A Bitcoin transaction is an act of transporting value from one Bitcoin address to another. All transactions are grouped into blocks and saved in the network. Blocks are not encrypted therefore anybody can freely browse and see information about any given block in the blockchain at any time.

How Bitcoin transactions work

Bitcoins can be transferred to anyone with a correct Bitcoin address or a public key. To transfer Bitcoins, the current owner creates a new transaction that, in addition to specifying the number of Bitcoins, contains the hash of the previous transaction with which Bitcoins were delivered to the current sender.

The previous transaction becomes the “input”. A public key or Bitcoin address of the new recipient is indicated and becomes the “output”.

Transaction 1024x850 - Bitcoin TransactionsA Bitcoin transaction is then sent to the network over open channels without encryption. Before accepting Bitcoin transaction for processing the remaining nodes of the system verify the signatures. The correctness of the signature indicates that the initiator is the owner of the private key of the “output” address. All transactions are irreversible.

Transaction fees.

There is no mandatory commission In Bitcoin system; however, to speed up transaction processing, it is recommended to set a transaction fee. Users can voluntarily set the amount of the fee. If the sum of “inputs” of the transaction is greater than the sum of “outputs”, the difference is considered a commission, and it will be delivered to the creator of the block. Different client programs have their own rules and settings regarding the commission, and they usually calculate the recommended commission amount automatically.