How Do Cryptocurrency Transactions Work?

How Do Cryptocurrency Transactions Work?

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrency is, in most cases, a blockchain-based decentralized system of digital currency. It has been a trending innovation for the past couple of years. This innovative tech has extensively disrupted the financial industry prompting many experts to argue that it is currently one of the most reliable payment systems because crypto transactions are heavily encrypted and difficult to hack.

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One of the popular terms that one is likely to come across in the crypto world is mining. This is a process through which cryptocurrency transactions are confirmed and recorded in a public ledger.

While cryptocurrencies have been hitting the headlines for several years now and many millennials see it as a new investment opportunity, there is still a lot to learn about how this tech works.

Below we take a deeper look at how cryptocurrencies such as Bitcoin and Ethereum work.

The Basics of Cryptocurrencies

To get a better understanding of how cryptocurrencies work, let us look at the main components of the blockchain technology, which underpins them.

Public Ledgers

This is where all the confirmed transactions are stored from the moment they were initiated. The legitimacy of record keeping is ensured through cryptographic techniques. The public ledger also corresponds with a digital wallet to record a spendable balance.

In the same context, we have what we call a transaction blockchain, which is used by Bitcoin to ensure that every cryptocurrency transaction uses only the coins owned by the cryptocurrency spender.

Cryptocurrency Transaction

This refers to a transfer of funds between two digital wallets whereby the transaction is submitted to a public ledger awaiting confirmation. When a transaction is initiated, the digital wallet attached to the spender’s crypto account uses an encrypted electronic signature.

This electronic signature can also be referred to as a cryptographic signature with an algorithmic proof of the owner’s wallet being the origin of the transaction.

A transaction confirmation could take anywhere between a few minutes and two hours in the case of Bitcoin.

Once the miners confirm the transaction, funds are transferred to the receiver’s wallet.


As mentioned above, mining is the process where cryptocurrency gets confirmed and is added to the public ledger. When it comes to Bitcoin, this is accomplished through the computational solution of a mathematical puzzle by the miner.

Since mining is available to everyone on the network, each user has a chance to confirm a crypto transaction. The first one to do this is rewarded with a specific amount of freshly generated 12.5 bitcoins, for example.

The above elements make up the entire process of how crypto transactions work. Transactions, the public ledger, and the blockchain work in such a way that no individual has the sole power or authority to change or add a block of transactions as they wish.

On the other hand, the addition of a block to a ledger makes all other correlating transactions permanent and contributes a minor fee to the wallet of the miner.