Beyond Buying Bitcoin (BTC): How Bitcoin Transactions Have Evolved

General Wallet Use

15 min

When Bitcoin was first created, Bitcoin transactions were simple and only involved sending and receiving BTC between addresses on the network. As the network grew, users also eventually had the capability to buy and sell bitcoin thanks to a number of platforms that emerged shortly after Bitcoin’s creation. But with the rise of Web3 and the growth of Bitcoin’s functionality, our definition of what a Bitcoin transaction is has expanded significantly beyond simply buying, selling, sending and receiving the token.

The emergence of Bitcoin layers, smart contract platforms, tokenized assets and collectibles means that today’s Bicoin wallet user has so many more ways to transact and interact with the Bitcoin network. They can conduct transactions beyond pure BTC payments and, in doing so, end up using their BTC to connect to decentralized applications.

In other words, a Bitcoin transaction is now much more than simply buying, sending, receiving and storing your BTC. It’s now about using your BTC and BTC-backed assets to interact with entire crypto ecosystems with your Bitcoin wallet as a base.

How BTC Transactions Work

Each Bitcoin wallet contains public and private key pairs associated with Bitcoin addresses. The public key serves as a deposit address of sorts to receive coins, while the private key authorizes spending from that address. 

When you want to send bitcoin to one another, your wallet software signs a transaction using their private key. This transaction message contains metadata like the source address, destination and amount of bitcoin to send.

Bitcoin miners gather pending transactions and include them in blocks. Miners verify that you signed the transaction with your private key, proving that you are the owner of the funds. Your transaction is considered complete once the block is confirmed by the network and it is permanently recorded on the Bitcoin blockchain. In turn, the miners receive a certain number of bitcoin as a reward for mining the block, completing the Proof of Work (PoW) cycle.

This is how Bitcoin transactions, at their core, are processed. While Bitcoin users are now doing much more than sending and receiving BTC (we’ll dive into that shortly), the PoW consensus mechanism is still core to how Bitcoin works and is still crucial for other transactions that happen on the Bitcoin blockchain.

The First Bitcoin Transaction and First Bitcoin Wallet

On January 12, 2009, the very first real-world Bitcoin transaction took place between the pseudonymous creator of Bitcoin, Satoshi Nakamoto, and Hal Finney. The transaction of 10 bitcoins initiated the first movement of digital cash without intermediaries.

Satoshi Nakamoto had announced the release of the Bitcoin software a few months prior in late 2008. As one of the few people involved with Bitcoin’s early testing and development, Hal Finney was an ideal recipient for demonstrating this peer-to-peer electronic cash in action.

After generating the genesis block of 50 newly minted bitcoins, Satoshi sent 10 bitcoins as test tokens to Hal Finney on using the Bitcoin software. Finney later sent these coins back to Satoshi to complete the loop.

And of course, Satoshi Nakamoto and Finney accomplished this set of initial transactions with the very first Bitcoin wallets. Known as Bitcoin-Qt and then later Bitcoin core, this initial software wallet gave the world’s very first Bitcoin users a means to store, send and receive their digital tokens. It’s also important to note that in the true spirit of Bitcoin, Bitcoin-Qt was a non-custodial wallet. Users had full control over their own private keys.

The simple back and forth between Satoshi and Hal Finney represented the first time bitcoin held real economic value and was transmitted directly between two individuals without relying on an intermediary. The successful activation of Satoshi’s vision set the course for Bitcoin’s growth over subsequent years, even if users could only send and receive BTC at the time. It also provided a blueprint for how crypto wallets could work and set the stage for how wallets would evolve over the years.

The Rise of Exchanges and Ways to Buy Bitcoin

Bitcoin users didn’t have to wait too long for more transactions with their tokens. Starting in 2010, a number of centralized exchanges started to appear that provided the first avenues for users. By 2013, many of the mainstream exchanges like Coinbase, Kraken and Bitstamp had emerged, allowing users to buy BTC with fiat. 

However, these centralized exchanges were far from perfect. Given how experimental they were at the time, poor user experiences often made the purchase process challenging. Many users had to wire money through bank transfers to make crypto transactions and they couldn’t connect already existing wallets – like Bitcoin-Qt – to these platforms. Users also had to rely on the exchanges to manage the private keys associated with their wallet which, in turn, meant that they had to also trust the exchanges with their funds. The first Bitcoin ATMs also appeared around this time in an attempt to make it easy to buy bitcoin. 

Nevertheless, the launch of centralized exchanges did give users additional ways to manage and conduct basic transactions with their bitcoin. It also encouraged the Bitcoin community to explore trustless technologies, which would later form the bedrock of Web3.

Bitcoin Transactions with the First Wave of Crypto Apps

By the mid-2010s, a number of user-friendly apps appeared that not only helped expand Bitcoin transactions, but also paved the way for the Web3 economy we know today. Many of them had actually launched at around the same time as the first centralized exchanges, and a good number happened to be wallet applications. (known as at the time and Mycelium, for example, were among the first crypto wallets to launch a mobile app. For the first time, users could access their bitcoin holdings and conduct transactions on the go. Both were also non-custodial wallets that gave users sole control over their private keys and BTC. MetaMask would also launch as the first browser extension wallet in crypto. Though you still cannot, to this day, directly custody BTC with MetaMask, the wallet app did provide a blueprint for browser extension wallets on multiple networks, including Bitcoin.

But crypto apps that facilitated more than bitcoin payments had appeared as well. For example, a number of swap protocols introduced the first iterations of crypto swaps to users, and the launch of Counterparty brought the concept of tokenized artwork and collectibles to the Bitcoin blockchain (predating NFTs). The earliest versions of DeFi protocols also appeared during this time, introducing users to decentralized exchanges and more. 

The idea was that Bitcoin users were no longer limited to buying, selling or transferring BTC. They could explore additional BTC-based assets and find new ways to engage with their bitcoin.

The Growth of Web3: Changing How We Define Bitcoin Transactions

That brings us to what we think of when we hear the words “Bitcoin transaction.” Today, users don’t just buy, sell, send and receive the BTC token. Instead, they can also mint, inscribe, swap and trade Bitcoin-backed digital assets thanks to a variety of technologies that have emerged on the Bitcoin blockchain in recent years.

While it’s significantly easier to purchase bitcoin nowadays (you can often buy bitcoin with a credit card, debit card or electronic payment system like Apple Pay or Google Pay), the development of scaling solutions and tokenized assets has broadened the scope of assets held within Bitcoin wallets. Furthermore, the transactions that can be conducted with these modern assets exceeds what we traditionally think of as a Bitcoin transaction.

The Ordinals protocol is an example. Minting an Ordinal is a Bitcoin transaction in and of itself. The growth of the inscriptions ecosystem also demonstrates that now, transacting with your Bitcoin-backed assets isn’t just about conducting transactions with another party, be it an exchange or another wallet user. It’s now also about using your Bitcoin-secured assets to engage with Web3 applications.

Defining Bitcoin Transactions in the Web3 World

Our revised definitions of what a Bitcoin transaction is thanks to the growth of Web3 also applies to every cryptocurrency. A modern day crypto transaction doesn't just involve having users transfer or buy crypto, it also means using your assets as a way to engage with Web3.

But no matter whether you intend to transact with or store your bitcoin, you will need a Bitcoin wallet that gives you the security and versatility needed to engage with the changing Bitcoin ecosystem. As the years go by, the number of companies that accept bitcoin continues to grow and more Web3 applications are catering to users' bitcoin and other cryptocurrency investments. 

Leather not only lets users connect to exchanges so they can transfer their bitcoin purchase to the wallet, it also connects users to everything from Ordinals marketplaces and DeFi protocols so they can collect and use those Bitcoin-secured assets for Web3 apps. In other words, Leather introduces users to the ongoing evolution of Bitcoin transactions that makes up the modern day digital economy.

Connect to web3 applications built on Bitcoin with the Leather browser extension. Install Leather – the only wallet you need to tap into the multilayered Bitcoin economy – today.