Lesson 6: How Crypto Transactions Work

Understanding a Crypto Transaction

A crypto transaction is the process of transferring digital assets from one address to another using blockchain technology. Let’s break it down step by step.

1. Sender Signs the Transaction

The sender uses their private key to sign the transaction. This proves that they own the funds and approve the transfer. The signed message includes:

• The sender’s address
• The recipient’s address
• The amount to send
• Transaction fee (gas)

2. Broadcasting to the Network

Once signed, the transaction is broadcasted to the blockchain network. All nodes (computers) in the network receive it and verify it.

3. Validation by Miners or Validators

In Proof of Work (PoW), miners include the transaction in a block. In Proof of Stake (PoS), validators confirm its authenticity. Once the block is added to the chain, the transaction is considered complete.

4. Confirmations

Each new block added after the transaction increases its confirmation count. More confirmations = more security. Exchanges often require 3+ confirmations before accepting deposits.

5. Final Balance Update

Once confirmed, the blockchain updates both wallets. The sender's balance decreases and the receiver’s increases. All this is recorded on a public ledger.

Key Terms

• Gas Fee: The cost of processing the transaction, paid to miners/validators.
• Nonce: A unique number to ensure each transaction is processed once.
• TXID: A transaction ID used to track and verify on explorers like BscScan or Etherscan.

Checking a Transaction

You can view the status of any transaction using a blockchain explorer. Just enter the TXID or wallet address to see history, confirmations, and more.

Next up: In Lesson 7, we’ll explore what smart contracts are and how they automate blockchain actions.