What are Bitcoin transactions and how do they work?

  • Bitcoin
  • Article
  • 3 mins

Bitcoin (BTC) is one of the popular cryptocurrencies out there and is identified as a chain of digital signatures that functions as a peer-to-peer electronic currency.

It is very important to understand how transactions work if you’re looking to trade.

In easy terms, Bitcoin transactions are like messages or emails signed digitally using cryptography, which is sent to the Bitcoin network for verification.

Bitcoin transactions are public and are often found on the Blockchain.

The blockchain is like a digital ledger that stores all the information about crypto.

Bitcoin transactions are made up of three parts:

An input: This is a record of the BTC address from which John initially received the bitcoin he wants to send to Jane.

An amount: This is the BTC amount John wants to send to Jane.

An output: This is Jane’s public key; also known as her 'bitcoin address'

Here’s an example of a Bitcoin transaction between John and Jane as examples in this case.

John wants to send some money to Jane. To do this, he would have to use his private key to sign a message with the specific transaction details. This message is then sent to the Bitcoin Network for verification. This verification process is called ‘mining.’

This is how it would appear:

Input: the source transaction of the coins previously sent to John’s address
Amount: some amount of BTC to be sent from John to Jane
Output: Jane’s public address.

Bitcoins are not in any physical form. They do not exist physically, not even on a hard drive or on a server.

In order to send BTC to someone, it means you have access to private and public keys linked to a particular amount of Bitcoin. When they say someone owns BTC, it means that they have access to a key-pair which includes:

A public key that holds some bitcoin that has been sent to it.

A private key that authorizes the BTC has been sent to the public key you wish to use for transactions.

Public keys are also called bitcoin addresses, which are made up of a series of letters and numbers that act like email addresses or usernames. These are public, so can be shared with others. You are required to share this address with people you want to transact with.

However, private keys are secret keys and must be kept safe. You must not share your private key with anyone you do not trust.

Sometimes, Bitcoin transactions take forever to be confirmed because all transactions must be verified by miners on the blockchain.

Another reason for long confirmation times is that blocks are limited to 1MB by the current Bitcoin protocol.

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What are Bitcoin transactions and how do they work?

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