Bitcoin was created to function as peer-to-peer electronic cash. Whether you are spending or accepting bitcoin as payment it is prudent to understand how a transaction works.
Bitcoin transactions are messages, like email, which are digitally signed using cryptography and sent to the entire Bitcoin Network for verification. Transactions are public and can be found on the digital ledger known as the blockchain. The history of each and every bitcoin transaction leads back to the point where the bitcoins were first produced.
Bitcoins Exist as Records of Bitcoin Transactions
We define a [bitcoin] as a chain of digital signatures. Each owner transfers [bitcoin] to the
next by digitally signing a hash of the previous transaction and the public key of the next owner
and adding these to the end of the coin. A payee can verify the signatures to verify the chain of
ownership. 