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How a Blockchain Transaction Works

Blockchain transaction

We’ve already looked at what a blockchain is; now, we will look at one in action. Soon, we’re going to be teaching you how to get involved in transacting on the blockchain. But first, it’s essential to understand what goes on when you send crypto to another address. 

Private and Public Keys

Every user on the network has a public key that everyone else can see and a private key that should never be shown to anyone. Your public key is a digital address that allows others to send funds to you. The private key, meanwhile, is a digital signature that allows only you to access your wallets and the funds within it. 

These keys are vital to verifying everything that happens on the blockchain. The public key is derived from the private key via complex calculations. Finding a public key from a private key is a trivial matter for any computer. Finding a private key from a public key is essentially impossible. This is what blockchain security is built on.

It is vitally important that you never expose your private keys to anyone, for whatever reason. Having access to your private key gives someone total access to your funds. This is not like a bank. If someone drains your account, you have no recourse. 

A Blockchain Transaction

Step 1 – Signing

A transaction is initiated by one of the nodes on the blockchain when the user determines what information he wants to send to the blockchain. Usually, especially in the case of a cryptocurrency, this is a transfer of value. However, as we have discussed, there are other uses for blockchain.

The transaction is then signed by the private key associated with the account. This verifies that the owner of the address is the one initiating the transaction. 

Just a note to be aware, this is not done manually. Your wallet app will manage your private keys and sign any transactions you initiate with it. In fact, many wallets will very rarely even display your private keys to you unless asked. 

Step 2 – Broadcast

Once the user has determined the transaction, it is broadcasted (flooded) across the network using a flooding protocol. This sends the transaction to other nodes on the network so that it can be validated. 

The decision to approve a transaction is made by consensus. This means that every node on the network will vote to determine if a transaction is valid. This is what gives a blockchain transaction its security.

Step 3 – Confirmation

When the transaction is validated, it is added to a block which, as we know, is a bundle of data ready to be added to the blockchain. When this block is added to the blockchain, it is linked cryptographically to the preceding block. This link is known as a hash pointer. 

Once the block is added, the hash pointer to the next block further confirms that the transaction is valid. Each time a new block is added, the unique and verifiable cryptographic link it forms to the blockchain validates the blocks that preceded it and confirms each transaction they hold. Usually, a transaction requires six of these confirmations to be considered final.

Once a transaction is confirmed, the balance in each wallet will be updated, and the funds have been sent!


Ok, now that you understand what’s going on every time you make a transaction, we’re going to move on to setting up a wallet so that you can start transacting on the blockchain yourself. 

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