Bitcoin and many other cryptocurrencies are using the internet to transfer value across their wallets. This transfer of money is being done with Bitcoin transactions which can be tracked and traced by anyone on the internet. In the first place, Bitcoin is being used as online digital money which doesn’t need a third party like for instance a bank to process transactions. Furthermore, cryptocurrencies aren’t owned by companies and are decentralized organizations.
This decentralized property makes it a one of a kind currency. Transactions being processed on the network are trustless and are validated by Bitcoin nodes and miners. How is it possible that these transactions can run autonomously without a central authority regulating things? In this article, I’ll discuss 5 elements which have a key role in handling Bitcoin transactions on the network.
1. Unconfirmed transactions
When you initiate a Bitcoin transaction with sending some value to another Bitcoin wallet, the entire transaction process goes through several stages or confirmations. The very first step in this process is an unconfirmed transaction and happens if you just created a new transaction. Next, this transaction will be added to a newly created block which will be validated by miners. At this moment in time it is still possible to reverse this transaction and create a new one.
Main reason for unconfirmed Bitcoin transactions
What are the main reasons for Bitcoin transactions remaining unconfirmed? Mostly there are two reasons:
- If the transaction is very recent, you may need to wait a little longer before receiving confirmation. Currently, even at its very quickest, it takes at least 10 minutes to confirm a BTC transaction.
- The fee for the transaction was not entirely included or was too low. One simple rule applies when it comes to bitcoin transactions: the smaller the amount, the lower its chances of a successful confirmation.
Use a local wallet like Electrum
If your transaction is unconfirmed for hours, just wait. If more than 72 hours pass and your transaction still aren’t confirmed, you can re-send the transaction. To resend a transaction you have to change the fee for the transaction in your wallet. Therefore, I recommend you to use a local wallet like Electrum, which allows you to raise the fee and resend the Bitcoin transaction.
2. Confirmed Bitcoin transactions
Next step in the Bitcoin validation process is the confirmed transaction. One single transaction can be considered as confirmed when the entire block which includes the several transactions is added to the entire Blockchain. Roughly every 10 minutes, a new block is created and ready for the Bitcoin validation process. Or in other words, one confirmation of a transaction takes approximately 10 minutes.
A transaction can be considered as confirmed when the first miner validates the block and gives a GO. Although this transaction has had its first confirmation, it takes in total 6 confirmations before a block can be added to the Blockchain. As a result, it will take about an hour before 6 confirmations will occur.
How do platforms like Coinbase handle this confirmation process?
Currently, most Bitcoin transactions are happening on exchanges, because trading Bitcoin is the most popular activity for cryptocurrency. To start trading crypto, people have to deposit fiat currency or Bitcoin to the exchange. How do platforms like Coinbase or Binance handle these confirmation steps?
|Payments with 0 confirmations can still be reversed or modified. Wait for at least one.|
|One confirmation is enough for small Bitcoin payments valued less than $1,000.|
|Enough for payments $1,000 – $10,000. Most exchanges require 3 confirmations for deposits.|
|Enough for large payments between $10,000 – $1,000,000. Six is standard for most transactions to be considered secure.|
|Suggested for large payments greater than $1,000,000. Less is likely fine, but this is to be safe!|
3. Transaction time
Another important element in handling Bitcoin transaction is the actual transaction time. As I mentioned above, a transaction can be considered successful, if it has 6 confirmations. Why exactly these 6 confirmations?
The answer is that ‘6 confirmations’ are recommended and that many considered enough to make sure a Bitcoin transaction is successful. As a matter of fact, this ‘6 confirmation’ limit is even advised by Satoshi Nakamoto- the creator of Bitcoin. Correspondingly, after six confirmations the receiver can be sure that the Bitcoins he/she has received aren’t double-spent.
The total time of a transaction depends on the number of blocks the transaction will take to confirm. Normally it takes 1 to 3 blocks for a single transaction to confirm. Moreover, if you want to speed things up, it’s possible to let the confirmation happen in the next block. To do so, you have to raise the fee when creating a new Bitcoin transaction.
Which fee should I use?
Every transaction you make has some size which will be calculated in bytes. Currently, the cheapest transaction fee is 14 Satoshis/byte. If you have a small transaction this fee will do and will be fast enough.
Bigger transactions which have a minimum of 225 bytes will take longer and will result in a fee of 3150 Satoshis. To summarize, transaction time depends on the total size of the transaction in bytes and the fee you are using. The Electrum wallet provides an easy way to configure this.
4. Transaction Fees and Why are they used
Like I mentioned above, transaction fees are a way to speed things up when you want your Bitcoin transaction to occur fast. To do this, miners are rewarded for their work to validate the blocks on the network. But why should transaction fees be used as a method?
Validation of blocks by miners
Every bitcoin transaction must be added to the Blockchain to be considered completed or valid. The work of validating transactions and adding them to the Blockchain is done by miners, powerful computers that makeup and connect to the network.
Also, miners as well get all fees sent with the transactions that were included in the block.
For this reason, miners have a financial incentive to prioritize the validation of transactions that include a higher fee. For someone looking to send funds and get a quick confirmation, the appropriate fee to include can vary greatly, depending on several factors. While the fee does not depend on the amount you’re sending, it does depend on network conditions at the time and the data size of your transaction.
5. Bitcoin Transaction ID
The last element which plays a big role on the Bitcoin Blockchain is the actual transaction ID. Once you’ve sent a cryptocurrency payment from your wallet to an external crypto address, transfer details (such as amount of crypto sent, sending/receiving crypto address, the date of transfer) can be found on the Blockchain. As a result, this information is then publicly available and given its own transaction ID. Transaction IDs are also often referred to as hashes or transaction hashes.
At times, the recipient of your cryptocurrency transfer may request this transaction ID from you – typically to confirm you’ve sent the payment successfully. This Bitcoin transaction ID is safe to share: no personal information is sent from your public wallet address to the Blockchain.
To track a certain transaction on the Blockchain, you just enter the large transaction id or hash on the Block explorer. An example of how to do this is given at this link:
To do this for a certain transaction, paste the ID into a block explorer like Blockchain.com:
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