Blockchain 101 - How Transactions Work

This article gives a clear, step-by-step explanation of how a crypto transaction moves from your wallet into the blockchain, written for someone who is new to the space. No heavy jargon, just practical analogies and the key pieces you should know.

💡 Quick Overview, The Simple Idea:

A blockchain is a shared, digital ledger that lots of independent computers (nodes) keep copies of. A transaction is a signed instruction that moves value (like Bitcoin) from one address to another. When you send crypto, your transaction is broadcasted to the network, validated by nodes, and once included in a mined/validated block it becomes part of the permanent ledger.

📌 Important Terms:

• Wallet: software that holds your keys and creates/sends transactions.
• Private key: secret code that proves you own funds and lets you sign transactions. Keep it private.
• Public address: where you receive crypto (perfectly fine to share this).
• Node: a computer running the blockchain software that helps validate and share transactions. Thousands of nodes around the globe work together to keep the network decentralized and secure.
• Miner / validator:  nodes that bundle transactions into blocks and add them to the blockchain (proof of work, proof of stake, etc.).
• Block: a batch of validated transactions added to the chain.
• Confirmations: how many blocks were added after the block containing your transaction (more = more final).
  
  

🔹 Step-by-step: What happens when you send a transaction

1. You create and sign the transaction: (Your Digital Wallet)

• Open your wallet, enter the recipient address and amount, and hit send.
• The wallet builds a transaction that references the coins you control and the destination address.
• Your wallet uses your private key to create a cryptographic signature. This proves you authorized the spend without revealing your private key.

🎯 Analogy:
You fill out a check, sign it and everyone can verify the signature is valid, but they cannot forge it.

2. Your wallet broadcasts the transaction to nearby nodes (the computer network):

• The signed transaction is sent to one or more peer nodes the wallet is connected to (your node, an exchange node, or public nodes).
• Those nodes check the transaction format and signature, then forward it to their peers. The message quickly spreads across the computer network.

🎯 Analogy:
You whisper a message to a few people in a stadium, and they pass it to their neighbors, and soon everyone has heard it.

3. Nodes validate the transaction:
Nodes that receive the transaction perform checks:

• Is the signature valid?
• Do you actually control the inputs you are trying to spend? (no double-spend)
• Is the transaction fee included and reasonable?

If everything looks good, nodes add it to their mempool (a waiting area for unconfirmed transactions).

🎯 Analogy:
Airport Security Checking Your Luggage;
Imagine your transaction is like a suitcase you’re trying to get on a plane.

When you arrive at airport security (the nodes):

1. They scan your ID → Is the signature valid?
2. They check that the suitcase actually belongs to you → Do you control the inputs? No double-spending.
3. They make sure you paid the baggage fee → Is the transaction fee included and reasonable?

If your suitcase passes all the checks:

• Security places it on the conveyor belt with the other approved bags.
  That conveyor belt is the mempool, the waiting area before bags (transactions) get loaded onto the plane (a block).

If something fails, the suitcase doesn’t move forward. If it passes, it waits its turn to be loaded.

4. Miners/validators pick transactions and build a block:

• Miners (or validators) select transactions from the mempool (often prioritizing higher fees), bundle them into a block, and attempt to add that block to the chain.
• In proof-of-work systems (like Bitcoin), miners solve a hard cryptographic puzzle. In proof-of-stake systems, validators are chosen by stake and protocol rules.

🎯 Analogy:
Miners are like clerks collecting checks into a ledger page; whoever finishes the page correctly first gets it accepted then earns a reward.

5. A Block is added to the blockchain, your transaction gets its first confirmation:

• When a miner publishes a valid block containing your transaction, nodes accept the block and update their copy of the blockchain.
• Your transaction now has 1 confirmation. Each new block added afterward increases confirmations (2, 3, 4…).

What confirmation counts mean: most services treat 3 - 6 confirmations as “final enough” depending on risk. More value = more confirmations recommended.

🎯 Analogy: 
Confirmations Are Like Layers of Sealed Envelopes;
Imagine you mail an important document.

• When the post office accepts it, that’s like your transaction entering the mempool.
• When it gets stamped and placed into a sealed envelope, that’s the first confirmation, it’s officially in the system.
• Every time another envelope is placed around it, that adds another confirmation (2, 3, 4…).
• The more layers wrapped around it, the harder it becomes for anyone to tamper with or remove it.

That’s why:

• Small items may only need a couple layers (3 confirmations).
• High-value items need more layers for extra protection (6+ confirmations).
  
  

6. Finality and immutability

• After enough confirmations, a transaction becomes effectively irreversible.
• The blockchain is tamper-resistant and immutable because altering past data would require redoing massive computational work and convincing the majority of the network to accept the rewritten history.

🎯 Analogy:
Writing in Wet Cement;
Think of a blockchain like writing in wet cement:

• At first, when you write your name in the fresh cement (a new transaction), it can still be smudged or changed.
• As the cement starts to harden (more confirmations), it becomes harder and harder for anyone to alter what you wrote.
• Once the cement fully dries (enough confirmations), your writing is permanently set.
  To change it, someone would have to break up the entire slab, repour it, and somehow convince everyone else to replace their slabs too.
  
  

❓Common Questions & Tips:

1. How long does it take?
   Depends on network congestion, block time, and the fee you included. Higher fees generally get processed faster.
   
   
2. Can someone intercept my transaction?
   Transactions are public and broadcasted, but only the owner of the private key can create a valid signed transaction spending the funds. Keep your private keys and seed phrase secure.
   
   
3. What is a double spend?
   Trying to spend the same coins twice. Nodes and miners help prevent this by only accepting a transaction that spends currently unspent outputs.
   
   
4. Why do transactions cost fees?
   Fees incentivize miners/validators to include your transaction in a block and prevent spam on the network.

🖼️ Visual summary (mini flow):

1. Wallet creates signed transaction →
2. Broadcast to nodes →
3. Nodes validate & add to mempool →
4. Miner/validator includes it in a block →
5. Block is added to blockchain →
6. Transaction gains confirmations →
7. Considered final.
   
   

🔒 Security pointers (must-knows):

• Never share your private key or seed phrase (this is the access to your digital wallet).
• Use hardware wallets for larger balances (these are physical secure devices disconnected from the internet).
• Double-check recipient addresses (check for copy/paste errors).
• Wait for several confirmations before treating large incoming payments as final.