Behind the scenes of a Tx (Transaction)

If Bob sends Sarah 1 BTC, what really happens under the hood?

Understanding how transactions work is one of the first steps when getting into the crypto space, whether or not you currently own any coins.

What is a transaction?

A transaction is any action that changes the state of the blockchain, such as sending BTC from one address to another.

Not all blockchain transactions involve smart contracts. For example, Bitcoin transactions do not require smart contracts while Ethereum transactions do.

What happens when Bob sends Sarah 1 BTC?

1. Bob creates the transaction: Bob uses his wallet to create a transaction that says: “I want to send 1 BTC from my address to Sarah’s address.” He also chooses a transaction fee (paid to miners).

2. The transaction is broadcast to the network: Bob’s wallet sends the transaction to the Bitcoin network, where it is shared with nodes.

3. Nodes verify the transaction: Nodes check that; Bob owns the BTC he is trying to spend (using the UTXO system), the transaction is properly signed with Bob’s private key, the transaction follows Bitcoin’s rules. If valid, the transaction enters the mempool (a waiting area).

4. Miners include the transaction in a block (Proof of Work): Miners compete to solve a cryptographic puzzle called Proof of Work (PoW). The winning miner creates a new block and includes transactions from the mempool, usually prioritizing those with higher fees.

5. Block confirmation: Once the block is added to the blockchain;

   • Sarah’s wallet shows the 1 BTC as received

   • Bob’s BTC is deducted, including the transaction fee

   • The miner earns the block reward plus transaction fees.

After several confirmations, the transaction is considered final.

Things to note about blockchain transactions

1. Transactions are public: Anyone can view transaction details such as amount, addresses, and transaction hash.

2. Bitcoin is pseudonymous, not anonymous: Addresses are visible, not real names. However, identities can sometimes be linked through exchanges or analysis.

3. Transactions are irreversible: Once confirmed, a transaction cannot be reversed. There is no customer support to call.

4. Never share your private key or seed phrase: No legitimate transaction will ever ask for them.

5. Know your local crypto laws and taxes: Regulations vary by country, so staying informed is important.

Simplified web3 terms

• Transaction: An action recorded on the blockchain, such as sending crypto from one address to another.

• Blockchain: A public digital ledger where all transactions are permanently recorded and shared across the network.

• Bitcoin (BTC): A decentralized digital currency that allows peer-to-peer transfers without banks.

• Node: A computer connected to the blockchain network that verifies and shares transactions.

• Miner: A participant who validates transactions and adds them to the blockchain in return for rewards.

• Consensus Algorithm: The process the network uses to agree on which transactions are valid.

• Proof of Work (PoW): A consensus method where miners solve cryptographic puzzles to add new blocks to the blockchain.

• Transaction Fee: The fee paid to miners to process and include a transaction in a block.

• Public Address: A wallet address that can be shared to receive cryptocurrency.

• Transaction Hash: A unique identifier used to track a transaction on the blockchain.

• Private Key: A secret code that proves ownership of crypto and allows spending it. Must never be shared.

• Seed Phrase: A set of recovery words used to restore access to a wallet.

• On-chain: Anything that happens directly on the blockchain.

• Anonymity (Pseudonymity): Transactions are visible to everyone, but identities are represented by wallet addresses rather than real names.

• Irreversible Transaction: Once confirmed on the blockchain, a transaction cannot be undone or reversed.

© TheHuskyDev, 23rd December 2025. All Rights Reserved.