The transaction created by Alice's wallet application is 258 bytes long and contains everything necessary to confirm ownership of the funds and assign new onwers. Now, the transaction must be transmitted to the bitcoin network where it will become part of the distributed ledger, the blockchain. In the next section we will see how a transaction becomes part of a new block and how the block is "mined". Finally, we will see how the new block, once added to the blockchain is increasingly trusted by the network as more blocks are added.
===== Transmitting the transaction
Since the transaction contains all the information necessary to process, it does not matter how or where it is transmitted to the bitcoin network. The bitcoin network is a peer-to-peer network, with each bitcoin client participating by connecting to several other bitcoin clients. The purpose of the bitcoin network is to propagate transactions and blocks to all participants.
===== How it propagates
Alice's wallet application can send the new transaction to any of the other bitcoin clients it is connected to, over WiFi or mobile data, or any Internet connection. Her bitcoin wallet does not have to be connected to Bob's bitcoin wallet directly and she does not have to use the Internet connection offered by the cafe, though both those options are possible too. Any bitcoin network node (other client) that receives a valid transaction it has not seen before, will immediately forward it to other nodes it is connected to. Thus, the transaction rapidly propagates out across the peer-to-peer network, reaching a large percentage of the nodes within a few seconds.
===== Bob's view
If Bob's bitcoin wallet application is directly connected to Alice's wallet application, it may be the first node to receive the transaction. However, even if Alice's wallet sends it through other nodes, the transaction will reach Bob's wallet within a few seconds. Bob's wallet will immediately identify Alice's transaction as an incoming payment because it contains outputs redeemable by Bob's keys. Bob's wallet application can also independently verify that the transaction is well-formed, uses previously-unspent inputs and contains sufficient transaction fees to be included in the next block. At this point, Bob can assume, with little risk, that the transaction will shortly be included in a block and confirmed.
[TIP]
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A common misconception about bitcoin transactions is that they must be "confirmed" by waiting 10 minutes for a new block, or up to sixty minutes for a full six confirmations. While confirmations ensure the transaction has been accepted by the whole network, for small value items like a cup of coffee, such a delay is unecessary. A merchant may accept a valid small-value transaction with no confirmations, with no more risk than a credit card payment made without ID or a signature, as many do today
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=== Mining transactions in blocks
A transaction transmitted across the network is not verified until it becomes part of the global distributed ledger, the blockchain. Every ten minutes, miners generate a new block, which contains all the transactions since the last block. New transactions are constantly flowing into the network from user wallets and other applications. As these are seen by the bitcoin network nodes, they get added to a temporary "pool" of unverified transactions maintained by each node. As miners build a new block, they add unverified transactions from this pool to a new block and then attempt to solve a very hard problem (aka Proof-of-Work) to prove the validity of that new block. The process of mining is explained in detailed in <<mining>>
Transactions are added to the new block, prioritized by the highest-fee transactions first and a few other criteria. Each miner starts the process of mining a new block of transactions as soon as they receive the previous block from the network, knowing they have lost that previous round of competition. They immediately create a new block, fill it with transactions and the fingerprint of the previous block and start calculating a fingerprint for the block that meets the required "difficulty". The process of calculating a suitable fingerprint is called hashing and it requires billions and billions of repeated attempts. Each miner includes a special transaction in their block, one that pays their own bitcoin address a reward of newly created bitcoins (currently 25 BTC per block). If they find a solution that makes that block valid, they "win" this reward because their successful block is added to the global blockchain and the reward transaction they included becomes spendable.
Alice's transaction was picked up by the network and included in the pool of unverified transactions. Since it had sufficient fees, it was included by miners in their blocks as they attempted to find a Proof-of-Word solution. Approximately 5 minutes after the transaction was first transmitted by Alice's wallet, a miner had included it in a newly mined block, block #277316, alongside 419 other transactions. The miner who found a solution to the Proof-of-Work algorithm, published the block on the bitcoin network, where other miners validated it and started working on the next block.
You can see this block here:
https://blockchain.info/block-height/277316
A few minutes later, a new block, #277317 is mined by another miner. As this new block is based on the previous block (#277316) that contained Alice's transaction, it added even more computation on top of that block, thereby strengthening the trust in those transactions. One block mined on top of the one containing the transaction, is called "one confirmation". As the blocks pile on top of each other, it becomes exponentially harder to reverse the transaction, thereby making it more and more trusted by the network.
In the diagram below, we can see block #277316, the one which contains Alice's transaction. Below it are 277,315 blocks, linked to each other in a chain of blocks (blockchain) all the way back to block #0, the genesis block. Over time, as the "height" in blocks increases, so does the computation difficulty for each block and the chain as a whole. The blocks mined after the one that contains Alice's transaction act as further assurance, as they pile on more computation in a longer and longer chain. The blocks above count as "confirmations". By convention, any block with more than 6 confirmation is considered irrevocable, as it would require an immense amount of computation to invalidate and re-calculate six blocks. We will examine the process of mining and the way it builds trust in more detail in <<mining>>.
[[block-alice]]
.Alice's transaction included in block #277,317
image::images/Blockchain_height_and_depth.png["Alice's transaction included in a block"]
Andreas M. Antonopoulos
11 years ago
