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Lesson 3 of 18 · 4 min read

How a transaction works

What happens after you click Send: the signature, the waiting room, fees and confirmations.

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In this lesson

  • follow a payment from sending all the way to the receiver
  • understand why there are fees and what they depend on
  • find out what a "confirmation" is and why a transaction cannot be reversed

Jane is selling her old bike to Tom, and he wants to pay in bitcoin. Jane sends him her address, Tom clicks Send – and then stares in disbelief, because "nothing is happening". In fact, a lot is happening.

The journey of one payment#

  1. 1. SignThe sender signs the payment with their private key in the wallet.
  2. 2. BroadcastThe wallet sends the transaction to the network, computers pass it on to each other.
  3. 3. ConfirmMiners or validators check it and write it into a new block.
  4. 4. ReceiveThe receiver sees the coins once the block is added – more blocks on top mean more certainty.
No bank sits in the middle – the network itself checks and records every payment.

1. The signature#

First, the wallet signs the payment with a private key – a secret number only Tom has. The signature proves the payment really comes from him, and nobody can forge it or move it to another payment. (Keys and wallets get a lesson of their own.)

2. The waiting room#

The signed payment is broadcast to the network and lands in the "waiting room" of unconfirmed transactions – called the mempool. There it waits until someone writes it into a block.

3. Into a block#

Bitcoin adds a new block every 10 minutes on average, Ethereum roughly every 12 seconds. But not everything that is waiting fits into one block – and this is where fees come in.

4. Confirmations#

Once the payment is in a block, it has its first confirmation. Every further block on top adds another confirmation and makes reversing it ever more impossible. For larger amounts, services often wait for several confirmations – for Bitcoin, six (about an hour) is a common rule of thumb.

Fees: an auction for bus seats#

Imagine a bus that leaves every ten minutes and has a limited number of seats. There are more passengers than seats, so the driver takes those who offer more first. Whoever offers little waits for the next bus. Or the one after. Or until tomorrow.

10 minI'll wait…
Fees as a bus ride: whoever offers more gets a seat first. The rest wait for the next bus.

That is exactly how fees work:

  • The fee goes to whoever writes the transaction into a block – as a reward for the work.
  • The fee depends on demand, not on how much you send. When many people want to send at once, fees go up.
  • Low fee = longer wait. That is why wallets usually let you choose "slow and cheap" or "fast and pricier".

Payments cannot be reversed

No bank, no refunds. Send money to the wrong address and it is gone. Always check the address (at least its beginning and end), and for a larger amount send a small test payment first.

Common myths#

  • "The more I send, the higher the fee." Not with Bitcoin – the fee depends on the data size of the transaction and current demand. A million can cost the same as a hundred.
  • "Crypto payments are instant." Sending is, confirming is not. Expect minutes, longer when the network is busy.
  • "I can cancel a payment." Not once it is in a block. While it is still waiting, some wallets can replace it with a higher-fee payment – but do not count on it.

Summary

  • A payment is signed with a private key, broadcast to the network and waits in the mempool.
  • Payments with higher fees get into blocks first; the fee depends on demand, not on the amount.
  • Every further block adds a confirmation – more confirmations, more certainty.
  • Nobody can reverse a confirmed payment, so always check the address.