BEGINNER PATH / 05

HOW DOES A BITCOIN PAYMENT WORK?

A wallet does not send a digital coin through the internet. It constructs and signs a transaction that changes who can spend specific Bitcoin outputs, then broadcasts that transaction to the network.

01DESTINATION

The sender obtains a Bitcoin address or payment request from the recipient.

02CONSTRUCT

The wallet selects spendable outputs, creates recipient output(s), change and a fee.

03SIGN

The wallet uses the appropriate private key to authorize the spend cryptographically.

04BROADCAST

The signed transaction is sent to the Bitcoin network for validation and relay.

05CONFIRM

A miner can include the transaction in a block; later blocks add further confirmations.

ONE IMPORTANT DETAIL / 06

THE WHOLE BALANCE IS NOT ONE “COIN”.

Bitcoin wallets commonly work with unspent transaction outputs (UTXOs). A transaction can spend one or more outputs and create new outputs for the recipient and, where appropriate, change.

INPUTS

WHAT IS BEING SPENT

Existing spendable Bitcoin outputs are referenced as transaction inputs.

OUTPUTS

WHERE VALUE GOES

New outputs specify the conditions under which the transferred bitcoin can next be spent.

FEE

INPUTS MINUS OUTPUTS

The difference between total input value and total output value is the transaction fee.

UNDERSTAND FEES →