Level 2
Transactions Step by Step
Follow a crypto transaction from start to confirmation.
8 min read
A cryptocurrency transaction is a transfer of value from one address to another, digitally signed by the sender and permanently recorded on the blockchain once validated. Unlike bank transfers, crypto transactions are irreversible and typically settle within minutes.
Why This Matters
Understanding the transaction lifecycle helps you know what to expect when sending or receiving crypto—why it takes time, what "confirmations" mean, and why you must be careful before clicking send.
Simple Analogy
Imagine sending a letter that gets publicly posted on a bulletin board. First, you write the letter (create transaction). Then you seal it with a unique wax stamp that only you can make (sign with private key). You drop it in the mailbox (broadcast). Mail workers verify your stamp is genuine (validation). Finally, it's posted on the permanent bulletin board for everyone to see (added to blockchain).
Anatomy of a Transaction
1
Step 1: You initiate the transaction
You specify the recipient's address, the amount to send, and the fee you're willing to pay. Your wallet creates a transaction object.
2
Step 2: Your wallet signs the transaction
Your private key creates a digital signature proving you authorized this specific transaction. The signature is unique to this transaction.
3
Step 3: Transaction is broadcast
Your signed transaction is sent to the network. It spreads from node to node until the entire network knows about it.
4
Step 4: Transaction enters the mempool
Your transaction waits in the "mempool" (memory pool) with other pending transactions. Higher fee = higher priority.
5
Step 5: Validator selects your transaction
A miner or validator includes your transaction in the next block they're building. They typically pick higher-fee transactions first.
6
Step 6: Block is validated and added
The block containing your transaction is verified by the network and added to the blockchain. This is your first "confirmation."
7
Step 7: Additional confirmations
Each new block added after yours provides another confirmation, making your transaction increasingly permanent.
📊 Transaction Lifecycle
CREATE (specify recipient, amount, fee) → SIGN (private key creates signature) → BROADCAST (sent to network) → MEMPOOL (waiting for inclusion) → SELECTED (validator picks it) → CONFIRMED (added to block) → FINALIZED (more blocks added on top)
Transaction Components
| Component | What It Is | Example |
|---|---|---|
| From Address | Your wallet address (sender) | 0x742d35... |
| To Address | Recipient\'s wallet address | 0x8ba1f1... |
| Amount | How much crypto to send | 0.5 ETH |
| Fee | Payment to validators | 0.002 ETH |
| Nonce | Transaction counter (prevents replays) | 42 |
| Signature | Cryptographic proof of authorization | 0x8e4f... |
What Are Confirmations?
Each "confirmation" means another block has been added after the block containing your transaction. More confirmations = more secure.
Bitcoin
1 confirmation ≈ 10 minutes
6 confirmations = very secure
Ethereum
1 confirmation ≈ 12 seconds
32+ confirmations = finalized
Transaction Pitfalls
- •Once confirmed, transactions CANNOT be reversed—triple-check addresses before sending
- •Sending to wrong address = funds lost forever (no customer support can help)
- •Sending wrong token to an address (e.g., BTC to ETH address) = funds lost
- •Low fees during busy times can leave transactions stuck for hours or days
- •Unconfirmed transactions are not guaranteed—wait for confirmations before considering payment received
Best Practices for Sending
- 1.Double-check the recipient address (first and last 4-6 characters minimum)
- 2.Verify you're on the correct network (Ethereum Mainnet vs test networks vs Layer 2)
- 3.Send a small test amount first for large transactions
- 4.Check current network fees before sending (they vary by congestion)
- 5.Wait for appropriate confirmations before considering a transaction final
Key Takeaways
- Transactions go through multiple stages: create, sign, broadcast, confirm
- Your private key signs the transaction, proving you authorized it
- Transactions wait in the mempool until a validator includes them in a block
- More confirmations = more certainty the transaction is permanent
- Crypto transactions are irreversible—always verify before sending