What you will learn
- Describe how a blockchain records and confirms transfers.
- Calculate a network fee from transaction size and fee rate.
A shared, append-only ledger
A blockchain is a ledger copied across many computers. Transactions are grouped into blocks, and each block is linked to the one before it by a cryptographic hash, so rewriting old entries would require redoing every later block.
Bitcoin tracks unspent transaction outputs rather than account balances. A wallet's balance is the sum of the outputs it can spend, and each transaction consumes some outputs and creates new ones, including change returned to the sender.
From signature to confirmation
A sender signs a transaction with a private key and broadcasts it. Nodes check the signature and the rules, then hold valid transactions in a waiting area called the mempool until a miner includes them in a block.
Each later block built on top adds a confirmation and makes reversal less likely. Finality is therefore probabilistic, and counterparties choose how many confirmations to wait for according to the value at stake.
Fees and settlement costs
Block space is limited, so senders bid for inclusion with a fee rate per unit of transaction size. The fee depends on data size and congestion, not on the amount sent, so small and large transfers pay alike.
Many exchange trades never touch the blockchain, because the exchange only updates its own database. On-chain settlement happens at deposit and withdrawal, so total cost includes trading fees, the spread and the network fee.
Worked example: Fee as a share of the transfer
A transaction is 250 virtual bytes and the fee rate is 20 satoshis per virtual byte, so the fee is 250 × 20 = 5,000 satoshis, or 0.00005 BTC (1 BTC = 100,000,000 satoshis). At an illustrative 40,000 dollars per bitcoin, that is 2.00 dollars. On a 0.001 BTC transfer (40 dollars) it is 5%; on a 1 BTC transfer (40,000 dollars) it is 0.005%.
Check your understanding
A transfer is 140 virtual bytes at 30 satoshis per virtual byte. What is the fee in satoshis, in BTC, and in dollars at an illustrative 50,000 dollars per bitcoin?
Show answer and explanation
The fee is 140 × 30 = 4,200 satoshis, or 4,200 ÷ 100,000,000 = 0.000042 BTC. At 50,000 dollars per bitcoin that is 0.000042 × 50,000 = 2.10 dollars, whether the transfer moves 20 dollars or 20,000.