How Bitcoin Transactions work

When it comes to carrying out transactions you can share your Bitcoin address with your friends so they can pay to you and the reverse is true, the interesting thing about all this is that once the transaction has been carried out the address becomes null meaning that the address can’t be used more than once.

By - June 20, 2019
trading chart

How Does The Bitcoin Transaction Work – Explained for Dummies?

It’s only human for one to be inquisitive about how this technology of anonymous transaction’s works especially for those that work tirelessly to destroy paper trials when transacting some businesses, okay, I won’t go down that road, anyhow for those looking forward to understand how these transactions work ill break down the specifics for you so that you can get a hold of the dynamics behind what you are involved with.

Understanding how an individual carry’s out a transaction on the blockchain is quite complicated but isn’t rocket science, so I’m of the view we won’t need Einstein’s brain to comprehend this subject matter, moving forward I will be using some terms we might not be familiar with but I’ll endeavor to elaborate on them.

Assuming I’m talking to individuals that have no idea how BTC functions, I’ll peruse through from the grass root until we get to the point where a BTC holder sends their BTC to another holder’s wallet. Bitcoin is made up of nodes and blocks, where a node is a device planted in a blockchain network that is in essences the foundation of the technology, how many nodes does BTC have? One might wonder, around 7000 that verify the network. A Block is a record book that keeps all the, most recent Bitcoin transactions, alright now that those terms are out the way we can proceed.

Understanding How Bitcoin Transactions Work

Before I go further a Transaction is the transfer of value between Bitcoin wallets.

Now to get a hold of any Bitcoin you will need a wallet, yes an electronic wallet, which will store your merchandise, some people, including me, thought that Bitcoins where some kind of gold coins since the graphical representation represents so, to my dismay when I found this wasn’t the case, BTC is rather a digital and virtual currency in other wards intangible.

For starters, once you receive your first BTC it is not stored in the wallet, but rather an address to the BTC is stored there. You have recently had about the famous Bitcoin and have a forest of questions, but a desert of answers! Questions like;

  • What happens when I share a Bitcoin address to another user?
  • How is a transaction initiated to enable me to receive or send money?

When it comes to carrying out transactions you can share your Bitcoin address with your friends so they can pay to you and the reverse is true, the interesting thing about all this is that once the transaction has been carried out the address becomes null meaning that the address can’t be used more than once.

Bitcoin mechanics behind the BTC address.

Here is the depth of what I was all up in arms elaborating, the wallet doesn’t actually hold the Bitcoin but rather holds the address which keeps a record of all my transactions and balances inclusive. The address is a long string of 34 letters and numbers that is modulated by the hash function which ensures this number remains a constant, any small alteration will result into a negative output which will fail the ongoing transaction. The address is also known as a public key it is shared publicly so everyone knows that you possess BTC however, this is nothing to worry about because this public key has a corresponding private key of 64 letters which has access to all your Bitcoins and has to be kept safe, however much these two keys are related one can never figure out an individual’s private key by decoding the public key sounds reassuring right.

Bitcoin Transaction validation process.

How are Bitcoin transactions verified?

Amongst the core jobs of a node in the blockchain is to ensure the authenticity of incoming transactions, with the thought that Bitcoin is virtual money, many might think it is possible to duplicate well allow me to burst your bubble, the node can’t let you do that.

A Bitcoin node runs a series of tabs on a transaction as it arrives before its confirmation. Nodes are built to own transaction pools and verify incoming transactions. The conditions for verification can change from time to time. However, they are based along these lines;

  • The data structure and syntax of the transaction are checked for correctness
  • They confirm that the outputs and inputs have values that are not more than 21 million or less than 0.
  • They fit the lock time to affirm that it is less than the number admitted.
  • They affirm that the unlocking scripts for the inputs are verified against that of the output.
  • Any transaction carried out and leaves a negative balance is turned down
  • They pass up the transactions if the input value is not as eminent as the yield value

This is also strong because all outputs claimed by inputs, here I’m referring to all sending wallets and receiving wallets of a particular transaction are in the UTXO pool (Unspent output from Bitcoin transactions) can only ever be claimed once.

Part of Blocks in Verification.

Once a transaction has been verified it gets into a block along with other transactions, at this point we are all well conversant with terminology Block, so I’ll dive right it to the gist.

A blockchain is a digital concept to store data which arrives in blocks these blocks are chained together and this is what builds it into a blockchain and their data immutable. Once a block of data is chained to another it can never be changed again. Here the cryptographic hash function is used by the Bitcoin blockchain to give the blocks their signatures. A block contains 500 transactions and each block is about 1MB size on average.

Btc transaction cycle

Transactions secured within the block are intact and any intention to edit or manipulate anything in the previous block you have to implement a change in the current block. This is one of those very complicated things to do because by the time you have changed a few blocks there is going to be other blocks chained those you are trying to fix previously as like solving an infinite Rubik’s cube, I’m not sure that exists, but I hope you get the point, it’s extremely extensively difficult to beat the system, and this is where I put out a disclaimer it can be done but that probability is as low as it gets to be successful

 

Bitcoin Transaction Fees

Well, subsequently all the technical part is done usually the transaction might require some transaction fees look at this like bank charges, in this area, it’s a little bit different, here Bitcoin transaction fees are not dependant on the quantity of money being sent but on the total number of transactions going on at that moment in other words fees rise when the cubes along the chains are also engrossed.

In this case, fees apply to an average transaction value of just $409, according to Bitinfocharts. Which may equate to fees of approximately 0.36% of the amount presented, but anyone looking to send a substantially lower sum would still have to pay roughly the same transaction fee. Well, today I will forego going into the details of how transactions are applied and also regulated, although there is a glimpse of the historical traction of the Avg Bitcoin transaction fees over the last 6 months.

Bitcoin Avg Transaction fees

Now we know this information and to get more insight for those interested in deeper details like the algorithms of code and more refer to Bitcoin wiki and Bitcoin.org for more detailed information.

Leave a Comment