Bitcoin Whiteboard Tuesday – The Path from “Send” to “Receive”

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Today’s topic is the path of Bitcoin from “send” to “receive”. In this episode, 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 finish this lesson, 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 has 3 parts: Signing, broadcasting and confirming. Let’s start with the first part – signing.

When I hit the “send” button in my Bitcoin wallet, what I’m actually doing is telling my wallet:

Hey wallet, I want to send 1 Bitcoin to my friend Steve. Here is Steve’s Bitcoin address.”

The wallet, in response, creates a transaction message containing information about me, the sender (Steve), the recipient and the amount being sent (in this case, one Bitcoin).

Afterward, the wallet produces a unique digital signature for this message by mathematically mixing it with my private key.

In our previous lesson, I’ve discussed the concept of the private key. It’s basically a long string of letters and numbers that act as the “password” for your Bitcoins. Whoever knows my private key has control of my Bitcoins.

A digital signature is a way to prove that I own the private key to my Bitcoins by using only my public key which I have no issue exposing, thus keeping my private key, well, private.

Also, digital signatures are different each time you sign a transaction – that’s why they are even more secure than a real signature since they are unique for each and every transaction. So if I send Steve one Bitcoin today and then another Bitcoin tomorrow, each of these transactions will have a different digital signature.

After signing the transaction message, the wallet then groups the signature, along with my transaction message, into a small file. This concludes our first step of signing.

Now we can move on to the next step – broadcasting.

In the broadcasting step, the wallet starts sending out the file to other computers that hold a copy of the Blockchain. These computers are also known as nodes. Each node that receives the file verifies that it’s legit. It’s basically looking to see that I actually have the funds I want to spend and that my signature checks out, much like a banker would check your account balance before clearing your check.

Once my file is verified, it’s then passed on to other nodes in the network that repeat this process.

When a node receives a file, it keeps it in a holding area called the Mempool. The Mempool, short 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 finished.

Now I want to take a quick pause and talk about the status of our transaction at this point. In order to actually see what’s going on with our transaction while it’s making its path along the Bitcoin network, we can use a block explorer.

A block explorer is a tool, usually in the form of a website, that allows you to search and navigate through the Blockchain. Using a block explorer, you can check the balance of different Bitcoin addresses, track transactions and get a wide variety of statistics about the network.

So at this point, if we look at our transaction through the block explorer, we will see that it is marked as “unconfirmed”, meaning it was broadcasted to the network and had its digital signature verified but it still isn’t part of the Blockchain. This type of transaction is also referred to sometimes as a zero confirmation transaction.

An unconfirmed transaction should be treated as its name implies – unconfirmed. This means that the transaction can still get canceled, and there’s no guarantee it will ever enter the Blockchain. If you’re receiving goods for a payment done in Bitcoin, never accept an unconfirmed transaction as a proof of payment.

Now we can now move on to the final step – confirming our transaction.

If you’ve watched our previous lesson 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.

There is a limit to how many transactions can be inserted into each block. Therefore, miners will usually pick the transactions that have the highest mining fees attached to them first.

Miners will then compete with each other in order to get their block into the Blockchain.

The mining competition is based on mathematical calculations, and the miner with the most computational power will have the best chance of winning. Once a miner wins the competition and gets his block into the Blockchain, all of the transactions that were in that block will be considered as confirmed.

Basically, the miners are writing the history book of Bitcoin transactions, and whoever wins the competition gets to write the next page.

On 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 you’ll get 2 blocks confirmed within 1 minute, and sometimes it can take more than 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 afterward, the confirmation number will grow.

Think of it as a building of blocks with our block at the very bottom. Every additional block set on top of our own block makes it harder to remove. That’s why it’s usually suggested 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.

Hopefully, you now have a better understanding of how the Bitcoin network operates. If you have any additional questions about what we just covered, feel free to leave them in the comment section below.

I hope you enjoyed this episode of Bitcoin Whiteboard Tuesday, and I’ll see you…in a bit.

Ofir Beigel

Owner at 99 Coins ltd.
Blogger and owner of 99Bitcoins. I've been dealing with Bitcoin since the beginning of 2013 and it taught me a lesson in finance that I couldn't get anywhere else on the planet. I'm not a techie, I don't understand "Hashes" and "Protocols", I designed this website with people like myself in mind. My expertise is online marketing and I've dedicated a large portion of 99Bitcoins to Bitcoin marketing.

28 Comments

  1. EvaLasVegas on

    can you please tell me why I bought $20 in bitcoin thru an atm and only received $14 in my wallet? I’m really confused I understand fees but that seems to be a lot for normal priority sending.

    • Ofir Beigel on

      It depends on the ATM you used. Each ATM takes a different amount as a fee. Also you may have used the ATM while the network was “crowded” and therefor the transaction fee was higher.

  2. i just want to ask this questiom re the so called BDS or bitcoin doubler software. some called their softwsre bitcoin maker. is it possible bitcoin can manipulated by software?

    • Zsofia - 99Bitcoins support on

      Hi Rolly, I suggest you to stay away from those sites which are promising to double your Bitcoins as they usually turn out to be scams. If you are in doubt, you can run the site through our Bitcoin Scam Test, and draw your own conclusion. You can find it here: https://99bitcoins.com/bitcoin-scam-test/

  3. Although I was able to watch the Bitcoin Crash course without any problems, for some reason I am unable to watch the video in this e-mail. Instead, I get the message, “This video is not authorized to be embedded here”. How to fix this?

    • Ofir Beigel on

      Hey,
      the videos aren’t meant to be watch from within emails. I also don’t think we ever embedded them inside any email. It should be just a thumbnail. Can you please let me know which email it is you got this message from?

  4. Ronald Ohlin on

    Hi Ofijr, Ronald Ohlin here. Thanks for the video. Is it possible that a send with multiple confirmations does not arrive at the wallet it was sent to? I sent $72 to my blockchain wallet last Saturday from my Coinbase wallet, and it was confirmed with 2196 confirmations, but the funds and/or the receive transactions do not show in my blockchain wallet. If I understand your video, can I enter the transaction code generated by the send into the blockchain explorer and establish confirmation of the send transaction and get the actual confirmations? Thanks for answering my question.

    • Zsofia - 99Bitcoins support on

      Hi Ronald, I suggest to reach out to the support team of your wallet provider. If your transaction received that much confirmation by now it definitely should be visible in your wallet.

  5. I still don’t get what drives the Miners invest in infrastructure which would help them confirm transactions. You only mentioned “Miner Fees” but didn’t explain that.

    I’m assuming Miners get “paid” in crypto currency for having confirmed transactions. Is this related to the fees? If so, who “pays” the fees?

    I’m guessing the fees are part of what the person initiating the transaction must pay to use the coinage network. So, how are these fees established (based upon what?) and what drives the settings?

    It seems to me that there would be a whole sub-economy involving all crypto-currencies and Wallets which would vie for consumer transactions.

  6. Hi ,
    I want to invest money in cryptocurenices for long term approx 10years of time period.
    Can you provide name list of competent cryptocurenices for this purpose?

  7. Lew Gannuscio on

    Hi, I tried several times to send bitcoins with no luck, I would appreciate any help you can give, Thanks

  8. With the size of the block chain growing, is this increasing the time it takes to confirm a new block. As it is now, larger sum transactions can take 5 hours and small transactions seem to take over 24 hours. Is there any chance of this speeding up in the future or will it only get worse?

  9. In this episode, you mentioned that 6 confirmations made it highly unlikely that a transaction would be ‘canceled’. Could you please explain what that word means and I understand that a Bitcoin transaction is irrevocable.

  10. 2:40 — how do the receiving nodes verify that you have that Bitcoin to spend? You make it sound as if they can look inside your wallet.

  11. Hola, amigo, gracias por tan valioso aporte de conocimiento, una pregunta ¿hay alguna manera de saber o monitorizar mis transacciones en bitcoin y verlas en que estado estan? antes de ser confirmadas?

    • Zsofia - 99Bitcoins support on

      Hi Joel, thanks for the feedback. You can check your transaction at blockchain.info by searching for either the wallet address or the transaction ID.

  12. THIỀU KIM CƯƠNG on

    Thanks articles 99BITCOINS I sent BTC from the address for my personal to address a wallet BTC of a trading floor but took over 72 hours has not been confirmed when this transaction biodegradable and I was loss of BTC not explain me please thanks

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