Chapter 4:
Bitcoin Transactions
Section 1: How Do Bitcoin Transactions Work?
Bitcoin transactions enable the transfer of value between participants on the Bitcoin network. Understanding the process of Bitcoin transactions is essential for effectively utilizing the cryptocurrency. Here's a breakdown of how Bitcoin transactions work:
- Transaction Initiation: A Bitcoin transaction begins with a sender creating and digitally signing a transaction using their private key. The transaction includes the recipient's Bitcoin address, the amount being sent, and other necessary details.
- Transaction Propagation: Once the transaction is signed, it is broadcasted to the Bitcoin network. Nodes in the network receive the transaction and propagate it to other nodes, ensuring its dissemination throughout the network.
- Transaction Verification: Miners on the network collect transactions into blocks and validate their authenticity. They verify that the sender has sufficient funds and that the transaction adheres to the network's rules. This verification process ensures the integrity of the transaction.
- Inclusion in a Block: Once validated, the transaction is included in a block, along with other transactions. Miners compete to find a valid solution to a cryptographic puzzle, and the first miner to solve it adds the block to the blockchain.
- Confirmation: As more blocks are added to the blockchain, the transaction becomes increasingly secure. A transaction is considered confirmed when it is included in a block and subsequent blocks are added on top of it. The number of confirmations indicates the level of security and finality of the transaction.
