Bitcoin transactions involve sending Bitcoin from one person to another within the blockchain network. Transactions are digitally signed messages that are verified by miners through solving mathematical puzzles. A transaction includes inputs of previously received Bitcoin and outputs specifying the recipient addresses and amounts. Transactions are grouped into blocks and added to the blockchain through mining. The more confirmations a transaction receives, the more secure it becomes. The Bitcoin network is a decentralized peer-to-peer network where all nodes have equal rights and capabilities. Nodes discover each other through address propagation and sharing.

1. Blockchain & Cryptocurrency
Technologies
Bitcoin Transaction, Blocks
& Network

2. Bitcoin Transaction
• Bitcoin transaction means sending bitcoin from
one person to the other in the secured blockchain
network.
• These are messages that are digitally signed using
cryptography and are verified by the miners that
are present in the blockchain network.
• The miner is the person who solves mathematical
puzzles(also called proof of work) to validate the
transaction. Anyone with mining hardware and
high processing power can take part in this.

3. • Example: Suppose Hari wants to send 5
BTC(bitcoins) to Senorita.
• Input- It consists of the bitcoin address from
which hari got his bitcoins previously. Amount-
This deals the specific amount of money that hari
wishes to send to senorita, in this case, its
5BTC.
• Output- This is the bitcoin address of senorita
which hari needs to know in order to transfer
the bitcoins to her wallet. Bitcoin address of
senorita is also known as public key.

4. Transaction Fees
• The transaction rate or speed is dependent on the
amount the user pays for it. If a user pays a small
amount, the transaction rate will be slow, the
transaction will take more time to happen, vice versa is
applicable here.
• Due to limited space, only a limited number of
transactions are possible at one point in time.
• Consider a case where heavy network traffic occurs,
then the miners prioritize those transactions that have
the highest fees so that even in the hectic congestion,
the highest-paid transaction gets executed.

5. • Time is taken for transaction confirmation mainly depends on two
factors:
• Transaction fees: As discussed above, if the user pays minimal
transaction fees, then the time taken for confirmation of a
particular transaction would take a longer time. the mining process
needs significant technology and efforts, therefore the importance
of transaction fees comes into play.
• Network load: Every transaction gets stored temporarily in the
memory pool till the miners confirm it. When the transaction
activities reach a certain high threshold, the memory pool gets
jammed thereby slowing the confirmation time of the transaction
even more. Due to this, all the subsequent transactions become
susceptible to delay.

6. How Bitcoin Transaction Works?
• A Bitcoin transaction is a transfer of Bitcoin
cryptocurrency from one user (sender) to
another (recipient) within the Bitcoin network.
It involves creating a digital record that
specifies the amount of Bitcoin being sent and
the addresses of the sender and recipient.
• Here's a breakdown of the key components
and steps involved in a Bitcoin transaction:

7. • Inputs: A Bitcoin transaction typically consists of one or
more inputs, which are references to previously
received Bitcoin transactions. Each input contains
information about the amount of Bitcoin being spent
and the address from which it originated.
• Outputs: Transactions also include one or more
outputs, which define the destination addresses and
the corresponding amounts of Bitcoin to be sent to
each recipient. An output contains a locking script (also
known as a scriptPubKey) that specifies the conditions
required for the recipient to spend the received
Bitcoin.

8. • Digital Signatures: To authorize a transaction, the sender signs the
transaction using their private key, which creates a digital signature. This
signature is generated by applying a cryptographic algorithm to the
transaction data, ensuring the authenticity and integrity of the
transaction.
• Transaction Verification: After the transaction is created and signed, it is
broadcasted to the Bitcoin network. Miners on the network validate the
transaction by verifying the digital signatures and ensuring that the sender
has sufficient funds to cover the transaction amount.
• Inclusion in a Block: Validated transactions are grouped into blocks, which
are added to the Bitcoin blockchain. Miners compete to solve complex
mathematical puzzles through a process called mining. Once a miner
successfully mines a block, the block is added to the blockchain, and the
transaction becomes a permanent part of the ledger.

9. • Confirmations: Once a transaction is included in a
block, it receives a confirmation. The more
confirmations a transaction has, the more secure and
irreversible it becomes. For most transactions, a few
confirmations are sufficient to consider the transaction
final and trustworthy.
• Transaction Fees: Bitcoin transactions often include
transaction fees paid by the sender to incentivize
miners to include the transaction in a block. Miners
prioritize transactions with higher fees since they
receive the fees as a reward for their mining efforts.

10. Different Types of Bitcoin Address
• There are mainly three types of bitcoin
addresses:
• P2PKH addresses: These addresses start with
number 1. For example 1WX23.
• P2SH addresses: These addresses start with
number 2. For example 2WX23.
• Bech32 addresses: These addresses start with
bc1. For example bc12WX23.
•

11. Bitcoin blocks
• The block chain is a clever combination of two
different hash-based data structures. The first is a
hash chain of blocks.
• Each block has a block header, a hash pointer to
some transaction data, and a hash pointer to the
previous block in the sequence.
• The second data structure is a per-block tree of
all of the transactions that are included in that
block. This is a Merkle tree and allows us to have
a digest of all the transactions in the block in an
efficient way.

13. The Bitcoin network
The term “bitcoin network” refers to the collection of nodes
running the bitcoin P2P protocol.
• It’s a peer-to-peer network, and it inherits many ideas from
peer-to-peer networks that have been proposed for all
sorts of other purposes.
• In the Bitcoin network, all nodes are equal. There is no
hierarchy, and there are no special nodes or master nodes.
It runs over TCP and has a random topology, where each
node peers with other random nodes. New nodes can join
at any time.
• In fact, you can download a Bitcoin client today, spin up
your computer as a node, and it will have equal rights and
capabilities as every other node on the Bitcoin network.

14. Network Discovery
• To connect to a known peer, nodes establish a
TCP connection, usually to port 8333 (the port
generally known as the one used by bitcoin),
or an alternative port if one is provided.
• Upon establishing a connection, the node will
start a “handshake”by transmitting
a version message, which contains basic
identifying information, including:

15. • PROTOCOL_VERSION
A constant that defines the bitcoin P2P protocol version
the client “speaks” (e.g., 70002)
• nLocalServices
A list of local services supported by the node, currently
just NODE_NETWORK
• nTime
The current time
• addrYou
The IP address of the remote node as seen from this node

16. The initial handshake between peers

17. • Once one or more connections are established, the new
node will send an addr message containing its own IP
address to its neighbors.
• The neighbors will, in turn, forward the addr message to
their neighbors, ensuring that the newly connected node
becomes well known and better connected.
• Additionally, the newly connected node can send getaddr
to the neighbors, asking them to return a list of IP
addresses of other peers.
• That way, a node can find peers to connect to and advertise
its existence on the network for other nodes to find
it. Address propagation and discovery shows the address
discovery protocol.