What Happens When You Send Bitcoin? The Journey of a Single Transaction from Wallet to Blockchain

You open your Bitcoin wallet, enter the recipient's address and the amount, and press "Send". Within seconds the screen tells you the transaction has been sent. At that moment, however, the bitcoin has not yet been definitively transferred. What has actually begun is a journey during which computers around the world check the transaction, it waits to be included in a block, and it finally becomes part of the blockchain.

Unlike a bank transfer, there is no central institution to approve the payment. The Bitcoin network has to verify for itself that the sender really can dispose of the bitcoins in question and is not, for instance, attempting to spend them twice.

So what happens during the minutes between pressing the button and the transaction's first confirmation?

The wallet first creates the transaction

A Bitcoin wallet does not actually work like a digital pocket from which it simply pulls out a few coins and sends them to another person. It prepares a data record stating which previously received bitcoins the user wants to dispose of and which address they want to transfer them to.

Bitcoin works with so-called UTXOs, meaning as yet unspent outputs of previous transactions. Every input of a new transaction references an output of some earlier transaction that has not yet been spent.

A new transaction also includes a digital signature. It is created using the private key and proves that the person creating the transaction has the right to dispose of the bitcoins concerned. The private key itself does not need to be sent to the network. Cryptography makes it possible to verify the validity of the signature without its owner revealing the private key to anyone. The basic principle behind Bitcoin transactions is also explained simply on Bitcoin.org.

Alongside the amount intended for the recipient, creating a transaction usually also involves calculating a transaction fee. Its size can later significantly influence how quickly the transaction makes it into the blockchain.

Bitcoin travels into the network

Once signed, the wallet broadcasts the transaction to the Bitcoin network. It does not travel to a single central server. Bitcoin consists of a network of interconnected nodes. One node receives the information, checks it and may then pass it on to others. The transaction thus gradually spreads across the network.

That does not mean the network automatically accepts everything sent to it. Individual nodes check whether a transaction complies with the rules of the Bitcoin protocol. Among other things, they verify its signatures and whether the sender is trying to spend funds that have already been spent elsewhere. Every node can therefore assess the validity of a transaction for itself, without having to trust any central authority. If a transaction does not comply with the rules, a node can reject it and not propagate it further.

The waiting room called the mempool

If everything is in order, the transaction usually ends up in the so-called mempool. Think of it as a waiting room for payments the network already knows about but which have not yet made it into the blockchain. More precisely, Bitcoin has no single shared central mempool. Individual nodes each keep their own list of unconfirmed transactions, which may differ in detail.

And this is where the waiting can begin. If the network is not busy, a transaction may be confirmed relatively quickly. In periods of high demand, however, a large number of transactions may be waiting to be included in blocks at the same time.

Sending a transaction is therefore not the same thing as having it confirmed. Information about an incoming payment may appear almost immediately, while actual confirmation has to wait until it is included in a block.

Who decides which transaction goes first?

Miners then take on another important role. They assemble candidate blocks containing the transactions they want to add to the blockchain. They are under no obligation to process payments in exactly the order in which they were sent.

Their economic motivation comes from transaction fees. Miners therefore typically prioritize transactions offering them a more attractive fee relative to the amount of space they occupy in a block.

This explains a situation that may seem odd at first glance: two Bitcoin transactions may be sent almost simultaneously, yet one is confirmed quickly while the other waits considerably longer. It is not primarily about who is sending more bitcoins. What matters most for inclusion in a block is the fee rate relative to the size of the transaction. A transfer of a few hundred euros can therefore theoretically be confirmed sooner than a transfer of hundreds of thousands, if it offers miners a more favourable fee.

Miners look for a new block

Selecting transactions is not enough, however. Miners compete with one another for the chance to add the next block to the blockchain through the Proof of Work mechanism. Their equipment performs an enormous number of calculations, trying to find a value that meets the requirements of the Bitcoin protocol. Whoever finds a valid solution can broadcast the new block to the other participants in the network.

At the same time, the network continuously adjusts mining difficulty so that new blocks are produced roughly once every ten minutes on a long-term average. Ten minutes is certainly not a timetable, though.

Sometimes two blocks may arrive relatively quickly one after another; at other times the wait for the next one is considerably longer. It is therefore impossible to promise precisely that a particular Bitcoin payment will receive its first confirmation in exactly ten minutes.

The first confirmation: the transaction enters the blockchain

Once a miner finds a valid block containing our transaction and the other nodes accept it, a crucial moment arrives. The transaction has one confirmation.

The record is no longer merely among unconfirmed transactions waiting to be included; it has become part of the blockchain. Bitcoin nodes independently check whether the new block respects the rules of the network. A miner therefore cannot simply create a block containing arbitrary invalid transactions and expect the others to accept it.

Every further block subsequently added on top of the block containing that transaction represents another confirmation. If another block is created after it, the transaction has two confirmations. As the blockchain continues, the original transaction moves ever deeper into its history.

Why does one person wait for a single confirmation and another for six?

The more blocks that follow the block containing a given transaction, the harder it becomes to change the blockchain's history. The number of confirmations is therefore used as a practical measure of how firmly a transaction is anchored in the blockchain.

There is no universal number that would be right for every payment, however. For a small amount, a merchant may accept a transaction very quickly, sometimes even before the first confirmation. For large amounts, the recipient may require several confirmations.

The frequently mentioned six confirmations is therefore not a magic threshold written into the protocol. It is a traditionally used safety margin, especially for more significant payments. The Bitcoin developer documentation on receiving payments, for example, distinguishes between zero confirmations, one confirmation, two confirmations and six confirmations depending on how much risk the recipient is willing to accept. How many confirmations it is appropriate to require therefore also depends on the value of the transaction and the specific situation.

What if I set the fee too low?

Occasionally a user sends bitcoin and then nothing happens for a long time. The transaction may be valid, but its fee is too low compared with the others. It therefore remains unconfirmed and waits to see whether any miner will select it for their block.

That in itself does not mean the bitcoins are lost. Modern Bitcoin wallets may in some cases allow the fee to be raised, for instance through the Replace-by-Fee (RBF) mechanism. Under certain conditions, this makes it possible to replace an unconfirmed transaction with a new version carrying a higher fee.

If a transaction remains unconfirmed for a long time, it may also eventually disappear from the mempool of some nodes. The bitcoins themselves do not automatically disappear with it.

Can a Bitcoin transaction be cancelled?

This is one of the biggest differences from the conventional banking system. A user cannot call Bitcoin headquarters and ask them to reverse a transfer that has already been confirmed. No such institution exists.

Once a transaction has been included in the blockchain and gains further confirmations, changing it becomes increasingly difficult. Bitcoin therefore shifts a considerable share of the responsibility onto the user.

If someone sends funds to the wrong address and its owner does not voluntarily return them, the Bitcoin protocol contains no standard chargeback mechanism of the kind payment card users know. With unconfirmed transactions the situation is somewhat more complicated. Some can under certain circumstances be replaced with another transaction, but it is not right to picture this option as an ordinary "cancel" button.

What does the recipient actually see?

Interestingly, the recipient does not have to wait for confirmation to learn about the payment. Their wallet may register an unconfirmed transaction shortly after it spreads across the network. That is why a message such as "incoming payment, 0 confirmations" can appear almost immediately.

At that point the network already knows about the transaction, but it is not yet part of any block. Only the first confirmation means a miner has included it in the blockchain. Each subsequent block then increases its number of confirmations.

Bitcoin does not send coins over the internet

The whole process also illustrates one of the things that can be confusing about Bitcoin at first. In a Bitcoin transaction, no digital coin resembling a file or an email attachment actually travels anywhere over the internet. The network merely updates the jointly verified history of who can further dispose of particular bitcoins.

The wallet creates and signs the transaction. Nodes check it and propagate it across the network. The unconfirmed payment waits to be included. A miner may incorporate it into a new block, and the other nodes then verify whether that block is valid. Only then does the transaction become part of the Bitcoin network's history.

And this is precisely one of Bitcoin's most interesting characteristics: the entire process can work without a bank, a card company or any other central authority. On the other hand, it means that responsibility for the correct address, an appropriately set fee and the safe handling of keys rests above all with the user.

The content of this article is for informational purposes only and does not constitute investment advice or a recommendation to purchase any specific asset. Investing in crypto assets carries a high level of risk. The value of crypto assets can fall as well as rise, and you may lose the entire amount you have invested. Crypto assets are not protected by deposit guarantee schemes. Past returns are not a guarantee of future results.