The concept of a bitcoin transaction is very simple. A bitcoin transaction is a transfer of funds on the bitcoin network. For example, if you own 7 bitcoins (a common symbol for bitcoin currency is BTC) and you send 3 bitcoins to a friend, you are transferring the digital ownership of these 3 coins from you to the friend. The other 4 coins will remain in your digital bitcoin wallet and you will stay the owner of that amount.
It is important to understand that in bitcoin there is no “from” concept. While it is true that before you had your coins someone else had them (unless you mined the coins and received them as a bounty for adding a block to the blockchain), your coins do not have a “from address.” The reason the “from” concept is not present in bitcoin is that in the English language the word “from” frequently implies “from where” and there is no point of “where” in bitcoin because it is a decentralized network. The network is about peer-to-peer transactions and their history, not about tracking a certain wallet or behavior of a certain individual. The way transactions on the bitcoin network work is the following: you generate a public address for a transaction and you give it to someone. Then, this someone sends you money to the address. While you can use one address multiple times, for privacy and security reasons it is recommended that you generate a new address for each new transaction.
To send coins to someone, you will need to receive an address from them. When a recipient receives the coins, there will be no digital mark that the coins came from a certain person or party.
When you send funds in bitcoin to someone, the network needs to deem the transaction as valid. In order for this to happen, there has to be at least one input.
Inputs and outputs
An output is data with instructions for sending funds in bitcoins. An input is a reference to an output from a previous payment.
Blockchain technology is in part about keeping a record of all transactions. The technology does so by creating unique blocks that include information about transactions, which is why inputs and outputs have a link between them.
Every input is equal to an output from a previous transaction that has not yet been spent.
In addition to this, every input on the bitcoin network has to come with a digital signature that uses information from the private key associated with the wallet that is initiating the transfer of funds on the network.
A transaction may have multiple inputs because any bitcoin user can generate an infinite number of addresses for a bitcoin wallet.
For instance, if you have a balance in your wallet associated with addresses #3, #7 and #9, you can use these addresses to send funds. These addresses will become inputs in a new transaction. If you don’t have any balance associated with, say, addresses #1 and #2, these addresses will not be able to become inputs for a transaction because there is no unspent output associated with them.
A bitcoin transaction may have not just multiple inputs but also multiple outputs. You will have to deal with multiple outputs if you are sending money to multiple addresses. For example, you may initiate one transaction during which you send money to several of your friends and to a different bitcoin wallet that belongs to you. On the blockchain, this transaction will have a different output for each of your friends and a separate output for your different wallet.
Bitcoin transaction increments
The smallest increment of bitcoin you can send in a transaction is called satoshi. A satoshi is equal to 0.00000001 bitcoin, which means that 1 bitcoin can be split into 100,000,000 parts. The value of satoshi depends on the value of bitcoin and can vary greatly.
In reality, in terms of transactions bitcoin is not much different from cash. The amount of funds associated with all the inputs of a transaction can be greater than the amount of money that a user is sending, which will create “bitcoin change.” With traditional currency, a payer receives change from a recipient of a payment in the form of bills or coins. If the inputs for a transaction are greater than the amount of money that you are sending, you will receive change in the form of an output to the originating wallet.
Here is an example of how this works. Let’s say you received 4 bitcoins to a bitcoin address associated with your wallet. You want to send 1 bitcoin to a friend. The transaction will have 1 input, which is equal to the unspent output from the previous transaction, equal to the amount of money you received, 4 bitcoins. There will also be 2 outputs. The first output will be the transaction in which you are sending 1 bitcoin to a friend and the second output will be the transaction in which you will receive 3 unspent bitcoins back to your wallet.
There are several ways you can send money on the bitcoin network. First, you can ask the recipient for their address and then send the funds using the software on your computer or mobile device. For mobile users, there is another way. You can ask the recipient to generate a QR code and then send the money by scanning the code.