One of the fundamental concepts behind cryptocurrencies is that transactions are recorded in blocks stored on the blockchain digital ledger. But what else is hidden inside those registers? Let’s find out.
Thanks to the public nature of blockchain technology, every user can check all transactions ever made with cryptocurrencies like Bitcoin. But when you go to the blockchain explorer, open a random block and scroll down to the block transactions section, you may get a bit lost with all the confusing names and terms. Concepts such as coinbase transaction, hash, transaction fee, public address and multiple confirmations will be covered in this article.
The meaning behind the data
A blockchain explorer might not be the most obvious thing for newcomers. So, what is the meaning of the information presented in a transaction block?
Starting from the top, the first thing you see when entering a block is a coinbase transaction, which is the first transaction of every block. It is a special type of transaction generated when that block is created. It contains the block reward in the form of newly created coins and transaction fees distributed as compensation to the miner that has successfully established the block.
Example of a coinbase transaction, Source: click
The interesting fact about coinbase transactions is that they contain no other inputs commonly found with regular transactions.
There is only one coinbase transaction in every block.
Below the coinbase transaction, there are many other regular transactions that were included in a block. And each transaction has its unique transaction hash (TxHash). Also known as transaction ID (TXID), it is a unique identifier that serves as a reference for localizing specific transactions in the blockchain ledger.
TxHash is an alphanumeric code, and every single on-chain transaction has its unique transaction hash. This allows it to be distinguished from other blockchain transactions.
Below is the hash from the first-ever transfer, where BTC was sent from one user to another – from Satoshi Nakamoto, the anonymous creator of Bitcoin, to Hall Finley, an early developer of Bitcoin:
Pasting it into the Bitcoin explorer will redirect you to that specific transaction with all its details.
As you may notice, the component next to the amount of BTC being sent is the public address.
The public address is a long string of letters and numbers used to receive crypto assets. It is a unique identifier that serves as a Bitcoin bank account number and can be freely shared with anyone.
This is an example of a Bitcoin public address:
That specific public address belongs to Satoshi Nakamoto. Its first received transaction was 50 BTC as a coinbase transaction from Bitcoin’s first block, also known as the genesis block. The term is used for the block number zero of a particular blockchain.
Keep in mind that while sharing your public address, the whole transaction history can be navigated. For this reason, those who want their identity to remain confidential must avoid linking public addresses with their real-world identity.
All about transaction fees
The next component that may stand out in a blockchain transaction is the transaction fee. It refers to a small payment to the miner that processed it.
Bitcoin has no intermediaries and transactions are added into the blockchain through the mining process. So, to perform any transaction, a small fee needs to be paid to the miner that will include the data in the block. It is a reward for the miner’s contribution and resources.
Think of transaction fees as a small tip to the miner. And as in the case of tipping, the customer is the one who decides how much it will be. The greater the incentive, the higher the chances that the said transaction will be included in the next block. In simple terms, if you want your transaction to be processed faster, it is going to cost you more.
Transaction costs may depend on network usage. When the demand for transaction processing is high, the fee may increase significantly. As a result, offering a low transaction fee may not be the best solution as it could take a lot of time to get it confirmed and included in the block.
Tracking a transaction
The last component is the transaction status. It tracks the current status of a transaction, determining whether it has been included in the block.
In every completed block visible on the blockchain explorer, the status is followed by a number of confirmations. The exact amount depends on how many other blocks were created afterwards.
The example above means that three additional blocks were created after the one in which the specific transaction was finalized.
Platforms such as exchanges or wallets may have different requirements regarding the number of confirmations before the crypto assets are visible.
It is possible to navigate the blockchain explorer using the TxID and check its status. If it says “pending”, it means that the transaction has not been included in the block. This may be caused by the transaction fee being too low.
Terminology related to Bitcoin transactions may be confusing, but hopefully it’s easier to understand now. Be sure to follow our series where we will explain the meaning of other terms related to mining and crypto block terms.