Blockchain Transactions: Structure, Verification, and Security

Welcome back to the series! In the last posts we covered Wallets in Blockchain: How It Works and How to Keep It Safe. Today we’ll unpack the beating heart of any blockchain: transactions—how they’re structured, signed, broadcast, prioritized, and finally cemented into blocks.

TL;DR: A transaction says who pays whom, how much, and with what authorization, plus a fee to motivate miners/validators to include it. Bitcoin and Ethereum share the core idea but differ in how balances are tracked and which extra fields they carry.

This post explains what a transaction is, how Bitcoin and Ethereum structure them, how fees and gas affect priority, and the step-by-step lifecycle from signing to confirmation.

What is a Transaction?

A transaction is a signed message that requests the network to transfer value (or call code). It contains enough information for any node to independently verify:

the sender owns the funds,
the message wasn’t tampered with,
the fee is sufficient to be included.

Analogy: A blockchain transaction is like sending a registered letter through the postal service. You write who it’s from, who it’s to, what’s inside, and pay a postage fee. You sign the envelope to prove it’s really from you. The postal service checks your signature, confirms you paid enough postage, and delivers the letter. The tracking number is like the transaction hash—unique and traceable.

Transaction Flow

Transaction Anatomy of a Transaction

Both Bitcoin and Ethereum transactions share a common structure but differ in specific fields and how they operate.

The common fields are:

From address: the sender (derived from the public key).
To address: recipient.
Amount: how much native asset to transfer (e.g., 0.1 BTC).
Fee / Gas: incentive paid to miners/validators for processing.
Signature (digital signature): proves control of the private key for the “From”.
TX hash (transaction hash / ID): a unique identifier produced by hashing the transaction data.

Timestamp is recorded by the network—your wallet doesn’t add it manually.

Ethereum adds two key fields

Nonce: a per-account transaction counter (0, 1, 2, …). Prevents replay and orders txs from the same account.
Data: optional bytes used to deploy contracts or call contract functions (arguments ABI-encoded).

Balance Tracking: UTXO vs Account Model

Blockchains track balances differently.

Bitcoin (UTXO model)

Your wallet holds a set of Unspent Transaction Outputs (UTXOs).
To spend, you reference previous outputs as inputs, and create new outputs:
- payment output(s) to recipients,
- a change output back to yourself (if inputs > payment+fee).

Example:

Inputs: 1 BTC + 0.5 BTC UTXOs = 1.5 BTC total
You want to send 1.2 BTC, fee 0.001 BTC
Outputs:
- 1.2 BTC → recipient
- 0.299 BTC → change back to you

Ethereum (Account model)

Your address has a single balance.
A tx debits your balance and credits the recipient (or executes contract code).
No explicit UTXO inputs/outputs; you always include a nonce and gas parameters.

Example:

User A has an account with a balance of 10 ETH.
User A sends 2 ETH to User B.
User A’s balance is updated to 8 ETH.
User B’s balance is updated to 2 ETH.

Read in more detail: Blockchain Accounting Models: Account-Based and UTXO-Based

Fees, Gas, and Inclusion Priority

Miners/validators pick transactions from the transaction pool (mempool).
They prefer higher-fee transactions (more reward).
If your fee is too low for current network conditions, your tx may be delayed or ignored.

Wallets usually suggest a fee. You can speed up confirmation by offering more.

Transaction Lifecycle (End-to-End)

Compose: wallet fills to, amount, fee (and nonce/data on Ethereum).
Sign: wallet hashes the tx message and signs it with your private key.
Broadcast: wallet sends the signed tx to peers → TX pool.
Select & Validate: miners/validators pick txs, check signatures, balances, and rules.
Include: tx becomes part of a proposed block.
Confirmations: once the block is accepted and buried under more blocks, settlement confidence increases.

Common Pitfalls and How to Avoid Them

“Why didn’t my tx confirm?” Likely fee too low or a nonce conflict (Ethereum). Resubmit with a higher fee (“speed up”) or cancel/replace a pending tx with the same nonce.
“Where did the rest of my BTC go?” It went to your change output (new address your wallet controls). Wallets often hide this to reduce confusion.
“Signed the wrong thing?” Always inspect to/from, amount, and data. For contracts, prefer wallets that show human-readable call details.

Quick Glossary

UTXO: Unspent Transaction Output (Bitcoin-style balance chunks).
Nonce (ETH): Per-account tx counter; prevents replays & enforces ordering.
Gas: Unit measuring computation/storage; fee = gas used × gas price.
Mempool: Pending transaction queue each node maintains.
TXID: Transaction identifier (hash).

Wrap-Up

Transactions are simple in intent (move value) but precise in execution (cryptographic authorization, deterministic validation, and fair inclusion via fees). With this foundation, you’re ready for the next step: how transactions get packed into blocks and ultimately secured by consensus.