How do Transactions work?
Bitcoin transactions transfer value on the blockchain, allowing users to send Bitcoin seamlessly through wallets on mobile, desktop, or specialized hardware.
What Is a Bitcoin Transaction?
A Bitcoin transaction occurs when one participant (e.g., Alice) sends Bitcoin to another (e.g., Bob). This process involves inputs, outputs, and amounts to designate how much Bitcoin is transferred. Transactions are created and signed within wallets using cryptographic keys to secure each transfer.
How Bitcoin Transactions operate
Sending Bitcoin is user-friendly: simply enter an amount and address in your wallet. Behind the scenes, Bitcoin uses key cryptography to validate each transaction securely. Users have both:
- Public keys: Shared with others to receive Bitcoin.
-
Private keys: Kept secret and used to sign transactions, proving ownership of the funds.
Warning: Anyone with access to your private keys has access to your Bitcoin.
Example: Alice Sends 0.1 Bitcoin to Bob
A transaction involves three components:
- Input: Alice’s address containing the Bitcoin to be sent.
- Output: Bob’s public key or address.
- Amount: 0.1 Bitcoin For the transaction to proceed, Alice signs it with her private key. The transaction is then broadcast to the network, where nodes verify Alice’s ownership and miners add it to a new block, securing it on the blockchain.
Alice can use more than one input for the transaction and also receive a change, just how it works with bank notes.
Transaction Fees
Bitcoin users can control transaction speed by setting their own fees. Higher fees incentivize miners to process transactions faster, especially during network congestion when blocks are near capacity.
Final Thoughts
- A Bitcoin transaction is a signed transfer from one address to another.
- Bitcoin uses Unspent Transaction Outputs (UTXOs) rather than accounts, so each address holds pieces of Bitcoin.
- Transactions are added to the mempool (pending transactions), and once mined into a block, they are confirmed on the blockchain.