Today, we will talk about the path of Bitcoin from “send” to “receive”. In this blog post, we’re going to go over exactly what happens to a single Bitcoin from the moment you hit the “send” button in your wallet until it’s received on the other end.

Hopefully, once we are finished, you’ll have a good understanding of how the Bitcoin network works and what’s the role of each specific player in the Bitcoin ecosystem.

So let’s get started! The path from send to receive can be understood in 3 simple parts: Signing, broadcasting and confirming.

Signing the Bitcoin Transaction

Ledger Nano X - The secure hardware wallet

Let’s start with the first part – signing. When you hit the “send” button in your wallet, what you're actually doing is telling your wallet: “Hey wallet, I want to send 1 Bitcoin to my friend. Here is my friend's Bitcoin address.” The wallet, in response, will create a transaction message having data about you (the sender), your friend (the recipient) and the amount being sent (in this case, one Bitcoin).

Afterwards, the wallet produces a unique digital signature for this message by mathematically mixing it with the sender's private key.

In our previous blog post, I’ve discussed the concept of the private key. It’s just a long string of letters and numbers that act as the “password” for your Bitcoins. Whoever knows your private key has control of your Bitcoins. A digital signature is a way to prove that you own the private key to your Bitcoins by using only your public key which you have no issue exposing, thus keeping your private key private. Also, a digital signature differs each time you sign a transaction – that’s the reason they are even more secure than a real signature since they are unique for every transaction.

So if you send your friend one Bitcoin today and then another Bitcoin tomorrow, both of these bitcoin transactions will have different digital signatures. After signing the transaction message, the wallet then groups the signature, along with your transaction message, into a small file. And this concludes the first step of signing the Bitcoin transaction.

Broadcasting the Bitcoin Transaction

After Signing. broadcasting happens. In the broadcasting step, the wallet starts sending out the file to other computers that are having a copy of the Blockchain. We call these computers as nodes. Each node that receives the file checks if it's legit. It’s basically looking to see that you actually have the bitcoin you want to spend and that your signature checks out, much like a banker would check your account balance before clearing your check. Once your file is verified, it’s then passed on to other nodes in the network that repeat this same process. When a node receives a file, it keeps it in a holding area termed as the Mempool. The Mempool, is an acronym for memory pool, is a space dedicated for valid but still unconfirmed transactions. Once the transaction message finds its way to the Mempool of the different online nodes on the network, we can say the second step of broadcasting is officially done.

Now, what is the status of our transaction at this point? To check the status of our bitcoin transaction through the bitcoin network, we can make use of the tool termed as "Block Explorer". The main function of block explorer is to allow you to search and navigate through the Blockchain. Using a block explorer, you can see the balance of different Bitcoin addresses, track transactions and get a wide variety of statistics about the bitcoin network. So at this point, if we look at our transaction through the block explorer, we will find it is marked as “unconfirmed”, meaning that it was broadcasted to the network and had its digital signature confirmed but it still isn’t part of the Blockchain. Such a transaction is termed as a "zero-confirmation transaction". An unconfirmed transaction should be considered as its name implies – unconfirmed. This means that the transaction is still prone to cancellation, and there’s no guarantee it will ever enter the Blockchain. If your business sells or ships goods and you accept payment in Bitcoin, you should never accept an unconfirmed transaction as a proof of payment.

Confirming the Bitcoin Transaction

Now we can move on to the final step – confirming our transaction. If you’ve read our previous post about Bitcoin mining, then you already know that miners group transactions together, meaning they take those files sitting around in the Mempool, group them together and create a block of transactions. You cannot insert endless transactions into a block; there is a limit. Therefore, miners will usually select the transactions that have the highest mining fees attached to them first. Miners will then have to compete with each other to get their block into the Blockchain.

 This mining race is based on mathematical calculations, and the miner with the most computational power tends to have the best chance of winning. Once a miner wins the race and gets his block into the Blockchain, all the transactions that were in that block will be considered as confirmed. Basically, the miners are writing the book of Bitcoin transactions history, and whoever wins the race gets to write the next page.

On an average, a new block of transactions will be mined, or inserted into the Blockchain, every 10 minutes. Keep in mind that this is on average. Sometimes 2 blocks are confirmed within 1 minute, and sometimes this can take almost an hour. If a block was mined with your transaction in it, you’ll notice it will now show on the block explorer as having one confirmation. As more and more blocks are added afterwards, the confirmation number grows. You can think of it as a building of blocks with our block at the very bottom. Every block set on top of our own block makes it harder to remove the block at the very bottom. That’s why it’s usually advised to wait for at least 6 blocks before considering a transaction as fully confirmed without any chance of cancellation.

That’s it! Our transaction is now fully confirmed and received. There are 3 simple steps - signing, broadcasting and confirming. Hopefully, you now have a better understanding of how the Bitcoin network functions. If you have questions about what we just covered, feel free to leave them in the comment section below.

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