A Beginner Guide on How Bitcoin Transactions Work

Introduction to Transactions

Transactions are a big part of how cryptocurrencies work. Almost anything that can be done on a blockchain is done through transactions, whether it’s sending cryptos, running Dapps, using Oracles, or even accessing DeFi services; they’re all done through transactions.

Much like traditional financial transactions, blockchain transactions involve the exchange of value, services, and commodities. But unlike traditional financial transactions, blockchain transactions do not require intermediaries and their fees and delays.

To understand how bitcoin transactions work, you need to understand blockchain transactions as a whole and what makes them special. Everything revolves around a blockchain’s self-governance and consensus protocols.

Introduction to Blockchain Transactions

Blockchain transactions differ from their traditional counterparts as no middlemen facilitate them; that’s blockchains’  whole point.

With traditional digital transactions, transacting parties require middlemen like banks and payment processors like Visa to facilitate transactions. These middlemen act as trusted authorities between transacting parties. While they are quite reliable in scalability and efficiency, they charge high fees and require time—sometimes spanning days—to fulfill transactions, especially international transfers.

Blockchain transactions are designed to remove the need for go-betweens by creating a trustless system where counterparties transact with one another directly. However, because they transact directly does not mean that there isn’t a third party facilitating transactions. There are. They just aren’t granted access to the content of the transactions they process.

To create this trustless system, the central middleman must be replaced with a distributed peer-to-peer system, and this is where cryptography comes in.

By cryptographically encrypting transactions, facilitators only help “pass messages and transactions along” without viewing or altering them. Now you have a network where there are many facilitators, where the content of transactions is invisible to third parties, and where there is no central authority. But all this can be achieved without a blockchain, so why build one?

The Case for Blockchains

A blockchain is a distributed public ledger that anyone can access and, on which anyone can view all processed transactions. (However, private blockchains also exist). Think of it like SQL on a large, public scale, but maintained by everyone who uses the database, not just one dedicated database administrator.

What makes a blockchain special is its mechanism for ensuring authenticity. The network built upon the ledger ensures that no one can alter transactions once they have been published, double-spend, i.e., spends the same funds twice, or spend funds they don’t have.

The network also guarantees ownership of digital assets and ensures authenticity in the transfer of said ownership. For example, a physical asset like a house cannot be duplicated and sold to multiple buyers. A car or computer cannot be duplicated and sold to multiple buyers; however, an e-book can be duplicated a million times and sold to tens of millions of buyers.

While selling several copies of the same e-book is legal and ethical, doing the same for other digital assets like rights or intellectual property may cause problems. Blockchain networks ensure that any particular resource can only be used once. The public ledger at the heart of the network is a database that can store more than transaction and cryptocurrency. The blockchain can also store ownership.

And because blockchains are immutable, any transaction or contract, once published on the ledger, cannot be changed, thereby reducing the risk of data tampering and fraud.

Characteristics of Blockchain Transactions

Haven established blockchain’s immutability and open-source nature, along with the network’s distributed and cryptographically encrypted anatomy, we still need to establish a way to ensure transactions run smoothly.

In a centralized system, transactions are overseen by a governing entity. However, seeing that distributed systems have no central governance system, protocols must be built into the system to govern activities. It is these protocols that govern blockchain transactions without the need for human interference.

These rules allow blockchain transactions to be:


Thanks to blockchain’s immutability, transactions are virtually impossible to reverse or alter. Transactions are also published on the ledger, where anyone can see it. Due to this irreversible nature, blockchain transactions can be trusted.


Blockchain networks like Ethereum allow the creation of smart contracts that run autonomously. Once written and implemented on the blockchain, these contracts will run unhindered until it executes every command coded into it.

Bitcoin Transactions

On the wallet/user side, when a transaction is sent, the system first checks to ensure that the wallet is authorized to send that transaction; the wallet must have enough bitcoin in its balance. The system also checks if the wallet is trying to spend the same currency twice. If everything checks out, the system approves the transaction.

While every blockchain is immutable, public, and secure, transactions are handled by the network. Protocols set the communication and transfer of data between nodes, and a consensus model ensures agreement between all nodes.

The nodes agree on what types of transactions to approve and which to decline, how those transactions are approved, and who gets to approve them.

The Bitcoin network processes transaction in blocks, where each block is 1Mb in size. The network uses a consensus model called the Proof-of-Work model or PoW that requires all nodes (or miners) to solve a hard, cryptographic puzzle. This puzzle demands large computing power, and nodes race against one other to solve it first.

When a node succeeds, it gets to process the next block of transactions. The other nodes inspect the block once the first node is done and, once verified, add the block to the blockchain. All the nodes then update their copies of the blockchain.

This process is called mining, and the nodes are miners. While it occurs every 10 minutes within the Bitcoin network, transactions can take anywhere from a few seconds to a long time as a very high volume of transactions may create a backlog that must be processed on a first-come-first-serve basis. Still, sometimes the transactions with a higher fee are processed with priority.

Benefits of Bitcoin Transactions

The Bitcoin Network ensures that all transactions are genuine, that users can’t spend what they don’t have, and that no one spends the same crypto twice. In essence, the network ensures a fraud-proof system.

The network’s distributed nature also reduces the cost of sending global payments as geographical constraints do not affect the network.

Problems Associated with Bitcoin Transactions

The world’s largest digital payment processor, VISA, handles 65,000 transactions per second. The second runner up, cryptocurrency network Ripple, handles 1500 transactions per second. The Bitcoin Network processes a mere 7 transactions per second, far too low to meet global demand.


Bitcoin live price
price change

Bitcoin transactions are safer and more secure than traditional ones offered by banks, but they still face scalability issues. However, new technologies like the Lightning Network are being developed to remedy this issue.

Stay up to date with our latest articles

More posts

How Does KYC Work in the DeFi Space?

Decentralized finance (DeFi) has the potential to reach mainstream adoption and empower people worldwide financially. However, without regulations and identity control, it can easily become a platform for scams, fraud, and money laundering. The paradox is that by introducing stricter control on who can access DeFi products, the industry loses its "decentralization" factor. After all, this is what set it apart from traditional centralized finance (CeFi) in the first place. This is where KYC (Know Your Customer) standards come in…

An Easy Guide to Initial Gaming Offerings (IGO)

Initial Gaming Offerings, or IGOs, have been gaining in popularity as of late. This guide will explore the ins and outs of IGO investing. The aim of this post is to help you make informed decisions about this investment opportunity.  We'll cover everything from what they are and how they work to the benefits and risks associated with them. At the end of the guide, you will find it easier to assess IGOs on the market. What Are IGOs, and…

Initial Metaverse Offerings (IMO) – A Beginner’s Guide

Initial Metaverse Offerings (IMO) allow businesses to raise money by issuing tokens on the blockchain. IMO offer investors a chance to get in on the ground floor of exciting new projects. Through an IMO, you may provide businesses with the capital they need to get started.  This guide will explore what IMO are, how they work, and what you need to know before investing in one. What Are Initial Metaverse Offerings (IMO)? Initial Metaverse Offerings are a way for blockchain…

What Is Liquid Staking? A Beginner’s Guide

Liquid staking is a new way to stake your coins and earn rewards. Here we will show you how to get started with liquid staking and explain the benefits of this new system. We will also discuss the main difference between standard staking and liquid staking. What is Liquid Staking? Liquid staking is a way to earn rewards for holding tokens. You can stake your tokens and then easily withdraw them if necessary with liquid staking.  This makes it an…

Sleep Minting – A Guide to a Potential Threat for the NFT Market

Sleep minting happens when a scammer mints an NFT to a renowned creator's wallet with authorization to retrieve it. This gives the impression that creators legitimately minted an NFT to themself before sending it to a criminal. This guide will teach you how to protect yourself from sleep minting scams. Moreover, we will mention what steps you can take to prevent the phenomenon from happening. What is Sleep Minting? Scammers utilize "sleep minting” to mint an NFT and deposit it…

NFT Floor Price – A Beginner’s Guide

When you think about it, the concept of a floor price is relatively simple. It’s the price below which no one can sell an asset. In traditional finance, a centralized exchange is responsible for setting a floor price.  For example, if a stock falls below a threshold, the exchange may halt trading to prevent prices from dropping further. The same principle applies to digital assets and securities. The floor price for an NFT depends on supply and demand, historical prices,…

How Do NFT Transaction Fees Work?

When sending or receiving NFTs, you'll need to pay a fee to the blockchain to process the transaction. This fee helps to cover the costs of processing and validating the transaction. The fee varies depending on the blockchain, but it's generally small. If you're new to NFTs, then it's important to understand how transaction fees work before sending or receiving any tokens. By understanding the fees involved, you can avoid unexpected costs and make sure blockchains process your transactions smoothly.…

Buying and Selling NFTs – The Most Important Criteria to Consider

Non-Fungible Tokens (NFTs) are digital assets that are not interchangeable. They each have unique characteristics, making them unlike any other token on the market. For this reason, they hold a lot of potential for various industries and use cases.  In this guide, we will take a look at the most common criteria for trading NFTs. What Are NFTs? NFTs are unique digital assets and cannot be interchangeable. This feature makes them perfect for various applications, including gaming, collectibles, and online…

How to Protect Yourself from NFT Scams

As the popularity of cryptocurrencies and blockchain technology continues to grow, so does the potential for scams and fraud. In this article, we’ll go over some common threats to your safety when investing in or using non-fungible tokens (NFTs).  The guide will provide some tips on how you can protect yourself from these dangers.  The NFT Opportunity and Its Appeal to Scammers Blockchain, a decentralized ledger tracking all transactions involving an item, is where NFTs reside. NFTs can represent anything…

The Importance of Smart Contract Auditing

Smart contracts are the innovation that propelled blockchain technology to where it is today. This invention fulfills the agreement between all the parties in a deal without the need for intermediaries. As a result, it boosts the security and immutability of a blockchain network, allowing numerous and diverse applications to develop. Unfortunately, smart contracts are not flawless and could lead to million-dollar losses if hackers can exploit their tinniest loopholes. For example, some famous attacks on smart contract code glitches…