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Bitcoin course for beginners 2 - 06/11

How transactions work?



A bitcoin transaction is a transfer of bitcoin from one address to another.

Entire coins but also pieces of coins – Remember that 1 bitcoin contains 100 million Satoshis.

This transaction must be signed by the sender in a series of cryptographic operations. All transactions are then broadcasted to the mempool and are not verified yet.

We say they are “pending”.

Then, this transaction (once verified by a miner and confirmed at least 6 times) is stored forever in a block inside the blockchain.

As we have seen previously, bitcoin uses public-key cryptography to make sure that the transaction is not hacked. The sender and the receiver of the coin use a pair of public-key and private-key that allow ownership of the pieces of bitcoin exchanged in the transaction.

When the sender sends a transaction, she can choose how quickly it will be processed by setting the fee rate. A high fee means that the transaction will be delt with very quickly. On the contrary, a low fee means that the transactions will be processed later as miners are driven by profit making.

During times of high network congestion, the transactions with the highest fees are more likely to be processed in the next block.

It is paramount to understand that the capacity of each block in the blockchain can only contain up to 1MB of data. In the bitcoin ecosystem, the debate over the storage capacity of each block is raging as space is limited and a limited number of transactions can be included in each block.


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