How Do Bitcoin Transactions Work

Cryptocurrencies are becoming more widely adopted with each passing year. They offer a form of decentralized payment and a certain level of privacy. 

Without a doubt, the most popular cryptocurrency is Bitcoin. By this point, it’s been traded for over a decade and has experienced a significant increase in value. 

However, despite its popularity, some of its aspects tend to be confusing.

So, today we’ll take a look at an essential one:

How do Bitcoin transactions work?

What Is a Bitcoin Transaction?

A Bitcoin transaction is the exchange of BTC between two wallets. Before a transfer is complete, the network needs to validate and then add it to the chain of records. You can imagine this chain as a public Bitcoin ledger, with all transactions written in it.

How Do Bitcoin Transactions Work?

In order to send or receive Bitcoin, the user must have a pair of “keys” associated with the transaction – one public and one private. The public key acts as an address to where Bitcoin was previously sent (i.e., your wallet). The private is a password that allows transactions from that address to other recipients.

A transfer consists of three parts:

• Input – Holds information about the sender’s wallet and its balance. If the balance is greater or equal to the set transfer, the transaction may occur.
• Output – Holds the recipient’s address.
• Amount – Refers to the number of BTC to be transferred.

Once a Bitcoin transfer has been ordered, the network first registers it as an unconfirmed transaction. The number of required validations depends on the transfer’s size. And once they’re all complete, the transfer is added to the blockchain.

Transaction Fees

The entire Bitcoin supply is 21 million tokens, and the last of them will be mined by 2140. At that time, there will be a ludicrous amount of transactions taking place every day. Even though we have a good grip on the transaction process, we still need to figure out how to make it faster.

Bitcoin transactions can take a long time. In order to incentivize quick verification, a fee may be added. Consider it a tip you leave for the people who verify your transfers. The higher the fee is, the higher the chance of completing the process. In other words, if you want to speed up a Bitcoin transaction, you may need to add a little more to your fee.

Additionally, network congestion is an actual issue. If there are too many pending orders, the entire system slows down. That’s why transactions that haven’t been verified for about a week get dropped from the list. If that happens, the BTC is refunded to the sender’s wallet.

Wrap Up

Cryptocurrencies are a new and exciting phenomenon that has only been made possible through 21st-century technology. As the king of crypto, Bitcoin is the most valuable and popular token out there. With 400,000+ daily transactions, it has the largest trading volume on exchanges. And wherever Bitcoin goes price-wise, the whole market follows.