How Does a Bitcoin Transaction Work?

Transaction Creation

Before you can send BTC from your Bitcoin wallet, a transaction has to be created on the wallet. A valid transaction is made up of various elements, including

  • The sender’s address
  • The recipient’s address
  • Amount of BTC to be sent
  • A transaction fee that you are willing to pay miners

Digital Signing

To prove ownership of the bitcoin you intend to send, you must sign the transaction cryptographically using your private key. This key is also called a digital signature. It’s important to keep your private keys a secret because anyone who has access to them has access to the funds in your wallet.

Broadcasting and Approval

After a transaction is signed successfully, it’s broadcasted to the Bitcoin network, where a node picks it up. The node verifies the transaction’s validity and adds it to its mempool. The node then relays this transaction to its peers in the network, who also add the transaction to their mempools. 

From the mempool, a Bitcoin miner picks up the transaction and adds it to the next block. The miner then broadcasts the new block to the rest of the nodes in the network, which accept and approve the transaction.

Transaction Finalization

Once a new block is created on Bitcoin, every node in the network adds the new block to its copy of the blockchain. The transactions in the new block are marked as confirmed and removed from all other mempools across the network. However, it’s standard protocol to wait for at least six block confirmations before a transaction is considered final. This precaution prevents any possibility of the transaction being reversed by a user or double-spent in the event of a temporary fork in the blockchain.

The on-chain Bitcoin transaction process guarantees that transactions are authentic, secure, and immutable.

Was this article helpful?
0 out of 0 found this helpful