Cryptocurrency transactions are an essential part that allow us to use and enjoy our funds quickly, safely and easily. Learn about how they work and the endless possibilities they offer us.
Transactions (also sometimes called TX) are an essential and indispensable part in the operation of cryptocurrencies such as Bitcoin. These represent the backbone of this entire crypto payment system. And they are the ones that allow us to use and enjoy our funds quickly, safely and easily.
Therefore, knowing what a transaction is and how it works is of vital importance to understand and know how cryptocurrencies operate. In addition to the fact that this knowledge will help us to understand in a better way, the infinite possibilities that this system offers us every day.
In a basic concept, a transaction is a sending or transferring of a value between two parties. In Bitcoin, these transactions can be understood as the sending of bitcoins between several people using the network. But in reality, all these transactions are nothing more than records kept within the Bitcoin blockchain. That is, a flow of information.
So transactions in Bitcoin are simple messages containing information. Messages that can be programmed AND digitally signed by means of cryptography and sent to the entire network for validation. This is why they say bitcoin is programmable money. In addition, as transactions on the Bitcoin network are public, they can easily be found within your blockchain. And in it, you can verify each and every transaction since the creation of the first bitcoin.
Now you will surely wonder how these transactions work and how far they can take us? Well, find out that and much more below.How do transactions work in Bitcoin?
Bitcoin transactions are understood as sending bitcoins from one person to another using the Bitcoin network. At this point, all these transactions are nothing more than records stored on the blockchain. The same principle also applies to other cryptocurrencies such as Ethereum, Dash or Bitcoin Cash.
Now, to carry out these transactions we need a client for the cryptocurrency, better known as a wallet or wallet. These are nothing more than a piece of software that allows us to manage our funds. Thanks to them we can send and receive cryptocurrencies, that is, perform or receive transactions that originate in a certain blockchain.
If you want to know what wallet options you have to manage your funds, at Bit2Me we have this excellent article prepared for you. But continuing with our previous point, to understand how transactions work it is important to first know how they are formed. That is what we will study next.How are the transactions shaped?
Now, you will surely wonder what elements make up a Bitcoin transaction. Those elements are as follows:
In the following image we can see each of these sections, within a Bitcoin transaction seen from our Bit2Me block explorer.
How a transaction works
Cryptocurrency transactions have all the basic structure shown above. This structure has a curious design, with entrances and exits, but with a very specific objective: to maintain security. At all times, this data goes through a cryptographic process of hashing and asymmetric cryptography. This is what makes the information can be secured and validated correctly.
In Bitcoin, this process that makes all this possible is handled by Bitcoin scripting. This is nothing more than a powerful programming language that makes it possible for Bitcoin to have enormous potential. Thus, and although its potential is very large, the vast majority of transactions in Bitcoin currently respond to that scheme:
OP_DUP OP_HASH160 b2089ebaad05c87a6d714cc33fbaa8cf181a4e30 OP_EQUALVERIFY OP_CHECKSIG
This scheme is repeated to some extent in other cryptocurrencies, but of course each of them has its particularities that can improve or facilitate the handling of transactions.
An example of how a transaction works in Bitcoin
Imagine that Maria owns control of an address with 1 bitcoin. If you only want to send Pedro 0.3 bitcoins and there was no concept of “inputs”, there would be no way that the system could know what part of that 1 is the 0.3 sent and can be forwarded. That is why there is the concept of inputs, to which the bitcoins that reach an address are associated.
In this way, enough inputs are taken to reach the desired amount. If to reach 0.3 you have had to select 3 inputs of 0.12 each, the result being 0.36, the remaining 0.06 are sent to your own address indicating it as an output next to the address to which you wanted to send 0.3.
That is, we would have this scenario of inputs and outputs:
The own address where the remaining 0.06 BTC are sent can be the same address associated with the entries or a new one. This is called the change address or return address. It is where the turns are sent.
It is also important to understand that in the same transaction there can be as many entries from the same address, or several, as desired. The same goes for the exits. This allows multiple shipments to be made in the same transaction to different people with a single payment of commissions to the miners. This functionality is exploited by some wallets to save costs.
The form that the protocol of rewarding miners has internally comes from the funds that are not allocated to any direction. All the remaining bitcoins in a transaction that are not assigned to any address are kept by the miner who mines the block with your transaction inside and are impossible to recover.
So, having these points clear, to make a transaction on the Bitcoin network, the issuer must have access to both the public addresses and the private keys associated with those bitcoins. They are nothing more than a random set of numbers and letters without a definite pattern. The private key is the one that allows us to sign and send a transaction as owners of certain bitcoins. While the public address works as an email address or a bank account number where we will make or receive the transaction. Types of existing transactions in BitcoinCoinbase
A coinbase transaction is one that allows miners to generate or activate new cryptocurrencies. With which they can receive the rewards of mining. In the case of Bitcoin, the first transaction made was called coinbase. And it was not carried out from one person to another, but rather that it was carried out by the same network as a generating transaction. Through which the entire Bitcoin system was given life.
Mining nodes can add only one coinbase transaction for each new block generated. Thus, the system ensures that the miner receives only the reward that corresponds to him and that new coins that have never been inside the blockchain enter into circulation.