How Does a Bitcoin Transaction Work?

how does a bitcoin transaction work

If you’re interested in learning how a bitcoin transaction works, you’ve come to the right place. This article will explain the workings of a bitcoin transaction, and show you how you can create your own. Read on to learn more about UTXOs, inputs, outputs, and the consensus mechanism.


UTXO, or Unspent Transaction Output, is one of the most important concepts in the blockchain technology. It is used in almost every transaction.

Unlike the account model, where all of the coins move from one person to the next, the UTXO model is completely decentralized. This means that the owner of a UTXO does not know who created it. However, UTXOs can be associated with public addresses.

The UTXO model prevents double spending and makes it possible for people to create discrete pieces of bitcoin for their transactions. A transaction can have any number of inputs and outputs.

The inputs of a transaction include the public keys of the sender and receiver. These public keys are encoded into the scriptPubKeys of the referenced output. ScriptPubKeys are used by the network to verify that each coin is related.


There are two major kinds of inputs in a transaction. These are the UTXOs (Unused Transaction Outputs) and the input scripts. In a transaction, a UTXO is a pointer to the output corresponding to a specified script. A script is a set of instructions to be followed. For example, if the input script specifies an unlocking script, a script that would allow the unlocking of a UTXO, then the resulting input script could be used to satisfy the spending conditions of a UTXO.

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The transaction has a number of other features as well. It can be broadcast across the P2P network and can be passed around using other protocols. Specifically, a “transaction” is the collection of a sequence of transactions arranged in blocks. Each block is a sequence of valid transactions that have a minimum of at least one confirmation. This validation process is a computational task that is aided by the mining of the Bitcoin network.


A Bitcoin transaction has multiple outputs. The number of outputs depends on how many recipients there are. This can include batches from exchanges, mining pools, and organizations. However, it’s not always clear which outputs are legitimate and which are not.

For example, you can send a $30 product to someone by using two $20 bills and a $10 bill. While this is a cool way to pay for something, there’s a downside to it. If you do this many times, your balance can grow bigger than you meant to.

The other type of output is a “change.” It’s a small transaction that allows you to spend surplus satoshis from UTXOs and return them to the person you sent them to. They’re technically unspent, but the network generates this type of transaction to allow for non-exact change transactions.


A locktime is a measure of how long a transaction will remain in the block chain. It is a small amount of data that is used to ensure that the transaction gets processed in a timely manner.

There are several types of time locks used in the Bitcoin protocol. The most common is a time lock based on the block height. Another variant is an atomic swap.

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Among other things, a locktime is a way to make sure that a certain amount of funds are transferred in a timely manner. This can be useful for inheritance planning or if you simply want to ensure that your funds are transferred without your involvement.

While most transactions are time locked to the current block height, there are also a few that are time locked to the height of the next block. In fact, some wallets actually use the nLockTime variable to specify the lowest possible block height that a transaction can be included in.

Consensus mechanism

When it comes to crypto-currencies, understanding how consensus mechanisms work can be key to successful investments. A consensus mechanism is a system of protocols that users follow to come to an agreement about whether a transaction is valid. The mechanism ensures that all legitimate transactions are recorded in the blockchain. Consensus mechanisms also help to synchronize data and verify information within distributed systems.

Regulatory authorities should be aware of the potential implications of different consensus mechanisms. They should also consider a technology agnostic approach. This allows them to remain unbiased in their use of different technologies and understand their benefits and risks.

Some of the consensus mechanisms that are most commonly used in public blockchains are Proof of Work, Proof of Elapsed Time, and Proof of Stake. All of these consensus mechanisms have advantages and disadvantages. While they offer important security features, they also create unique challenges and risks to regulators.