Definition of a Bitcoin Transaction
A Bitcoin transaction is a digitally signed data structure that records the transfer of bitcoins between participants on the Bitcoin network.
It is the fundamental building block of the Bitcoin system, enabling the peer-to-peer transfer of value without intermediaries.
Life Cycle of a Bitcoin Transaction
The complete lifecycle of a transaction from creation to confirmation is shown below:
Step 1: Transaction Creation
- Sender initiates a transaction using wallet software
- The software selects inputs (UTXOs), defines outputs, and creates the transaction
Step 2: Digital Signing
- The transaction is digitally signed using the sender’s private key
- This proves ownership and authorization to spend the bitcoins
Step 3: Broadcasting
- The signed transaction is broadcast to the Bitcoin peer-to-peer network
- It propagates via a flooding algorithm to all nodes
Step 4: Mempool (Transaction Pool)
- Each full node places the transaction into a memory pool (mempool)
- This is a temporary queue for unconfirmed transactions
Step 5: Mining
- Miners select transactions from the mempool, prioritizing based on transaction fees
- Miners add valid transactions into a candidate block
- The block is sealed by solving a Proof-of-Work (PoW) puzzle
Step 6: Block Broadcasting and Confirmation
- The mined block is broadcast to the network
- Once other nodes validate the block, they accept it into their copy of the blockchain
- The transaction gets “1 confirmation”
Step 7: Finalization
- Each new block added to the chain increases the confirmation count
- A transaction is typically considered fully confirmed after 6 confirmations
- After confirmation, the receiver can safely spend the received bitcoins
Bitcoin Transaction Data Structure
A Bitcoin transaction is a structured data object that defines the transfer of value across the blockchain. At a high level, a transaction contains:
- Metadata: Info about how to process the transaction
- Inputs: References to previously received (unspent) bitcoins
- Outputs: Information on where to send the bitcoins
