What happens during blockchain transactions? Learn the basics about this essential part of cryptocurrency.
after reading this, you'll understand:
A transaction must be validated by a node or nodes.
Each time a block is recorded, it's assigned a block header containing information about that block.
To view a blockchain transaction, you must go to the correct block explorer website.
Blockchain technology is now mainstream, but many don't understand what happens behind the scenes. It can feel borderline mystical, even if you regularly get paid or make payments using cryptocurrency. Understanding the ins and outs of blockchain transactions can help you start to make the most of the technology.
Blockchain is an immutable ledger used for recording transactions, tracking assets, and, in many cases, facilitating the use of on-chain programs called smart contracts. It started with Bitcoin, but there are now numerous blockchain networks that each have unique features. For example, most chains support smart contracts, whereas the Bitcoin network does not. Nonetheless, examining a transaction on the Bitcoin network can be helpful, as its concepts are foundational for many other networks.
In simple terms, a blockchain transaction is the transfer of value using blockchain technology. Blockchain transactions require a wallet that lets you interact with the network. Each wallet has a private key used to access its assets and a public key used as an identifier. Public keys are randomly generated and safe to share with other individuals, whereas private keys should never be shared.
A blockchain transaction can be a transfer of value between two users or between wallets owned by the same person.
Bitcoin transactions begin when one user decides to send funds from one wallet to another. To do this, they must open their wallet, input a public key, specify how much Bitcoin they want to send, and sign the transaction. Once a transaction is sent, it is validated by a node that records new transactions. The global network nodes collectively check incoming transaction information against the transaction history. Once they confirm the transaction is valid, it is sent to the mempool (memory pool) for miners to verify. That is a database of unconfirmed or pending transactions that each node keeps.
Miners use powerful computers to verify incoming transaction blocks and are awarded the transaction fee for their contributions. Networks that use miners for transaction verification, such as the Bitcoin blockchain, require large amounts of energy. These networks are known as proof of work and can be controversial because of the amount of energy they use. Alternatively, many blockchain networks use the proof-of-stake consensus. Proof-of-stake blockchains let network members lock their coins to validate transactions, resulting in lower fees and less energy use.
Once a miner verifies an incoming Bitcoin transaction block, it is stored on the blockchain. Blocks are collections of immutable data permanently stored in the Blockchain database. Each new block contains various pieces of information, such as a timestamp, a list of transactions within the block, and an encrypted number miners must solve to verify and close the block. Each time a block is recorded, it's assigned a block header containing information about that block. The next block in the chain includes an encrypted hash of the header for the previous block.
Some transactions take longer than others; this is usually related to the fees involved. Each block is capped at 1 MB of data, and miners choose which transactions to include based on the fees. Generally, trades with higher fees are prioritized over those with lower fees. In some cases, you will pay higher fees for larger transactions. In other cases, you may set your fees manually to avoid overpaying — if you're willing to wait until network traffic drops.
Blockchain enthusiasts are quick to point out that transaction records are publicly viewable. Still, viewing transactions on the blockchain network requires some know-how. To view a Bitcoin transaction, you'll need to navigate to a block explorer website. Blockstream and Blockchain.com are popular options for finding Bitcoin transactions. If you're searching for transaction information for another chain, you must know which block explorers that network uses for transactions. For example, Etherscan is a popular choice for Ethereum, and most Algorand network members use AlgoExplorer.
Transaction information can look confusing at first glance, but you can easily read them once you learn more about them. You'll need certain information to use block explorers, such as a wallet address to look up a user's balance or a transaction ID to find information about a specific transaction.
Each entry contains the sending and receiving addresses. This information can be handy for looking into other transactions involving those wallets. You may notice multiple inputs in the sending or receiving address field. This usually means the transaction was batched using a cryptocurrency exchange. You'll also see the transaction amount, fee amount, and a timestamp.
Using the Bitcoin network's block explorer, you can see the transaction's status. If it has less than six confirmations, it could be ruled invalid. Each transaction also has information on the block that contains the transaction. If you click on the block link, you'll be able to see the other transactions it contains.
Rather than using blockchain, the Hedera network uses a technology known as Hashgraph. Hashgraph uses a directed acyclic graph, allowing it to process transactions more quickly and reliably.
Hedera's gossip protocol is used to spread information quickly amongst nodes. When a node receives new transaction information, it shares it with another node randomly. The randomly-selected node transmits the information to another randomly chosen node, as does the original. Those nodes then select new nodes at random and share the information. This process continues until all nodes contain the new transaction information.
Each node creates an event once information is shared. The event history is known as gossip about gossip, represented by a DAG known as Hashgraph.
Hedera doesn't need miners to verify transactions, so less energy is used, and fees are predictable. It's an ideal solution for transactions of all sizes and can be used by businesses that process numerous blockchain transactions each day. There are multiple ways to view Hedera transactions, such as HashScan, Hedera Explorer, and DragonGlass. Similar to a block explorer, you can use these sites to glean information on the sending address, receiving address, transaction amount, and block.