Millions of US dollars worth of Bitcoin (BTC) changes blockchain locations on a daily basis. The blockchain technology behind BTC is what enables this virtual currency to function smoothly and conduct transactions between any two Bitcoin addresses in just 5 to 10 minutes, which is much faster than a classic bank account transfer.
A Bitcoin transaction is the most basic day to day operation for crypto traders and BTC enthusiasts. It’s quite easy to initiate a transaction from your crypto wallet, especially if you’re using a wallet which provides exceptional user experience such as Zelcore. All you need to do is specify how much BTC you wish to send to a third party address, input the destination address, approve the transaction, and the coins are on their way.
However, a lot of crypto traders don’t really know the exact mechanism behind BTC transfers. Let’s take a closer look at the technology behind BTC transactions to find out how they work.
Bitcoin Blockchain Basics
The Bitcoin blockchain is the first cryptocurrency network in the world. It was launched in 2009 by anonymous developer Satoshi Nakamoto, with the aim of providing people with decentralized, digital cash that’s far more versatile than traditional, fiat money.
The blockchain has the form of a linear string of data blocks, which contain BTC transaction data. These blocks are set from first to last block and the content of each block is immutable, which means that the contents can’t be changed after they are approved and added to the chain. Block data immutability is a key aspect of blockchain security, since it makes sure that no one can tamper with the approved blocks and change the destination address of the approved transactions.
The only way someone could manage to steal funds from approved blocks is if they managed to take control of at least 51% of BTC network nodes, thus gaining the authority to change the contents of data blocks. This is nearly impossible, because there are thousands of BTC full nodes, run by independent miners.
Each block contains a maximum of 1MB transaction data, which must go through a complex verification process in order to reach its destination address.
Bitcoin addresses are a vital component of the blockchain because they serve as virtual, blockchain locations for storing BTC. Your Bitcoin address, also known as a public address is the blockchain location where someone can send you BTC. It’s totally safe to share your BTC address with third parties who are supposed to send you Bitcoin.
The private address, or private key on the other hand is a sort of blockchain password that proves your ownership over the bitcoins in your public address and it let’s you manage those funds as you wish.
You can’t initiate a BTC transaction if you don’t have the appropriate private key for your public address. Private keys are regulated by crypto wallets and they are usually kept on the device you’re using to access your wallet, if the wallet is a non-custodial wallet like Zelcore.
Bitcoin transactions can best be described as cryptographic messages sent out through the blockchain. These messages contain various information about the funds you’re transferring, such as sender and recipient address, transferred amount, transaction ID (TXID), transaction hash and transfer timestamp.
When you’re sending some BTC through the blockchain, you’re actually sending information through blockchain network nodes that are responsible for validating your transfer and acknowledging that a certain amount of BTC has changed ownership.
The TXID serves as a unique identifier of each transaction on the blockchain. No two transactions are identical, because every single one of them has a unique ID, which enables users to track their transaction through a BTC blockchain explorer platform.
A transaction timestamp is used to label each transaction with the exact time it was processed through the blockchain, which is another useful characteristic for tracking transactions. It is also used for setting transactions within data blocks in a chronological order.
Finally, there’s the transaction hash. Each transaction has a unique hash which is used to process it by miners through the blockchain. Miners need to use their computing power to reveal the right 64-digit hash for each transfer before they can process the transaction to its destination.
How BTC Transactions Work
When you start a BTC transaction, the first thing that happens is your transfer goes to the memory pool (mempool), where it waits alongside other pending transfers for a miner to pick it up and start processing it. Miners play the role of network nodes in the BTC blockchain, with the help of their strong mining rig computers. Since the BTC network is fully decentralized, it is the responsibility of random miners to process transactions and verify their validity, in exchange for transaction fees and block rewards of fresh Bitcoin.
After a miner picks up your transaction for processing, they use their mining rig’s processing power to find the right hash for your transaction through trial and error. This process requires a lot of time and energy, so miners team up in online mining pools, where they combine their processing power to find transaction hashes faster, and share the rewards.
Once a miner finally finds the right hash for your transfer, they present it to the rest of the BTC network as proof of work (PoW). Additional miners then check the validity of the hash and once the process is finished, your transfer gets added to the next block of the blockchain, and it reaches its destination address. The miners involved in the validation of your transfer get rewarded with fresh BTC and your transaction fee. The whole transaction process takes an average of 5 to 10 minutes thanks to the joint computing power of miners in BTC mining pools.
The complex technology behind BTC transactions is usually taken for granted by crypto traders, but it’s actually quite important to understand how Bitcoin transactions work. After all, BTC is the most popular crypto on the market and it’s only natural that Bitcoin traders should take the time and learn about the mechanism behind the 21st century digital gold.