When you send cryptocurrency, like Bitcoin or Ethereum, the network verifies the transaction to ensure it’s valid and secure before adding it to the blockchain. This process is decentralized, meaning no single authority controls it, and it involves several steps to protect against fraud.
Step-by-Step Process
- Create and Sign the Transaction: You start by creating a transaction, specifying where the cryptocurrency should go and how much. This is signed with your private key, like a digital signature, to prove you own the coins.
- Broadcast to the Network: The signed transaction is sent out to the network, where computers called nodes receive it. This ensures everyone knows about the transaction.
- Initial Validation by Nodes: Each node checks if the transaction looks right: is it formatted correctly, is the signature valid, do you have enough coins, and are you trying to spend the same coins twice? This prevents errors and fraud.
- Consensus Mechanism: Depending on the cryptocurrency, this step differs:
- For Proof of Work (PoW), like Bitcoin, miners compete to solve a complex math puzzle. The first to solve it gets to add the transaction to a block and is rewarded.
- For Proof of Stake (PoS), like Ethereum or Cardano, stakeholders who’ve “staked” their coins are chosen to validate the transaction. They’re rewarded for doing it right, and it’s more energy-efficient.
- Add to the Blockchain: Once validated, the transaction is grouped with others into a block, which is then added to the blockchain—a public ledger of all transactions.
- Confirmations for Security: The transaction is considered done when it’s in a block, but it gets more secure with each new block added after it, called confirmations. For Bitcoin, 6 confirmations usually mean it’s safe; for Ethereum, it’s around 30.
Unexpected Detail
You might not expect that the verification process can take seconds to hours, depending on network congestion and block size, especially in PoS networks like Ethereum, where high transaction volumes can slow things down (Blockchain Verification).
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