5 July 2020
Let’s be honest: if you have found your way to this article, you have either already invested in Bitcoin or are planning to. Having a firm grasp on every aspect of Bitcoin should be the first thing you do when entering the crypto world. However, the learning does not stop once you know about Bitcoin and the blockchain; the crypto world is a vast and constantly evolving place. One of the many new and exciting additions to the crypto space that you must know about is Bitcoin transactions, and exactly how they work.
Bitcoin Transactions: An Introduction
Let’s imagine a scenario: You are starting your work day and you need to send an email to a new client. What are the steps you would take to get this done? Typically, you would go to your computer and open whatever web browser or email software you prefer to use. After that, you just need to look for the client’s mail, write the actual email, and hit send.
A bitcoin transaction is fairly similar to this process.
Let’s explain this by using another example. Joe wants to send $50 to Paul. Paul sends his wallet address to Joe. Joe goes to his crypto wallet and sets it to send $50 to Paul’s wallet address at BTC’s current market price. He also chooses the processing fee. Joe hits the “send” button. After that, it is just a matter of waiting for the transaction to be processed and confirmed. This processing time depends on the transaction fee. See, it is just as easy as sending an email or even an e-transfer to a friend or client!
Bitcoin Network: How it Works
Now, what is the science behind a Bitcoin transaction?
Once the send button is pressed by Joe, the transaction is sent to the blockchain. When this happens, the transaction is placed on a “waiting list”. Here, it can take a long time to be confirmed or it can get confirmed in seconds. This depends on the network fee that you set up at the start of the transaction. The higher the fee, the faster it is.
When you send a transaction, all the nodes around the world validate it. They do this by ensuring that the transaction amounts and the message are the same in every single saved record. This is done to prevent tampering in the transaction.
After that, the transactions go to the mempool. The mempool is the place in which every transaction validated by the nodes are added. Then, the miners choose which transactions they record on a network block.
Here, verified transactions fill the block, which has a randomly generated number called Hash. These blocks weigh about 6 megabytes and have 3,500 transactions within them. A new block is generated every ten minutes. Thus, if your transaction did not go into a block, you must wait for the next generated block.
Now, there must be a reason why miners keep the Bitcoin network alive, right? Yes, there is a reason for it; the Reward. For every successful coin mined the miners get a reward in Bitcoin. After the halving, the miners now get half of what they used to. That is, now the miners have a reward of 6.25 BTC compared to the previous reward of 12.5 BTC.
Things to know
There are several things you need to know before you send money on the Bitcoin network.
The first and most important thing is that these transactions cannot be reversed. So, if by mistake you input a wrong address, your money is now gone. Likewise, if you send more money than you should, your only saving grace is that the other party can return the surplus to you. These are primarily user-side issues in that you do not have any real protection if you mess up an aspect of the transaction. In contrast, with a bank, you do have some consumer protections.
However, even after these user-side downfalls, Bitcoin transactions are amongst the most secure ever due to the blockchain network and its intense verification process. You just need to be careful with your inputs and what you copy and paste.