A crypto transaction refers to the transfer of any data or value on a blockchain. Sending Bitcoin to a friend? Swapping one token for another on a decentralized exchange? Or interacting with a smart contract, a piece of code on the blockchain that automatically runs, are all called transactions. Every single one of these actions gets logged on the blockchain forever, where it cannot be changed or erased.
Imagine a blockchain transaction similar to a bank wire transfer. Except in this case, there is no bank in the middle. When you wire money via a bank, the bank checks your balance, deducts the amount, and credits the recipient’s account. In a crypto transaction, numerous independent computers known as nodes on the network collectively do the verification. Users no longer need to trust a central entity, as the network naturally enforces.
When you send crypto, it doesn’t immediately get sent into the blockchain. Instead, it goes into a waiting area called the mempool, or more so the memory pool. A transaction remains unconfirmed in a block until miners or validators pick it up, verifying the funds you are sending indeed belong to you and placing it in the block. Once the block will be added to the chain, your transaction gets confirmed. Most people wait for six confirmations before treating a big Bitcoin transfer as fully settled, taking around an hour on average. On Ethereum, confirmations can happen in seconds.
Each transaction contains information about the sender’s wallet address, the wallet address of the recipient, the amount to be sent, as well as the transaction fee or gas in case of Ethereum, which is paid to the validators or miners of the transaction. The fee varies according to network congestion status. When an NFT drop or a spike in the market happens, gas fees shoot through the roof because everyone’s trying to get their transaction confirmed more quickly.
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It is important to understand transactions because everything rests on them in a blockchain. The functionality of every DeFi protocol, NFT mint, stablecoin transfer, and governance vote depends on an individual transaction being broadcast, verified and permanently recorded forever. Whenever a transaction does not go through, are due to the reason one does not have enough gas, there is an error in the contract or a timeout with the network, the blockchain reverts to its previous state. In other words, nothing happens or changes, but nonetheless, the gas fee is used and spent. As such, it pays to make it a habit to check your transaction details before confirming.