Investigating Transactions

• The cryptocurrency's transparency

• How can I get information from a transaction？

• Bit by bit, the anatomy of a Bitcoin transaction

• What we can learn from this data

Transparency is an important part of cryptocurrency's value proposition.

For example, all Bitcoin transactions are public, traceable, and permanently saved on a public ledger called the bitcoin blockchain, which anyone with an internet connection may see.

Despite the fact that Bitcoin does not require any personal information, the capacity to track each and every transaction - over 400,000 each day - is in sharp contrast to how existing payment systems operate.

We only know what Visa and Mastercard tell us about their networks, whereas anyone with a little understanding of data science can query every part of Bitcoin's permissionless blockchain, examine precise transaction details, and assess the network's general health.

The capacity to mine blockchain has become commercially lucrative due to the ongoing rise in bitcoin usage.

In response to claims that crypto operates outside of the law, a whole blockchain analysis industry now provides tools for corporations and governments to monitor and enforce AML and other illicit activity.

Increasing Financial Independence

Individual users get a whole new degree of power as a result of the transparency of crypto transactions. If you wish to send money to someone else in another country using current payment options – not only will using a service like Western Union, Monegram, or your domestic bank be expensive and time-consuming, but you'll also have very limited access into the transaction.

When you send cryptocurrencies like BTC or ETH, you can view when the transaction was verified, how much it cost to complete it, and a copy of the transaction output to see where the crypto you sent went.

All of this occurs in minutes, not days, and without the need for a centralized body. It can be accessible from anyplace in the world that has access to the internet.

Let's take a closer look at cryptocurrency transactions in detail.

First, we'll go through how to get information from a transaction and compare it to more standard banking transactions.

The anatomy of a specific real-life bitcoin transaction uploaded to the blockchain may then be examined, demonstrating the value it gives to the sender and recipient, as well as organizations wanting a broad view of blockchain usage.

How to get access to the data in a bitcoin transaction

The best approach to get information about bitcoin transactions is to use block explorers. Consider block explorers to be similar to Google or Firefox, but instead of delivering results for websites, they are used to read crypto transactions stored in a blockchain (you can learn more about that process from our article about bitcoin mining).

In 2011, Blockchain.com debuted its block explorer. Your starting point, like a search query, is either a transaction ID, an address, or a specific block.

Let's look at a specific transaction as an example. Assume you've sent some Bitcoin and can see the confirmed transaction, including the Transaction ID, in your wallet.

You can paste that information into the blockchain explorer by copying it - similar to copying a URL.

You won't need to rely on a third-party service if you are technical enough to run your own Node (see this article on How to Run a Node) and can get this information directly.

Because transaction data is organized in a hierarchical manner, there are three possible entry points for your search:

• A Block is a collection of transactions, including their associated addresses, that have been grouped together. Each new block refers to the previous one, so they are numbered in order.

• An address is the location where monies are sent; think of it as the equivalent of a bank account. Addresses are assigned to every transactions.

• A Transaction is a one-time transfer of monies to a specific address.

You may either go up from a transaction to view the address it was sent to and eventually the block it was included in, or work down from blocks to see the addresses that transactions were sent to and the individual transactions themselves.

You'll need to comprehend the precise logic of the movement of funds within the Bitcoin blockchain in addition to that hierarchy.

The Bitcoin transaction flow should be understood.

Before we go into the details of a bitcoin transaction, it's important describing how Bitcoin transactions work and drawing comparisons to something you're probably familiar with: banking transactions.

Your bank account has a running balance, which is the sum of your debits and credits, and it shows you how much money you have left to spend.

Debits are transactions that take money from your account and credits are transactions that add money to your account.

Bitcoin functions in a similar manner, but with somewhat different terminology and logic:

· Funds That Haven't Been Spent - These are funds that can be spent. To establish a Balance, your Bitcoin wallet will sum up all unspent funds connected with addresses it owns. These are referred to as UTXOs. In other words, transactions that have been received but not processed.

· Spent Funds - When you complete a transaction, you access Unspent Funds and send them to a new address, where they become Spent.

As a result, the Bitcoin blockchain is a record of funds moving forward. Unspent monies connected with addresses, or specific locations on the blockchain, that are spent to fund a transaction that moves them somewhere else on the blockchain, with Miners facilitating that movement.

Within a transaction, the spending of funds is described, including the destinations and costs.

Inputs and Outputs are used to characterize this movement.

· Input – The source of the unspent cash that are moved and spent throughout the transaction.

· Outputs - The destination of Spent funds that become Unspent at a new address. Inputs - The source of Unspent funds that are moved in the transaction and become Spent.

A Bitcoin transaction is all about the forward flow of funds, which isn't the most intuitive mechanism. In order to transmit BTC, you'll require Inputs, which are themselves the end product (Output) of a prior transaction.

The funds are spent from the Input and become an Unspent transaction at a new address - the Output - once the transaction is executed (less the fee).

A bitcoin transaction's anatomy

Hopefully, you have a better understanding of the rationale and terminology of Bitcoin transactions, but let's take a closer look at the anatomy of a bitcoin transaction. We'll use an example from 2016 as an example:

• Time/Date - This transaction took place on the 17th of June 2016 at 17:41.

• The transaction's status is either Confirmed (Green) or Unconfirmed (Red) (Red). The transaction has been confirmed if it has been included in at least six blocks.

• Transaction Hash - All of the data in a transaction is cryptographically hashed so that it may be referenced in a block using a uniform alphanumeric string.

• The time and date on which the funds were received.

• Size - The amount of data represented by the transaction in bytes.A bitcoin block can be up to 1 megabyte in size.

• Weight is a unit of measurement that is used to compare the sizes of various transactions. The weight of a block is measured in relation to its maximum size. Each weight unit represents 1 / 4,000,000 of a block as of 2016. So, in this transaction, 900 of the 4,000,000 capacity of the block it was added to is being used.

• The block number in the chain to which the transaction has been added is called Included in Block.

• Confirmations - the number of blocks to which a transaction has been added and hence is valid. There have been a lot of confirmations since this transaction in 2010, and a new block is confirmed every 10 minutes.

• Input total -the total amount of money sent, including fees

• The overall output is equal to the total monies received.

• Fees - the amount of fees paid to the miner in order for this transaction to be included in a new block and added to the Bitcoin blockchain.

• Fee per Byte - A fee that is proportional to the magnitude of the transaction.

• Fee per weight unit - The fee is calculated based on the transaction's weight.

• Value when transacted - the value of the transacted BTC in USD at the moment of the transaction.

The source of funding addresses that gave the input are included below the summary information (as described above). as well as the output addresses (the Outputs).

When funds are moved, an unspent transaction becomes an Input in a new transaction, and eventually an Output someplace else in the blockchain.

Inputs

A transaction's input must cover the value of the BTC being sent as well as any fees required to ensure the transaction's validity. The sender's address, as well as the amounts of BTC sent and fees paid, are all listed in this section.

Outputs

This section contains the addresses of those who will get the BTC. It also contains the amount of BTC they have received (which amounts to the input minus the fees).

You'll notice the word'spent' written in red across from 'details.'

This implies that this BTC was used in a future transaction, demonstrating the importance of forward flow of cash.

The Ethereum blockchain works in a similar way, but with a slightly different charge scheme called Gas. Gas costs are paid to Miners in the same way that Bitcoin transaction fees are, however the calculation is based on the transaction's complexity.

With Ethereum, this is more problematic because a transaction could just be the transfer of ETH (the local currency) or the facilitation of the execution of a Smart Contract, which requires more CPU power.

Fees on Ethereum are calculated in Gas but paid in Ether. The conversion to gas is meant to make the machine more user-friendly, however it's a bit perplexing.

Gas is valued in Gwei, with one Gwei equivalent to 0.000000001 ETH (10-9 ETH), hence a Gas Fee would be stated as 1 Gwei instead of 0.000000001 Ether.

In a separate piece, we'll go over Ethereum fees in detail.

The history of Bitcoin is right at your fingertips.

As you have a better understanding of how Bitcoin transactions work, the abstract functions of mining, confirmations, and value movement become more tangible. It can also provide you with access to Bitcoin's history.

A cross-section of a tree trunk has rings that reveal not only the tree's age, but also crucial events in its life, such as environmental factors that slowed or accelerated its growth.

When you learn how to query a blockchain, you gain access to its history as well. The TxID of the first commercial bitcoin transaction, for example, may be found here. Laszlo Hanyecz's famous purchase of a pizza for 10,000 bitcoin on May 22, 2010.

You may see the transaction's inputs as well as the single output. Because there were no exchanges and hence no price history at the time, the value was recorded as €0.00.

The charge was 0.99 BTC, which is almost €47,000 in Euros.

How is transparency being used？

The extreme transparency of cryptocurrency transactions has sparked a whole industry of blockchain research.

Companies like Chainalysis and Elliptic use advanced data science techniques to create custom tools for customers ranging from governments to hedge funds, allowing them to either ensure their own transactions are compliant with money-movement rules, or track those who are moving money illegally or with illegal intent.

The crypto community is divided on these services. The capacity to track transactions and link them to a genuine identity when money arrive at a regulated institution, such as an exchange, is a valuable tool in the fight against crime.

The perpetrators of the well-publicized Twitter hack/bitcoin fraud (July 2020) were apprehended in under two weeks.

Government agencies employ blockchain analysis to monitor illegal funds ranging from terrorism to human trafficking, as well as to shut down darknet markets, despite the fact that the Twitter hackers were amateurs.

Work in the traditional financial system, on the other hand, can be more difficult due to the high degrees of permission required to get to the facts. This is why data leaks like the Panama Papers (2016) and FinCEN (2020) are so divisive, because they shed light on the shadowy world of offshore finance.

On the other hand, some people believe that transparency should not come at the expense of privacy. Libertarians are fighting back with so-called privacy coins like Monero and Zcash, just as businesses are weaponizing block exploration.

Privacy wallets and mixing/tumbling services aimed to break the chain of fund traceability; and the usage of Decentralized exchanges where personal information (KYC) isn't required, so transactions can't be traced to individuals.

Regardless of which side of the debate you support, it appears that cryptocurrencies provide a monetary system that is more difficult to defraud, easier to grasp, and consistently less dangerous.

Cryptocurrencies are a new method of doing finance for the twenty-first century because they commit to extreme transparency. The fight for privacy will continue, but understanding how to investigate a bitcoin transaction and the logic of value flow that underpins it puts these larger issues into perspective.

After that, we'll look at how to spend cryptocurrency and where to do so.