Part 04: How Cryptocurrency Transactions Work

Let's walk through what happens when you send cryptocurrency to someone

Step-by-Step Transaction Process

1. You Initiate the Transaction

You decide to send 0.5 Bitcoin to your friend You enter their public key (their "address") You confirm the amount and any transaction fee

2. Digital Signature

Your wallet uses your private key to create a unique digital signature This signature proves you authorized the transaction The signature is unique to this specific transaction

3. Broadcasting to the Network

The transaction is broadcast to the blockchain network Thousands of computers around the world receive this transaction

4. Verification Process

Special computers called "miners" (Bitcoin) or "validators" (Ethereum) check: Do you have enough funds? Is your signature valid? Are you trying to spend the same coins twice?

5. Adding to a Block

Valid transactions are grouped together into a new block Miners/validators compete to add the next block to the blockchain This process can take seconds to minutes depending on the blockchain

6. Confirmation

Once added to a block, the transaction gets its first "confirmation" Additional blocks added after increase the confirmations More confirmations = more secure (usually 3-6 confirmations are considered safe)

7. Transaction Complete

Your friend can now see the cryptocurrency in their wallet The transaction is permanent and cannot be reversed

Transaction Fees

Most blockchain transactions include a small fee paid to miners or validators for processing your transaction.
Key points:

Fees Vary: Depends on network congestion and transaction priority
Higher Fee = Faster Processing: Miners prioritize higher-paying transactions
Some Blockchains Are Cheaper: Different blockchains have vastly different fee structures
Fees Are Usually Small: Often pennies to a few dollars, but can spike during high demand