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September 25, 2020
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How do transactions work on the Bitcoin network? Bitcoin for beginners Blocksats

Do you know how transactions work in the Bitcoin network? The foundations of the oldest cryptocurrency were recorded in Whitepaperra by Satoshi Nakamoto. One of them is the vision of BTC as a digital currency used to perform fast transactions between network users. The transaction mechanism for a beginner cryptomaniac at first glance can be complicated, so in this article we will try to present it in the simplest way possible.

How do transactions work on the Bitcoin network?

If you already belong to a small group of lucky people with any amount of Satoshi, you certainly already have some Bitcoin wallet. The adventure with the first transaction starts right here. To understand how it works, we will now trace the path of a single Bitcoin that it has to travel from one wallet to another. To this end, we will take you on a journey by plane (currently the fastest way to international travel).

In the vast majority of cases, every transaction has its beginning in the sender’s wallet, the end in the recipient. The first important stop of every transaction in the Bitcoin network is the station that is called mempool (short name from memory pool).

What is mempool?

If I had to compare mempool to something, I would describe it as a check-in at the airport. It is a set of all transactions in the Bitcoin network, waiting for verification and confirmation, which will be saved in the next generated block.

However, before the transaction “falls” into Mempool, it must reach all active nodes in the BTC network along the way. Their task is to check the correctness of the transaction.

Mempool is part of BIP35, it solves the problems of SPV clients (light wallets) that receive information about the transaction sent before confirmation and introduction to a specific block. It also serves as a performance measure and network diagnostic tool because it allows you to determine the degree of “corking” of the network, which in turn translates into the speed of transaction processing and the amount of fees.

Mempool size varies depending on the number of transactions. For example, if the size of Mempool is about 3 MB, then the vast majority of transactions will have to wait at least one or two blocks until they are confirmed. This is due to the fact that each block has a size of 1 MB, so emptying the entire pool can take up to 3 confirmations (assuming that no new transactions are coming).

The role of Bitcoin miners

When sending Tx (transactions), miners play a very important role. It depends on them how quickly your transaction will be processed. Miners not only compete with each other for the extraction of another block, but also want to process those transactions in the Bitcoin network that have high fees. Currently, the vast majority of recommended Bitcoin wallets allow you to manually set the amount of fees. If Tx has a large fee, its chances of quick processing increase significantly.

The miners are competing with each other, and so is the fight in mempool between transactions. Miner takes a certain pool of transactions from Mempool and begins the hashing process.

This process is repeated until a certain amount of 0 is obtained at the beginning of the hash. If the miner gets the required number of zeros at the beginning of the hash, it means that he has found a validated block. The next step is to transfer the transaction from Mempool to the block and transmit it to the nodes. After correct verification of the block by nodes, the full nodes are updated and the blockchain is enriched by one more block.

At this point we come to the next issue, strongly related to our transaction, namely: Bitcoin digging difficulties.

Difficulty digging BTC and transactions in the Bitcoin network

The difficulty of extracting another block in the Bitcoin network is an automated process, planned in advance in the protocol. It adjusts automatically every 2016 blocks or every two weeks. The whole process is based on available computing power.

Simply put, this is the required number of zeros at the beginning of the block that the miner must find during hashing.

The decrease in Bitcoin network power (hashrate) means the increase in time needed to mine the next block. On average, every 10 minutes a new block should appear in the BTC blockchain. If this time increases, the network itself adjusts the difficulty of digging, thus encouraging miners to work.

As the hashrate increases, the speed of mining another block in the network increases, then we can expect an increase in digging difficulty. Similarly, when the hashrate falls, Bitcoin reduces the difficulty. A masterpiece, right?

On page https://diff.cryptothis.com/ you will find detailed data on the current and future digging difficulty.

The creator of digital gold best defines transactions in the Bitcoin network:

“We define Bitcoin as a digital signature chain. Each owner transfers Bitcoins to the next one, digitally signing the hash of the previous transaction and the public key of the next owner and adding them at the end of the coin. The recipient can verify the signatures to verify the ownership chain. “

– Satoshi Nakamoto, Whitepaper Bitcoin.

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