How Do Bitcoin Transactions Work? Step by Step

By Kurt Wuckert Jr.

A Bitcoin transaction is the process of moving coins from one set of addresses to another. Here is the high-level flow.

Step by Step

  1. You Create the Transaction Using your wallet, you:

    • Choose how much Bitcoin you want to send.

    • Paste or scan the recipient's address.

    • The wallet selects one or more UTXOs you control as inputs and creates outputs that pay the recipient and return any change back to you.

  2. Your Wallet Signs It The wallet uses your private key to create digital signatures on the inputs. These signatures prove that you are allowed to spend those specific UTXOs.

  3. The Transaction Is Broadcast Your wallet sends the signed transaction to the Bitcoin network. It is relayed from node to node and reaches miners and other participants.

  4. Nodes Validate It Each node checks:

    • The signatures are valid.

    • The inputs are real, unspent outputs on the blockchain.

    • The transaction follows the consensus rules (no negative values, proper fees, correct scripts, and so on).

    If it passes, they hold it in their memory pool (mempool) as a candidate for inclusion in a block.

  5. Miners Include It in a Block Miners pick transactions from the mempool, gather them into a block, and work on the proof-of-work puzzle. When a miner finds a valid proof, it broadcasts the block.

  6. The Block Is Accepted Other nodes verify the block and add it to their copy of the blockchain. Your transaction is now confirmed.

  • One confirmation means it is in the latest block.

  • More confirmations mean the block is deeper in the chain and harder to reverse.

On a well-scaled chain like BSV, this all happens quickly and can support large volumes of transactions. For the user, it usually feels like sending money with an online payment app, but the rules are enforced by software and miners, not a central company.