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How Bitcoin Works in Backend

24 Apr 2021 Developer News
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Bitcoin transactions are meant to be the most complex transaction process behind the scene that you may think. You can widely send your bitcoin amount in one try and seconds. Instead of this other currencies and wallets of digital currencies go through several steps that are too hectic to understand and make the user annoyed in seconds. On the other hand, bitcoin wallets are user-friendly and transactions can be made in any place of the world just in seconds but we don’t know the backend process of the transaction process. It’s not as easy as we think.


To start this, first, you need to understand what is actually a bitcoin and how it works. It is not only the single coin we are talking about that you think of like a small ledger or a small bank statement.

It is actually called a file that contains some registered value which is in the form of a transaction when you initiate or invest some money in it and have a receipt of it in the form of transaction details.

3 Elements of transaction involved in Bitcoin

These include 3 main factors in the transaction.

  1. Transaction input
  2. Transaction output
  3. Amount

Transaction input can be explained as an address generated by Bitcoin which we use usually to send money. 

Transaction output would be the address generated by Bitcoin to which the money is going to be sent.

 If you have bitcoin in your wallet, that would be probably a bitcoin address that is in your control.

How Bitcoin Transaction works in backend

Let suppose, If you are sending Bitcoin to someone that was sent to you from someone else. The process begins when they sent them back to you, address from which they have sent it to you was registered in the bitcoin blockchain (which is encrypted or inaccessible by anyone) as transaction input, and then the address they have sent it to will be the address that was registered in the bitcoin chain as transaction output. 

And the second process when you send some bitcoins to someone else, your wallet of bitcoin automatically receives a transaction output which will be the address of the other person to whom you are sending the bitcoins.  That transaction history will be saved to the bitcoin network with the address of your bitcoin as a transaction output.

And then when that person sends these bitcoins to someone else, their address from where they received the bitcoins will become the sending address as a transaction input and the other person who is receiving the bitcoins will have the address as transaction output.To know about this whole process and to get more information about bitcoin mostly traders do algorithmic trading with

What was the Risk when Bitcoin was first created?

When Bitcoin was first created people were able to trace all the transactions all the way by using the system, knowing who sent the bitcoins to which person at what time. This makes this system a completely transparent system in which any unauthentic user was able to access the transaction history of anyone.

Amounts and Address of the Bitcoin

One problem with the system was that the amount attached in the transaction history was not divisible at that time. For instance, if you have one bitcoin address having one bitcoin in it and you only want to send someone half of it, then you will have to send a whole bitcoin of yours to that person.

In the backend, the bitcoin network will automatically create half of your bitcoin meaning 0.5 in change from the person that you have sent it to, and send this to some other third address that will be in your control. That third address will also be called transaction output. It means that if you have one address that can create multiple transaction outputs and inputs as well.

With having this kind of time this can be cleared as bitcoin wallets end up containing lots of addresses varying different amounts in bitcoin and the change that will occur in transactions as well.

This process leads it to the process in which it contains transactions containing different inputs, different addresses containing different amounts that will be used to make up as funds. It is very unlike that these inputs are going to deliver the exact amount or not, but we end this up with a change.

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