How Bitcoin Transactions Work.

Bitcoin transactions are more complex than you might think. You rarely simply send an amount of bitcoin in one go. Instead, your bitcoin wallet and the bitcoin network have to go through a set of steps to ensure that the right amount of electronic money gets to the recipient.

Fundamentals of Bitcoin Transactions.

Firstly, it’s important to understand what a bitcoin looks like. It isn’t a single record of a coin, as you might find on an accounting ledger or on your bank statement. Instead, it’s registered as a transaction, comprised of three things: a transaction input, a transaction output, and an amount.

• The transaction input is the bitcoin address from which the money was sent.
• The transaction output is the bitcoin address to which the money was sent. If the bitcoin is in your wallet, that will be the bitcoin address under your control.
• The amount is the amount of bitcoin that was sent.

The bitcoins that you send to someone were sent to you from someone else. When they sent them to you, the address that they sent from was registered on the bitcoin blockchain as the transaction input, and your address – the address they sent it to – was registered on the bitcoin network as the transaction output.

When you send that bitcoin on to someone else, your wallet creates a transaction output which is the address of the person to whom you’re sending the coin. That transaction will then be registered on the bitcoin network with your bitcoin address as the transaction input.

When that person then sends those bitcoins to someone else, their address will, in turn, become the transaction input, and that other person’s bitcoin address will be the transaction output.

Using this system, people can trace bitcoin transactions all the way through to when the bitcoin was first created, understanding who sent it to whom, at any point in time. This creates a completely transparent system in which all transactions can be checked at any time.