The Bitcoin network doesn’t directly store a balance for each of its users. Instead, Bitcoin uses a record of all transactions that have ever taken place, allowing each node to discover valid payments to any Bitcoin address. A wallet will display a user’s current balance after collecting information about payments made to and from all wallet addresses.

When you send a payment to someone else on the Bitcoin network, you are creating a transaction. A transaction is a digitally signed unalterable message that transfers ownership of bitcoins to another address. A transaction is instantaneously communicated with other Bitcoin network nodes, which verify its authenticity and temporarily store it as a pending transaction for further processing.

A transaction doesn’t transfer discrete units or “coins”. Instead, it describes a monetary amount that should be transferred to other addresses. Bitcoin values can be combined in transactions from multiple previous payments, and can be divided again among multiple payee addresses. A whole bitcoin is not the smallest increment that can be sent by users either – a bitcoin amount can be specified down to eight decimal places.

㋔ Geek Facts

Transactions are comprised of a list of inputs, individual payments that were previously received by a wallet, and outputs, a list of amounts and addresses to which the bitcoins will be transferred.

Only the full amount of an input can be spent. If the exact amount of the transaction can’t be constructed from available inputs, an additional output, called change, is added, which sends the remainder back to a new address in the user’s wallet. Change addresses are not shown to the user.

Transaction diagram

A transaction is signed by each address’s ECDSA private key, and is transmitted with a full copy of the public key, to enable verification of the digital signature.

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