How Do Bitcoin Transactions Work?

Bitcoin transactions are the way value is transferred on the Bitcoin network. They are digital messages, signed by cryptographic keys, and verified by the network through mining.

1. Inputs and Outputs

Each Bitcoin transaction has inputs and outputs:

• Inputs: References to previous transactions from which the sender received bitcoins.
• Outputs: Instructions on where the bitcoins should be sent (recipient's address).

2. Digital Signatures

The sender signs the transaction with their private key, proving ownership of the bitcoins being sent. This signature ensures authenticity and prevents fraud.

3. Broadcasting to the Network

Once signed, the transaction is broadcast to the Bitcoin network. Nodes verify it for correctness and propagate it to others.

4. Mining and Confirmation

Miners group transactions into blocks and compete to add them to the blockchain. When your transaction is included in a block, it's considered confirmed. More confirmations mean more security.

5. Transaction Fees

Most transactions include a small fee to incentivize miners. Higher fees can lead to faster confirmations during network congestion.

Conclusion

Bitcoin transactions are secure, transparent, and decentralized. Understanding how they work is essential to using Bitcoin safely and effectively.