How do Bitcoin transactions work?
Bitcoin transactions are the process by which users exchange bitcoins. Here’s an overview of how they work:
1. Wallets
Each user has a digital wallet, which is a software program that stores public and private keys. Public keys act as an address for receiving bitcoins, while private keys are used to authorize outgoing transactions.
2. Creating a Transaction
To initiate a transaction, the sender creates a message that includes the recipient's public key, the amount of Bitcoin to be sent, and a digital signature created using the sender's private key. This signature verifies the transaction's authenticity.
3. Broadcasting
The transaction is then broadcasted to the Bitcoin network, where it enters a pool of unconfirmed transactions known as the mempool. Miners, who validate and add transactions to the blockchain, select transactions from this pool based on transaction fees and other criteria.
4. Validation and Confirmation
Once a miner picks up a transaction, they verify its validity by checking if the sender has sufficient funds and if the transaction follows Bitcoin's rules. After validation, the transaction is included in a new block added to the blockchain.
5. Finality
Once a transaction is included in a block, it is considered confirmed. Each subsequent block added after confirms the transaction further, enhancing its security and permanence within the blockchain.
In summary, Bitcoin transactions involve creating, signing, and broadcasting messages, validating them through a decentralized network, and recording them on a digital ledger known as the blockchain.