A transaction on a blockchain platform involves the transfer of Bitcoin. In simple terms, a transaction occurs when one person sends a designated Bitcoin amount to another person. Bitcoin was mainly developed to allow peer-to-peer transfers of electronic cash. No matter whether you are accepting or sending Bitcoin as payment, you may be interested to understand how the respective transactions work in the system.
How do Bitcoin transactions work?
Bitcoin uses public-key cryptography to create integrity between transactions on the network. While transferring a Bitcoin, the involved participants need to use their pairs of private and public keys that can control Bitcoin pieces owned by them. In this scenario, a public key is basically a series of unique numbers & letters that the user needs to share to receive funds from another part. At the same time, the private key must be kept secret as it helps to authorize spending of the amount received on sharing the relevant public key.
Using a private key linked to the Bitcoin, a person can easily sign transactions and in this way, they permit the transfer of values to the new owner. Such authorized transaction is further broadcasted on the Blockchain network.
Overview of a Transaction on Blockchain:
When you are transferring a Bitcoin on the blockchain network, there are a few simple events that occur. Below we have listed three essential parts of a Bitcoin transaction on Blockchain:
- Inputs: It contains the Bitcoin address where Bitcoin is stored. In order to be more specific, this address is the one from which a person has received Bitcoin earlier and is now willing to spend it further.
- Outputs: This is the public key of the recipient or we can also call it the Bitcoin address.
- Amounts: It represents the amount of Bitcoin that sender wants to transfer to the receiver.
In order to send a Bitcoin to B, A needs to sign a message including transaction details and it is done with the help of a private key. This message includes the amount, output, and input for the specific transaction. On authentication, this transaction is broadcasted over the blockchain network and the nodes further pass it to the minding node. Soon after that miners will order this specific transaction into a block template. Note that this is basically a blueprint for a specific block that the respective miner is trying to add to the blockchain network. When the miner identifies the next block, the block template gets mined and then it turns into an immutable block. Ultimately, the block gets broadcasted to the nodes of the network and its copy will be saved in the chain.
The Bitcoin users also pay a small amount of fee to execute any transaction. Higher fee rates usually ensure faster processing of the amount. It is important to mention that every block can have only 1MB of information at max and as the space is very limited, it is possible to add only a specific number of transactions into every block. For large bitcoin transactions at the time of network congestion, the transactions that have the highest fees are likely to enter the next block.
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