users to broadcast transactions.
Sending a Transaction
- Obtain the address of the receiver.
- Enter the address into your wallet.
- Enter the amount of bitcoin being sent.
- Enter the transaction fee you want to pay.
- Enter your wallet password.
- The wallet will automatically use your private keys to sign the transaction.
- Ensure your wallet is connected to the Bitcoin Network, usually via the internet.
- Your wallet may let you confirm the details before broadcasting your transaction.
- Your wallet will inform you when your transaction has been confirmed.
Because Bitcoin transactions are irreversible, it is important to double check the address to which you are sending bitcoin as well as the amount being sent. Once a transaction is included on the blockchain, it is impossible to alter.
How Long Does a Transaction Take to Settle?
All transactions must pay a fee to be included in the blockchain. The fee rate determines how quickly your transaction will be confirmed, and it is measured in satoshis per byte of data in the transaction or sats/vByte.
There are a number of factors which determine the speed at which a transaction settles on the blockchain, including traffic on the network and the fee rate set by the user. Typically, a Bitcoin transaction takes anywhere from 10 minutes to several hours to clear.
Most wallets allow the user to determine the fee rate, so, if you need a transaction to clear quickly, you should pay a higher fee. On the other hand, if you are comfortable waiting a few days or weeks for a transaction to clear, you can pay a low fee. The lowest fee rate possible is 1 sat/vByte.
How Do I Know a Bitcoin Transaction Worked?
Part of the ethos of Bitcoin is the idea that any user can audit the state of the blockchain. Services called block explorers allow users to quickly query the blockchain to confirm that their transaction has settled.
Users who want to take full advantage of Bitcoin’s transparent, trustless nature can go even further. By running a Bitcoin node, users can check the status of their transaction, or any transaction, without relying on a third party service.
Using a Block Explorer
Many block explorers exist that allow a user to query their specific transaction against Bitcoin’s blockchain in order to see whether it has been confirmed and included in a block. Once a transaction is included in a block, it has one confirmation. Each subsequent block adds another confirmation to the transaction, and a transaction is generally considered immutable after six confirmations.
Some wallets and most exchanges will include a link to a block explorer in your account history. Click on the transaction link and you will be able to see your transaction’s status on the blockchain.
Using a Bitcoin Node
A Bitcoin node stores the blockchain as well as a list of all existing bitcoin. When a new block is added to the blockchain, a user will be able to see any transactions included in the new block, and check for a transaction of interest.
The advantage of using a node instead of a block explorer is that the user is able to preserve their privacy and verify their transaction status trustlessly. While highly unlikely, a block explorer could theoretically display inaccurate transaction data and trick a user into thinking their transaction has been confirmed. Using a Bitcoin node removes the possibility of being lied to by any third party.Notice: River Financial does not provide investment, financial, tax, or legal advice. The information provided is general and illustrative in nature and therefore is not intended to provide, and should not be relied on for, tax advice. We encourage you to consult the appropriate tax professional to understand your personal tax circumstances.
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