The Bitcoin transaction system is very different from the money transaction system from banks in general. One of the things that distinguishes it is the peer to peer system and the blockchain system which is the mechanism of transactions that occur in the Bitcoin network. If you have ever sent or received Bitcoin, you must know how the transaction system is different from other transaction systems. That’s because no third party has to confirm the transaction, and it’s faster than bank transfers. How does the Bitcoin transaction mechanism work? Tokenomy will explain further in this article!
What is a Bitcoin transaction?
A Bitcoin transaction is a process of transferring a certain amount of Bitcoin within the blockchain system. Basically, it is a transfer between individuals where Individual A sends Bitcoins from their digital wallet to Individual B’s digital wallet. The digital wallet is a storage place for Bitcoin and facilitates transactions within the Bitcoin network. This Bitcoin wallet stores the user’s key, which allows the user to make transactions in the blockchain system. Bitcoin transactions occur over the internet network, which you can do via a smartphone or computer.
How does a Bitcoin Transaction Work?
For Bitcoin users, transactions can be as simple as writing down the amount to be sent and the recipient’s digital wallet address before hitting the send button. They don’t have to worry about the technical issues that make it possible. However, it is interesting to know more about the mechanics of Bitcoin transactions.
Bitcoin uses cryptography-based public keys to ensure the integrity of transactions made within its network. To transfer Bitcoin, each participant must have a public and private key to control their Bitcoin. The public key is a unique set of letters and numbers that users use to receive a certain amount of Bitcoin.
In contrast, the private key must be kept secret because its function is to confirm the existence of a transaction. Thus the Bitcoin wallet remains safe from attempted Bitcoin transactions by others.
Overview of Bitcoin Transactions
To illustrate how transactions work in the Bitcoin network, consider the following example transaction to help you understand. A Bitcoin user named Gina will send 0.5 BTC to Chandra. In the process, the mechanism will be divided into three significant parts:
- Input: a Bitcoin address that contains the number of BTC coins Gina will send. To be more accurate, this address is used by Gina to send Bitcoin to other users.
- Output: Chandra’s public key or the address of Chandra’s Bitcoin digital wallet.
- Amount: the number of BTC coins that Gina wants to send.
For Gina to send a certain amount of Bitcoin to Chandra, she must mark the sending/transaction on the network using her private key. The transaction message contains the input, output, and amount described above. The transaction will then be announced to the rest of the network, where some nodes will verify Gina’s private key so that she can access her input.
After the transaction is reported to the network, miners acting as nodes will then validate the transaction through block creation. After that, a new block will be created on the network and become irreversible proof of the transaction. It will then be propagated across the network to complete the transaction process.
Bitcoin Transaction Fees
Bitcoin users can control how quickly their transactions are processed by deciding how much fee to pay. The higher the fee, the faster the transaction will be processed. Each block in the blockchain network can only process 1MB of information. Because of this limited amount, only a small number of transactions can be included in the block. This means that the network will prioritize transactions with the highest fees. When the network is busy, when a large number of users want to make transactions, all transactions with high fees will be inserted into the latest block.