What are Bitcoin Transactions?

A Bitcoin transaction can also serve as a vehicle for smart contracts, recording data, attestation and many other secondary functionalities.

A transaction can be created and iterated inside a Payment Channel using nLocktime and nSequence interlocks, or sent directly to The Bitcoin Network for inscription into a block. A transaction uses unspent transaction outputs (UTXOs) as inputs and distributes their value to new outputs. UTXOs are the 'coins' in which all bitcoins are stored.

Transactions are not encrypted, so it is possible to browse and view every transaction ever collected into a block. Once transactions have been seen and validated by a majority of block creating nodes in the Bitcoin network, they can be considered settled. When they are eventually mined into a block, miners collaboratively agree on the order in which they were seen by the network.

Transactions are referenced using their TXID which is a double SHA-256 hash of the fully serialised transaction.

Transaction outputs are puzzle scripts called ScriptPubKeys which are typically used to lock the contained bitcoin value, sometimes also called locking script. Outputs are redeemed by making them inputs to new transactions and providing a ScriptSig (sometimes called unlocking script) which is a valid solution that unlocks the bitcoin held in the ScriptPubKey (locking script). Outputs may have zero value in bitcoin, but may carry value in another form such as data or tokens. Scripts can be complex and specialised and may have more than one way to be redeemed.

All transactions are captured on the ledger in blocks on the blockchain, and can be viewed with a block explorer. This can be useful for seeing the technical details of transactions in action and for verifying payments.