Cryptocurrency transactions are recorded on a blockchain, a decentralized and distributed digital ledger. This process ensures transparency, security, and immutability. Here’s a detailed breakdown of how cryptocurrency transactions are recorded:
When a user initiates a transaction, they use a digital wallet to generate a request. This request includes:
- Sender’s Address: The public key of the sender.
- Recipient’s Address: The public key of the recipient.
- Amount: The quantity of cryptocurrency to be transferred.
- Transaction Fee: An optional fee to incentivize miners to process the transaction faster.
- Digital Signature: Created using the sender's private key to prove the authenticity of the transaction and prevent tampering.
Once the transaction is signed, it is broadcast to the cryptocurrency network. This network consists of numerous nodes (computers) that participate in maintaining the blockchain.
Nodes in the network validate the transaction. Validation involves several checks:
- Double Spending: Ensuring the sender has enough funds and hasn't already spent the same cryptocurrency units elsewhere.
- Correct Signature: Verifying the digital signature to confirm that the transaction request is legitimate and authorized by the sender.
- Format Compliance: Ensuring the transaction adheres to the protocol’s format and rules.
Validated transactions are grouped together into a block by miners (in Proof-of-Work systems) or validators (in Proof-of-Stake systems). The block typically includes:
- List of Transactions: A set of validated transactions.
- Previous Block Hash: A reference to the hash of the previous block, ensuring the continuity of the blockchain.
- Nonce (Proof-of-Work): A variable that miners adjust to solve the cryptographic puzzle required to validate the block.
- Validator Signature (Proof-of-Stake): In Proof-of-Stake systems, the validator signs the block to confirm it.
Proof-of-Work (PoW):
- Miners compete to solve a complex cryptographic puzzle.
- The first miner to solve the puzzle gets to add the new block to the blockchain and is rewarded with cryptocurrency.
Proof-of-Stake (PoS):
- Validators are chosen based on their stake (amount of cryptocurrency held).
- The selected validator creates the new block and is rewarded, typically through transaction fees.
Once a block is mined or validated, it is added to the existing blockchain. This process involves:
- Broadcasting the Block: The newly created block is shared across the network.
- Verification by Nodes: Other nodes in the network verify the new block’s validity by checking the solution of the cryptographic puzzle (PoW) or the validator’s signature (PoS).
### 7. **Confirmation of Transactions**
Transactions are considered confirmed once they are included in a block. The number of confirmations indicates how many blocks have been added to the blockchain since the transaction’s inclusion:
- **Single Confirmation:** When a transaction is included in one block.
- **Multiple Confirmations:** As additional blocks are added to the chain, each block is another confirmation, further securing the transaction against reversal.
Once added to the blockchain, a transaction is immutable, meaning it cannot be altered or deleted. This immutability is ensured by:
- Cryptographic Hashing: Each block contains a hash of the previous block, creating a chain. Altering a block would require changing all subsequent blocks, which is computationally infeasible.
- Decentralization: The blockchain is maintained by a distributed network of nodes, making it resistant to central control and tampering.
Every node in the network keeps a copy of the entire blockchain. This redundancy ensures:
- Data Integrity: Even if some nodes fail or are compromised, the blockchain remains intact and accessible.
- Consensus: Nodes continuously communicate and update to reflect the latest state of the blockchain, achieving consensus on the true state of the ledger.
Cryptocurrency transactions are recorded on a blockchain through a process that involves initiation, broadcasting, validation, inclusion in a block, and securing the block within the blockchain. This decentralized and cryptographic system ensures transparency, security, and immutability, making cryptocurrencies a robust and reliable means of digital transactions.
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