Transactions with Bitcoin

Users send and receive payments using client software on a personal computer, mobile device or web application. Transactions do not explicitly identify the payer and payee by name. Instead, a transaction transfers ownership from one Bitcoin address to another. Approximately every ten minutes, a block of transactions is confirmed to a shared public record called the
block chain. This competitive confirmation process known as mining carries a reward of 25 bitcoins per block.

Software: Bitcoin client software, or simply Bitcoin clients, allow a user to transact bitcoins. The first was released in 2009 by Satoshi Nakamoto as open source code. This so-called Satoshi client, Bitcoin-Qt, has since been maintained and enhanced by a group of core developers and other contributors. Bitcoin-Qt can be used as a desktop client for regular payments or as a server utility for merchants and other payment services. Historically, Bitcoin-Qt also supported mining, but this feature was removed because specialized mining clients are more efficient.
Bitcoin-Qt is sometimes referred to as the reference client because it serves to define the Bitcoin protocol and acts as a standard for other implementations.
Bitcoin clients have been implemented in several programming languages for personal computers, mobile devices, and as web applications. At the most basic a client generates and stores private keys and communicates with peers on the Bitcoin network. When making a purchase with a mobile device, the use of QR codes to simplify transactions is ubiquitous. There are also now several server software implementations of the Bitcoin protocol. So-called "full client" nodes on the network validate transactions and blocks they receive and relay them to connected peers.

Wallets: Bitcoin uses public-key cryptography, in which pairs of cryptographic keys, one public and one private, are generated. A collection of keys is called a wallet. Note that sometimes this term is used to mean client software in the sense of digital wallet. A Bitcoin transaction transfers ownership to a new address, an alphanumeric string of the form 1FfmbHfnpaZjKFvyi1okTjJJusN455paPH derived from public keys by application of a hash function and encoding scheme. The corresponding private keys act as a safeguard; a valid payment message from an address must contain the associated public key and a digital signature proving possession of the associated private key. Because anyone with a private key can spend all of the bitcoins sent to the corresponding address, the essence of Bitcoin security is protection of private keys.
Theft of bitcoins has occurred on numerous occasions. The practical day-to-day security of Bitcoin wallets remains an on-going concern. Risk of theft can be reduced by generating keys offline on an uncompromised computer and saving them on external storage or paper printouts.
Various vendors produce physical bitcoins, collectables that store a private key on paper, metal, wood, or plastic. Images of physical bitcoins are ubiquitous in media coverage of Bitcoin.

Block chain: Integral to Bitcoin is a public database and sequential record of all transactions, known as the block chain, that records current bitcoin ownership as well as at all points in the past. By keeping a record of all transactions, the block chain prevents double-spending.
 Those that maintain the block chain are called miners and are rewarded with newly created bitcoins as well as transaction fees. Payment processing work done by miners verifies each transaction as valid and adds it to the block chain.
 Bitcoin payment processing fees are optional and generally substantially lower than those of credit cards or money transfers.
 Currently, doing the work of payment processing is rewarded with newly created bitcoins, 25 per block. The block reward will be halved to 12.5 bitcoins in 2017 and again approximately every four years thereafter. By 2140 there will be approximately 21 million bitcoins in existence and transaction processing will be solely incentivized by transaction fees.
 Today, transactions that pay a fee may be processed more quickly.

Exchanges: Further information: Digital currency exchanger
This section requires expansion. (December 2013)
Through various exchanges, bitcoins are bought and sold at a variable price against the value of other currencies. While there may be a seemingly large number, exchanges regularly fail, taking client bitcoins with them.
 A published research study showed that of 40 Bitcoin exchange markets studied, 18 ended up closing over a period of 3 years.
Bitcoin prices are fragmented and vary widely across exchanges.

Lack of anonymity: The block chain is a public ledger of every bitcoin transaction that does provide a certain level of anonymity; it identifies transactions by Bitcoin address not individuals names. Tracking the flow of bitcoins through transactions can give clues as to who the owner is, however. And while Bitcoin uses cryptography, it does not do so to protect the identities of its users. In addition, Bitcoin intermediaries such as exchanges are required by law in many jurisdictions to collect personal customer data.