What is a Bitcoin Transaction?

8 min readarticleIncludes quiz · 3 questions

A Bitcoin transaction is a message that transfers ownership of Bitcoin from one address to another. It's like writing a digital check, but instead of signatures on paper, you use cryptographic signatures. Once confirmed, transactions are permanent and irreversible.

What is a transaction?

  • •Definition: A data structure that transfers value from inputs (coins you own) to outputs (recipients).
  • •Components: Inputs, outputs, signatures, version number, locktime.
  • •Size: Measured in bytes (typically 200-500 bytes for simple transactions).
  • •Broadcast: Sent to the Bitcoin network where miners include it in blocks.
  • •Finality: Once confirmed in a block, transactions cannot be reversed (unlike credit card chargebacks).
Transaction Flow
Transaction Flow

Key Definitions:

  • •Transaction (tx): A transfer of Bitcoin from one or more inputs to one or more outputs.
  • •Transaction ID (txid): A unique 64-character hex identifier (hash of the transaction).
  • •Input: Reference to previous unspent output (where coins come from).
  • •Output: Destination address and amount (where coins go).
  • •Signature: Cryptographic proof that you own the private key to spend the input.
  • •Confirmation: When a transaction is included in a block and added to the blockchain.

Transaction Lifecycle:

1. Create: Your wallet constructs a transaction with inputs and outputs. 2. Sign: Your private key signs the transaction to prove ownership. 3. Broadcast: Transaction is sent to Bitcoin nodes. 4. Mempool: Miners collect unconfirmed transactions in their memory pool. 5. Mining: A miner includes your transaction in a block. 6. Confirmation: Block is added to the blockchain (1 confirmation). 7. Finality: More blocks are added on top (6+ confirmations = very secure).

Transaction Lifecycle
Transaction Lifecycle

Transaction vs Payment:

  • •One transaction can have multiple outputs: Pay several people in one transaction.
  • •Multiple inputs possible: Combine coins from different addresses.
  • •Atomic: Either the entire transaction succeeds or fails—no partial transactions.
  • •Public: All transactions are visible on the blockchain.
  • •Pseudonymous: Addresses don't show real names (but can be traced).

Example Transaction Structure:

``` Transaction: Version: 2 Inputs: [ { Previous tx: abc123... Output index: 0 Signature: [your signature] } ] Outputs: [ { Address: 1A1zP1eP... Amount: 0.5 BTC }, { Address: 1B2cD3eF... (change) Amount: 0.4999 BTC } ] Fee: 0.0001 BTC Locktime: 0 ```

Test Your Knowledge

This lesson includes a 3-question quiz (passing score: 75%).

Quiz functionality available in the mobile app.