Bitcoin is the latest technology for the economic payment system. It has come out as an online medium of payment with its own virtual currency bitcoin. Not as simple as that, bitcoin used Blockchain technology as its base of network formation and activity. It used peer-to-peer technology as a fast way of coin transfer. It has also used smart contract technology for its better functioning. If you are interested in Bitcoin trading, you can Sign-up to a platform that will help you in your trading journey.
Overview of Bitcoin Smart Contracts
A Bitcoin smart contract is a technology that works as a pre-fixed command or protocol. It is a computerized program that sets certain criteria to make some work done. When the network or the software where the smart contract is being used, reaches the fixed criteria the work will be done automatically.
Bitcoin smart contract works on the bitcoin network. The bitcoin network works in a specific way like its transactions, buying, and selling, and verification of its block, all is done in a well-mannered way that is designed. To run the network that way bitcoin uses smart contract technology. It’s like an agreement. Smart contracts in bitcoin fixes specific criteria for specific works.
Functioning of Bitcoin Smart Contracts- How Do They Work?
Bitcoin smart contract works on a scripting method. The script is a computer language. When a user wants to send bitcoins to another user, the script allows him to establish criteria for sending bitcoin. It works like that-
- When you create a bitcoin account and for the first time you buy bitcoin you get a bitcoin address or a public key. With the help of Bitcoin addresses, you can send or receive bitcoins to others’ accounts. Now, suppose you want to send some bitcoin to someone. You have to open your bitcoin account first and copy-paste the address to your account.
- A private key plays the role in protecting one’s traded Bitcoins in their respective Bitcoin wallets. That key will be needed to get out the bitcoin you want to send.
- To receive a bitcoin from you, the receiver must have a public key that he or she gets at the time of opening a bitcoin account.
- You then will be required to send the number of Bitcoins you want to send.
- Now to put a send order you have to sign a message that contains your address or your private key, the receiver’s public key, and the amount of bitcoin.
- After that, you put the send order on your bitcoin account and the nodes of the network verify that your public key matches your private key so that the transaction can take the amount of bitcoin from your private key.
- Here, you put all the criteria to conduct a transaction. Once the criteria is met, the transactions take place automatically.
- So, if your private key and public key match according to the criteria the transaction will be broadcasted through the network.
- That way a smart contract does the transactions smoothly. Smart contracts are also used at the time of mining the bitcoin blocks to verify a transaction. Like this, this transaction needs to be verified in order to complete.
- Miners verify the transactions by mining the block where this transaction is being recorded.
- Once a miner successfully verifies the block a new block is created and added to the network where the copy of these transactions is recorded and after which the rest of the transactions will be recorded. In simple words, the inputs and outputs or the message that contains all the details and amount of the bitcoin and with the date and time transfer through the mining process.
- Then the bitcoin will be received by the receiver if his or her public key matches the criteria given in the message.
Final Words
So, these were points you needed to know about Bitcoin smart contracts. These are specifically designed to make Bitcoin transactions seamless. It also works when you buy and sell bitcoin to trade or invest. Different platforms use different software where the smart contract can work. However, the bitcoin smart contract is a modernized technology that made bitcoin transactions easy.
