How Does A Bitcoin Transaction Work?

Coding Compiler – How does a Bitcoin transaction work?  – Bitcoin transactions are secured by digital signatures and are sent back and forth between Bitcoin wallets. Every user in the Bitcoin network can view every transaction ever made via the Bitcoin blockchain.

Bitcoin Transaction

Of course, Bitcoins can be held as a pure speculative object by users who do not intend to make regular transfers to Bitcoin. The primary purpose behind Bitcoin, however, is to use bitcoins as a means of payment. Accordingly, the question often arises as to how a Bitcoin transaction actually runs.

There are no bitcoins, only records of Bitcoin transactions

First, the somewhat confusing part: Bitcoins do not exist anywhere, not even on a hard drive. Although it is said that someone owns Bitcoins, but if you look for a particular Bitcoin address, then there are no digital Bitcoins. You can not point to a physical object, not even a digital file, and say that’s a Bitcoin.

Instead, there are only records of transactions between different addresses with credits that have either increased or decreased. Every transaction that has ever been executed is stored in a huge public register (ledger) called Blockchain. If you want to calculate the balance of any bitcoin address, you have to calculate this via the blockchain, because no information is stored in the address.

What does a Bitcoin transaction look like?

When Alice sends Bob some bitcoins, this transaction contains three pieces of information:

  • An input: this is a record of which sender address Alice previously sent these bitcoins (she got them from her friend Eve).
  • A lot: this is the amount of bitcoins that Alice Bob sends.
  • An output: this is the Bitcoin address of Bob (recipient address).

How is Bitcoin sent?

To send bitcoins you need two things: a bitcoin address and a private key. A bitcoin address is randomly generated and consists of a sequence of letters and numbers. The private key is a different sequence of letters and numbers, but unlike the bitcoin address, it is kept secret.

The bitcoin address can be thought of as a locker with a glass door. Everyone knows what’s inside, but only the private key can open the locker and put things in or take them out.

When Alice sends bitcoins to Bob, she uses her private key to sign a message with the input (the previous coin transaction), the amount, and the output (Bob’s address).

Then she sends her bitcoins from her wallet to the Bitcoin network. There, Bitcoin miners verify the transaction, place it in the transaction block, and potentially liquidate it.

Why do you sometimes have to wait for a transaction to be confirmed?

Since a transaction must be confirmed by miners, one is sometimes forced to wait until they are done with the mines. The Bitcoin protocol is set so that each block takes about ten minutes to be mined. 

Some traders let the user wait until the block has been confirmed. Conversely, there are some dealers who do not wait for the transaction to be confirmed. 

You take the risk and assume that you do not try to spend your bitcoins on other things before the transaction is confirmed. This is common in low-risk transactions (micropayments) where the risk of fraud is not so high. Each recipient can decide how many confirmations he wants. The principle is that more confirmations make the transaction safer,

What happens if the input and output quantities are not the same?

Because bitcoins exist only as records of the transactions, many different transactions can be tied to a particular bitcoin address. Maybe Jane Alice sent two Bitcoin, Philip sent her a Bitcoin and Eve only one – all as separate transactions at separate hours. 

They are not automatically converted to Alice’s wallet into six existing bitcoins in one file, but they exist only as separate transaction records. If Alice wants to send Bob Bitcoins, her wallet will try to use transactional records with different amounts that add up to the amount of bitcoins she wanted Bob to send.

Related Article: What is Ethereum?

There is a possibility that Alice’s Wallet may not have the exact amount of addable transaction records she wants to send to Bob. If Alice wants to send about 1.5 BTC to Bob and none of the transactions that she has in her wallet equals this amount or can be added to this amount, then the following happens:

Alice sends the two Bitcoins that she got from Jane , to Bob. Jane is the input and Bob is the output. However, since Alice wants to send the amount of 1.5 BTC, Wallet automatically creates two outputs for her transaction: 1.5 BTC to Bob and 0.5 BTC to a new address created to make the change from Bob to Alice to keep.

Are there transaction fees?

Transaction fees are calculated by several factors. For some wallets, transaction fees can be manually set. The higher the fee, the faster the transaction will be processed. 

Any portion of a transaction that has not been received by the recipient or as change is considered as a fee. This then goes as a bonus to the miner, who has managed to calculate the transaction block ready. However, the transaction fees for foreign transfers are usually well below the bank-usual transaction costs.

Do you receive a receipt?

First, it can be stated: Bitcoin is not really made for evidence. But with version 0.9, there will be changes that change how payments work, making them far more user-friendly and mature.

Payments processors such as BitPay also offer advanced features such as vouchers and purchase confirmations from web pages that would not be obtained with a normal Bitcoin transaction.

What if you only want to send part of a bitcoin?

Bitcoin transactions are divisible. A Satoshi is a hundred millionth of a Bitcoin. It is possible to conduct a transaction amounting to 5,430 Satoshi (currently around EUR 0.0125) in the Bitcoin network.

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